Startup Therapy Podcast

Episode #158

Ryan Rutan: Welcome back another episode of the startup Therapy podcast. This is Ryan Rutan joined as always by my friend and the founder of startups dot com, Wil schroder. Uh, and as we do sometimes we are also joined by a whole bunch of amazing founders who will, we will be hearing from a little bit later on in the show before we do that. Well, let's, let's kick things off, man. Uh, we like this illusion in startup land that as founders were the masters of our destiny that we get to choose our path and that we blaze forth on all these available trails. What's the reality there man? How many options do we actually have? How much choice do we really have as founders?

Wil Schroter: I'm still waiting for it to happen.

Ryan Rutan: Come on,

Wil Schroter: I've been at this for 30 years by now, shouldn't I be unlevel ridged. Wasn't that supposed to happen at some point?

Ryan Rutan: I don't, I don't mean I

Wil Schroter: don't mean any of these people, these unless bridged people that have like all the time and in commission to do whatever they want. I've never met these people I know about these people like I've, I've met celebrities that I think can do that are super billionaires that I think can do that. But for kind of everyone else, we're all leveraged all the time and it's a big problem because we're seeing this increased narrative where all of a sudden all of us are supposed to have all these choices right Ryan, like I can choose my investors, I can choose my work life balance and all these other things and I'm like, not really

Ryan Rutan: like

Wil Schroter: you can, but everybody that, I mean, it doesn't seem to have that, that challenge or that opportunity. So I'd say let's, let's dig into that. Let's like go one by one. What are the things people are stuck with and why is it all messed up? All right. So before we get into this next topic, I just want to let you know what we talk about here is like 1% of the conversation, You know, really, this conversation is going on all day long online at groups dot startups dot com. Well Ryan and I pretty much talk endlessly with founders about every one of these topics. So if by the end of this discussion, you like the topic and you want to dig into it a little bit more with Ryan and I just had two groups start startups dot com and we'll pick it up from there. It's

Ryan Rutan: essentially the entire list of available potentially available resources is the discussion today,

Wil Schroter: Right?

Ryan Rutan: So we're gonna

Wil Schroter: do everything.

Ryan Rutan: Yeah. And then, and that's the thing. You know, we, we talked to founders. It's not like any of them are just wondering going, you know, Ryan, my biggest problem right now is figuring out where to allocate all of my resources. I just don't know what to do with all of them and it leaves me with so much optionality. Uh, but so let's where you wanna start wanting to tackle first.

Wil Schroter: We'll start with investors because let me say that every single day on twitter, it's some finger tenting idiot. I mean this in a nice wigs and these are my friends. Some finger tenting idiot. That's like you should choose your investors wisely only choose investors that do this. I saw one today that was only choose investors that align with your values. I was like that today, that was Alexis Ohanian, right? Not a bad guy. You're saying, I was like, you know what a privilege thing that is to be able to say choose your investors brian you and I talked to thousands of founders. No one's choosing their investors. Like, like six people are right in the same way that like if you're brad pitt you get to choose your next spouse right? For like everyone else. It doesn't work like that. It's ridiculous. It's

Ryan Rutan: a bad and leverage negotiation. Yeah. Yeah. There's all this narrative now around, you know, choosing your investors and smart money. Uh, and I was in in a hot debate last week with somebody who had turned down a couple of angel checks. And uh, and then I was surprised when they didn't get offers for anymore. And it had been like five months and they just couldn't figure it out. And like, well, what? Why did you say no to the original? Well, it just wasn't smart enough. Money wasn't smart money wasn't smart. They smart enough to sign the check because, uh, that's, uh, that's taking a major box for me. But, so let's, let's talk about that for a minute. Why? Because that's, this is sort of a created one, right? This is one where we convince ourselves that we need to have the choice when the actual correct choice is right there in front of us.

Wil Schroter: Right? I mean, if you think about it, like from my standpoint, I've raised capital for multiple businesses. We run a fundraising platform. It's like we have no visibility on this. The average person doesn't run around choosing investors, right? The average person runs around begging for investors in hopes that anyone will show up. Right? And I think that this whole concept of you get to choose Is also around investors is also a little bit more of a recent phenomenon. You know, in the last 3-5 years, everybody keeps talking about how there's this abundance of capital and everyone's writing checks in that sort of true, here's where it's not sort of true If you were in the top 3% of people that were going to get funded anyway, it's a little bit easier. And maybe now you can be in the top 5% and have a chance, but most people are in the 95%. And so that abundance of capital or those competitive checks, they don't even apply to them. So this whole advice around choosing the right investors, It just doesn't apply to most people, but we sit there being stressed being like, wow, well maybe I'm not making a strong enough case for who I should be investing or you're taking investment from like Yeah, good luck with that.

Ryan Rutan: Yeah, the thing I always, I always try to dig into and this isn't an episode on funding, it's not an episode of picking investors, but while we're on the topic,

Wil Schroter: I always ask like,

Ryan Rutan: what is it that you think you're going to get? Like, is a major piece of the value, the smartness and the smart money or is the major piece of the value the money? Right? That's why they're called investors, they bring money, Right? And so when we dig into it, it typically turns out that whatever benefits they were hoping for, we're like tertiary quaternary at best. They were like way down the line. It's like, well, it'd be nice, you know, if they could also do this like, okay, cool, well do you want to kill necessary for Nice. I don't want to see you do that, Right? So bear in mind, as you're, as you're starting to put up these paradoxical choices in front of yourself, especially in this case where we're creating this problem, right, founders are buying into this narrative, this isn't a case where we're actually limited to the choice, we're self limiting and that's super dangerous and it's not necessary in this case, right? Whatever you think you're going to get from the smart money focus on the money first if some smart comes along with it sweet bonus. But it's not what we're after.

Wil Schroter: Yeah, I agree. And I also think I'm gonna be showing my age here a bit, but I grew up in a different era where you just didn't have choices when it came to stuff like this.

Ryan Rutan: When you start talking about buffalo nickels or something thinking, okay, yeah,

Wil Schroter: I am about that old. But no, seriously, like when I grew up, if someone was going to offer you work, You said yes 1st and then said, okay, what's the work?

Ryan Rutan: Okay. So Will and I have a very funny common early founders story, which is that we both worked for food right now. I know lots of people have worked for food. I don't know how many people have built large websites for food, but Will and I both did. Right? That's what we did. We were building digital products for

Wil Schroter: credits at restaurants.

Ryan Rutan: That's that's what it was. I had a, I had a tab Victorians midnight cafe and I was happy as a pig and you know what

Wil Schroter: mine was. Damon is the place for ribs And let me tell you about it. I was pretty freaking happy about that gift card when I came back to the office and told people that we're going to make their website and get $500 worth of food and we're all college students. I might as well come back and said that we're about to go public

Ryan Rutan: would never

Wil Schroter: have your day in that office. But again, different times, right? Where like you just didn't have the abundance of capital early on when I was raising money, you know, for my startups, I didn't get to choose my investors. You begged everyone. And if one person said yes, you were so thankful for that check again, world change thankfully. I mean a lot of the things that that folks like us and others do to help build the startup ecosystem to make these things easier to even have that conversation is awesome. What I'm concerned about is you start to get this prevailing narrative that's just totally not true that everybody gets to choose and they're not leveraged, know your leverage. You're going to take what you can get. It's gonna suck probably. But you're going to make do with it. Like we all do and that's okay. That's, that's kind of my point. Yeah,

Ryan Rutan: sure, like, again, like it's, it is the lay of the land that's, that's where we're at. And yeah, there are people, more people writing checks now. Um, but if you also look around, there's a hell of a lot more people starting companies, there's more competition for it. So again, just reinforce the point here,

Wil Schroter: We don't

Ryan Rutan: get to be entirely choosy here, yes. There are situations where that happens. Yes, there might be times where fundamentally you want to say no to somebody's money because you really want somebody else's where you're really chasing one investor. I would say those represent the vast, vast minority of, of the cases that we see here.

Wil Schroter: Yeah. And it also implies that we have the choice and that's really what this is about. We are leveraged to the hilt. One of the places that we don't talk about much from a leverage standpoint are co founders and early employees, right? I just want to kind of separate those, but they're kind of the same things, right? In other words, when we're first getting started, Ryan you and I just had the idea of nine seconds ago and we're like, this is awesome, Let's get this going. It doesn't occur to us that we met nine seconds ago at startup weekend literally don't know each other whatsoever. And the only thing tethering us together is we both have no other options, right? You're the only other person that thought this was a cool idea and therefore you're my partner and vice versa. Talk about being leveraged. That's like saying, I just decided that I'm going to like this, you know, like entertain the idea of getting married, then getting married to the first person that I see on the street. Okay, I guess this is it because I have no other options.

Ryan Rutan: You know, it's interesting the, because again, I feel like this is one where we actually force ourselves into this situation to some degree, right? Like we are, we are deciding uh to bring on a co founder. It's not like it's not like a requisite, right? Like, well I have to have one or they won't let me file for my my E I N right? There's no reason you have to do this and yet we end up wanting to do it feeling like we need to do it. Uh there are sometimes where I think it can feel a bit more leveraged and I think this is where we can actually kind of span that that that gap that you're talking about, where it's, you know, there's early hire or co founder. Sometimes what should be an early hire ends up becoming a co founder. We see this all the time uh as relates to

Wil Schroter: the

Ryan Rutan: right people, people will end up bringing on a Cto who in some cases it's just an okay app developer, right? But they happen to be, you know, the most technical on the team. Okay, let's bring them on, we can't afford to hire an app developer. So let's bring on a C. T. O. We'll give them equity and now we've turned what was in a leverage situation into a very leverage situation right to your point now we're tied together forever. Um and it's not just being tied together, but it's, you know, what is an adequate resource at one point in the business may not be later. Right. That average app developer might have been exactly what you needed From day 0 to day 180.

Wil Schroter: But

Ryan Rutan: from that point forward, does that person have the chops to lead technical teams? Do they have the ability to grow the technical organization to build what was an app into an enterprise platform

Wil Schroter: maybe?

Ryan Rutan: But oftentimes not, and then you have all of these things to deal with and so your leverage in the beginning when you make the decision.

Wil Schroter: But I would argue

Ryan Rutan: that the real point of leverage in this case comes town time down the road. Right? Was, we've already, you know, we've come six months, eight months a year. Uh, and now we're really leveraged because we've tied somebody the cap table who no longer can live up to the role or where the company's going and man that is just such a ship spot to be in.

Wil Schroter: How about if you, if you were to ask the average startup and they have a co founder, I asked them by themselves that the co founder in the room, how many co founders did you turn down before you accepted this one?

Ryan Rutan: Right.

Wil Schroter: None ever.

Ryan Rutan: Right. So

Wil Schroter: you're saying you went on one date with one person,

Ryan Rutan: We were both at a coffee shop and we were both

Wil Schroter: wearing black hats

Ryan Rutan: will like, I mean, what else did we need to know? At that point, it was kismet obviously

Wil Schroter: were complaining that, um, some early investor wants to take 20% of the company, Give us actual money, but we gave 50% of the company to somebody that we've never worked with before because they're the only person standing in the room that day. Come on again, it's the

Ryan Rutan: ultimate leverage

Wil Schroter: decision. What's crazy is there's an opportunity with all of this to step back and say, hmm, this is a pretty leveraged decision. Like maybe I should be a little bit more mindful about when and how I make that decision because most people have never done this before. They've never actually started a company before. Why would you have? And they have no idea what the consequences are of making a leverage decision like this. And this isn't an anti co founder decision or discussion at all at all. It's the opposite. It's if you're going to pick a co founder, the super judicious about

Ryan Rutan: it, right? And not just in the

Wil Schroter: selection but

Ryan Rutan: in the structure to, right? So if, well, let's just, let's cover the basics here. Well, I mean, again, this isn't, this isn't a co founder selection episode, but while we're on the topic, a couple of really important points as well said, be judicious,

Wil Schroter: right?

Ryan Rutan: It's rarely 5050 use vesting, I'll leave it at that, right? Like you do those three things at least you will save yourself 90% of co founder heartache sometime down

Wil Schroter: the road to

Ryan Rutan: do those things, you

Wil Schroter: know? And so in the early stages when we're first getting started, you know, with, with any of our startups were just fully leveraged at every level everything we're doing, we're about to make probably not the best decision because we don't have a lot of options. But I think on some of these, when we talk about, hey, I'm about to go make a co founder decision, about making an investor decision, we'll talk about some others in a second. Um, I'd like to be able to have startups, founders step back and say, ha, I'm now working with the least amount of chips and leverage that I'll ever have, but I'm about to make the most important decisions that I'll ever make. Right? These are all the fundamental decisions. I should be pretty stressed about that. And I mean this in a good way, right? I should be kind of like zoom out a little bit here and say, huh? Maybe I want to pause on those decisions a little bit until I have a little bit more leverage. Right? Sometimes time is what you need for leverage by the way. Um, sometimes times says, hey, the person I met at startup weekend is great and all, but they actually weren't the best person for what I was looking for. They just happened to be in my zip code on the day that I had the idea, maybe crazy thoughts, maybe I should seek out some co founders and look around for a bit date. Some people for a while to figure out who I love and then kind of get more engaged. We don't think that we can even do that. And so we get all these shotgun weddings, which, you know, I get it. People make it work. It's just not the best approach. And that's, that's kind of what I like to see people curb a little bit, you know what I mean?

Ryan Rutan: Yeah. Yeah. I think that you bring up a really good point around the timing issue around, you know how judicious you're being in that selection and what criteria are you using to determine, you know, beyond just proximity, um, excitement about the idea. Of course they're excited about the idea. You've probably made it sound really interesting. Did you also make it sound really difficult? Did you also understand that their skill sets aligned with all those difficulties? Probably not. We don't usually do that. We get all caught up in the hype, right? We're constantly pitching and you know, co founder often is like they accepted my pitch. They were the first person that actually got what I was doing. How many times have I heard this? Like that's just an indication that maybe your pitch was good or maybe they're gullible. Like I don't even really know at this point. Like the fact that they were the first person who got your pitch does not make them a co founder. It might make him an early customer, right? Maybe. But it's probably not like your, your lifelong partner in this thing, not solely based on that. It could also be right, but let's not, let's not make it on, on those criteria alone. One of the things that I also see and this kind of speaks to timing and just the, you know, how judicious were being,

Wil Schroter: I

Ryan Rutan: frequently see this pattern, right? It's have startup idea, get excited about it, realize there's a lot of work, need an extra pair of hands, get co founder and then start to seek out advice like from advisers from mentors, from other people after the fact and it's, it's interesting, but a lot of people start seeking out advice when they have their first disagreement with the co founder. It's not even a major disagreement in a lot of cases. It's just like, hey, we couldn't, we can't decide which one of these things to do. We need your help now. Right. But it comes after they've introduced that second voice in most cases irrevocably. Right? So just again, another another little bit of food for thought here, maybe seek out the board of advisors or at least some level of advisory and get their read on potential co founders, get their read on the need for a co founder, get their read on, should I trade equity for some work, right? Am I really am I am I in a position I need to hire an employee or I'm in a position where I need to bring on a co founder on these decisions, because again, sometimes we're leveraging ourselves by by arbitrarily limiting the decisions that we're making, where we weren't really as leverage as we thought.

Wil Schroter: You know, what's funny is in all of the, the popular narrative that's arisen around investors and, um, started having this kind of, um choice that they don't have. I see almost none of this conversation happening around co founders, right? I don't see anybody giving good advice on how you give up 50% of your company to somebody. Uh, and it's odd because when you think, like, we'd have all, like, figured that part out a long time ago, that would be like, like, baseline advice by now, like, here's the first bad decision you're about to make. And again, this is an anti co founder, it's finding the right co founder.

Ryan Rutan: It's funny. I and again, I think you're you're right. I think now is the time where that narrative could happen because people are starting to pay more attention to the overall startup narrative. I think it's it's out in like, the bloodstream of of the world, it's no longer relegated to just people who are already kind of in it, because I think that's the point I was making before most people end up with the co founder and then start to seek advice and then start to do other things and then start to learn about this whole process. So often times by the time we're talking to people for the first time, they've already made some of these decisions, right? When they were super leveraged, when they were at their, at their highest point of leverage, uh

Wil Schroter: reverse leverage,

Ryan Rutan: right? When they were the most leveraged,

Wil Schroter: its tough, let me shift gears. The other place that stresses me out maybe because I'm just stressed out and anxious all the time, is this idea that like our whole lives are a choice, right? That the concept of work life balance now, you and I spend a lot of time talking about how to get like just a little bit more zen, a little less anxious. So obviously that's something we care about. We're not Gary v eating this ship right On the other hand, I feel like because there's been this big narrative around how everyone should have this amazing work life balance, it gets applied to startup founders and they're like, oh, you know, what am I doing wrong? Everyone else is sitting on a grassy knoll with a laptop, you know, controlling the whole world tim Ferriss style uh while I'm sitting like in my parents basement, right? Work 16 hours a day and I haven't showered in two days, like, like where is this coming from? And I think it's a, it's a healthy narrative because obviously we want more work life balance right? Where I'm a little anxious about this is that it doesn't feel supernatural or applicable to almost all of the founders that I talked to, like the last thing on their mind is like, let me get set on a hill somewhere that like, I'm so stressed and broke, like it's incredible.

Ryan Rutan: Yeah, we talked about this and I think that part of the pity here is that yes, there is a very healthy narrative around creating work life balance and and being purposeful, being mindful, being healthy, being all these things and it's wonderful, right? Absolutely.

Wil Schroter: But

Ryan Rutan: to your point, I think it's put some additional pressure on founders to feel like I should be doing that to write and and certainly now for the first time ever, we're also starting to see people sort of expect this, right, demand this from the top to the bottom, right? That was never the expectations weren't sure age here, but you know, back in our day when we were coming up, right, that wasn't a thought, like I never would have even had the thought of talking to my co founders, my employees, my with a few bosses that I did have early on, like, you know, I think I'm really gonna need to to work out some better work life balance, like, yep, yep, sure, as soon as you get back from taking those six pizzas to this side of town, we'll talk about that, right? Like it was not part of my narrative. And so I think because it's become more pervasive, there's additional pressure around doing it, which like counterintuitive, but just the fact that there is a narrative around it may make you feel like you're failing even harder. Like you may not have even noticed before. I didn't I don't know if you did will, I didn't know that I should have better work life balance.

Wil Schroter: I don't

Ryan Rutan: think that's healthy. I'm not saying that's healthy either. But that's kind of the point. It wasn't really an option at certain points, Right? I didn't have okay, sure. It's always an option. It's always an option. I I could have not stayed up, you know, three nights in a row finishing a major project so that we could get cash in the bank in time for payroll. I could have chosen not to do that and then 12 people wouldn't have gotten paychecks. Alright. 12 people who very much dependent on those checks at the time. All college students and all doing whatever we could to get by, Right? So it didn't feel like a choice. Sure it's a choice, but the cost of the choice was far too significant.

Wil Schroter: The consequences

Ryan Rutan: of that choice were far too significant to make that choice. And so I think this is a great example of where there are times where we see things that we may want to do, there are other paths we want to take. And as founders, we just don't necessarily always have that choice doesn't mean that we don't have the intent doesn't mean we don't, you know, want to work towards that. Um, and have that as a goal. But it's not just a matter of saying like, oh, hey, little more zen would probably do good and I'd probably be more productive and probably maybe right. But in the moment, like projects gotta get done, features gotta get shipped. Uh, somebody's got to get hired, Somebody's gonna get fired. These things just don't sit around waiting. Uh, you know, while we float off the ground on the grassy knoll.

Wil Schroter: Well, so here's, here's what I'm trying to validate their number one, there's a founder sitting listening right now, stressed out of their minds and here's their checklist. When I say a I probably like literally every single person listening, Um, one I burned through all of my savings to, I have no idea if my startup is gonna make it through the next 36, 12 months, three. I have no idea what's going to happen to me when this thing inevitably fails, which at the time, I feel like it, you know, it will, it won't might, but whatever. Um, the next is I've got a whole bunch of people that I'm responsible for, right? They're responsible for their job. If they don't do their job, they will lose their job and then all of a sudden, uh, they have to get another job Ryan, if you screw things up, that dozen people, they all lose their

Ryan Rutan: job. So

Wil Schroter: while they're off doing yoga, there's a version of you going, dude, if like if I don't get this done, there's serious consequences. And again, this has nothing to do with with whether or not like getting more balance in your life is a positive thing. Of course it is, It's a wonderful thing. What we're talking about is how unrealistic it is. It's from an expectation standpoint because the amount of stuff that we have on our plate and the consequences that come with that are so severe and so significant. It's just not easy for us to do right. You know, we're, we're 10 years into our business, we have a profitable, successful business and we're still stressed out, right? You know, trying to make stuff happen every day. It's not that simple and, and I, I love the fact that there are people that have figured this out, trust me, they are living the dream, I want to live. I just don't see that many people that actually feel like that luxury exists in a realistic way. It's,

Ryan Rutan: it's not, it's not a luxury that we're just automatically afforded, right? It's not an entitlement. I think that these are privileges that we can prioritize right and we can say like I want to earn that privilege, I want to do the things that get me to that point. Um, and then hope that all of the stars align, right? And kind of like the macro point that we're making here today. And I'll reflect back on what I just said, right, I can make the decisions that lead me to the point where I earn that privilege. Maybe write that again implies that I had a whole bunch of choice and that there was this sort of optimal set of decisions that I could have made that will lead me to that promised land. And yet, that's not really the case, right. In most cases, we're making the decision that is available to us, uh, that allows us at least the, the illusory, uh, impact of moving forward, right?

Wil Schroter: You know, by the way, I just want to mention if what we're talking about today sounds like the kind of discussion you wish you were having more often, you actually can, you know, we're online all day everyday working through exactly these types of topics with founders, just like you. So any question you would have or maybe some problem you just want to work through. We're here and we love this stuff and we're easy to find, you know, head over to groups dot startups dot com. And let's just start talking, well, I'll tell you what, let's do this. Let's talk about what we've covered a lot. Let's talk about what all the folks in the room right now are thinking, uh, it's kind of, you know how they view leverage. Let's, uh, let's, let's run to the top, uh, Ryan, you want to start us off?

Ryan Rutan: Yeah. Let me scroll back up here. All right. Uh, so Andy says so true if you've raised money on it, so we're going back to the investors here. So if you raise money on a number of occasions with a successful exit at the end of each, then yes, each of them will want to continue to invest in you. And you can be picky if you're not in that 0.1% they get that right. Andy, I don't want to misquote the stats here. Uh, then grind it out and meet with anyone who will listen and are you going through this right now?

Wil Schroter: Yeah, I'm going through the process now and as you said, you know, it would be amazing to be choosy. But um, we'll take a meeting with anyone there. They're all valuable feedback. But beggars can't be choosers when you haven't had a successful exit or in my case I have, but not with investors, you don't have the investors to call and say, hey, the last deal we did was great. We should, we should do that. You know, to be together again,

Ryan Rutan: isn't that interesting though. Right? So you've proven that you can start grow scale exit company and yet because you haven't done it with investment dollars, then you're still getting pushed back and you're not able to be choosing right? So for everybody else who's listening who hasn't yet had that first successful exit. Um, and is also trying to raise funding. Imagine where that puts you in in the hierarchy. I think this is something that we talked about a lot will, which is that you're not getting funded in a vacuum, right? You are being compared to every other possible alternative that those investors have. Alright. So it's not about whether you can afford to be choosy with investors, like they have lots and lots of choice for everyone investor you might have to choose from. They have hundreds of deals. Right? And so not only are we leveraged in in our decision, they are absolutely not right. They have lots and lots of options including like cash or real estate, right? They have lots of options. We have one or two or three. I

Wil Schroter: agree. Andreas you're you're next my friend. You're saying that this resonates a lot with you and your first funded startup. Your investor was the son of a previous employer, interesting. Uh, he's kind of an automatic investor. He gets grandfathered in and he didn't really let us entertain further investments from other sources. So we're stuck with him. Lucky you and your second startup, you selected your investors a bit more and you ended up saying no to one person even that was hard to tell us about that. Yeah, sure. Um, yeah, I worked at a big company with my co founder. We were still really good friends and he, he ended up being a good co founder. He was awesome. But our investor, you know, he was on the board of the company that I worked for. We both quit at the same time. We didn't even have an idea really. He kind of like, hey, I believe in you guys, I want to find something with you guys, come up with a great idea and I'm gonna find that. And so we were also kind of grateful to him. We couldn't really pull out and what he ended up doing was basically being the big stack at the poker table. Like, okay, so we're running out of money. I'm the only one who is going to invest if you don't want to take my investment at the term some setting, we're shutting you down and I still have money. Uh, and after ended up being less than ideal. Uh, And I think, yeah, it sucks. But because of that, we were a bit more selective. We had one guy that wanted to invest, he would have been one of our biggest investors if we would have said yes, but we just felt in my second from the startup that he was just wrong. You know, we, we didn't click at all. He um, he showed already that he would kind of push us around. So we ended up saying no to him. It was hard, but we managed to close around anyway. You saved yourself a lifetime of headache for sure that the money is not worth it, interesting, interesting. Um, and yeah, as, as you go through this and again, this is kind of what Andy was saying to, um, once you've been around the block a few times, the investors not only are you more likely to get funded again because they appreciate people who've been through the gauntlet before, but you're way more gun shy about who you'll get funded from. Because like anything else, the person that understands marriage the best is the person that just finished a divorce, right? Because you understand the entire cycle of how this thing works and kind of, you know what the consequences truly are Ryan who got up next

Ryan Rutan: Justin Justin, are there any exceptions to saying yes just because the money is there? Uh, certainly there are, I think they, in my experience, they tend to represent the edge cases, right? If there's a moral or ethical dilemma, conflict of interest. Um, or you just understand something fundamental about that individual that says like, I just cannot stand being in the room with this person, I will not, I cannot take advice and it's just gonna be such a personality clash that I know it's going to make me miserable, but then the decision that you have to make in that moment is, and I'll say no to this investor so I can get another one. It's I'll say no to money knowing that I may not get anymore. And so I may be dictating a different path from my startup. So I think that's important to note that. Yeah, you may say no. Um, but you have to be really clear about what that actually means. I think a lot of times we think we can say no because there's all these other options as we've talked about ad nauseum today, there typically aren't Right, well, anything else you want to add to that?

Wil Schroter: No, I think you're I think you're spot on there. Um, like from our standpoint, uh, we have, you know, these limited options, we kind of take what we can get. Like in most cases, um, Omar gonna jump over to you, he said, because you're in biotech, I think I'd be more selective for investors. Obviously, that makes sense. I need them to understand the space regulatory issues, et cetera. And I'm not quite there yet. So we'll see what makes you say you're, you're not quite there yet. So, um, we are at the point

Ryan Rutan: where we have to do a couple

Wil Schroter: more proof of concept experiments and we're trying to get grants right now to get those experiments done. So the after

Ryan Rutan: these experiments

Wil Schroter: are done will either be worth nothing or everything. So we want to start raising after those, those proof of concept studies. Uh, I hear it. And do you feel like um prior to that you can't raise or just that just can't be geometrically harder? I think I probably could just based on my reputation. Um And N. R. I. P. But our

Ryan Rutan: valuation

Wil Schroter: is so volatile at this point, right? So you're leveraged. Yeah. Yeah ideally the wrong time to to um to raise money. But we usually when we're most leveraged is when we need that money, we need the money. Yeah. Yeah. Nothing there. Ryan who's next up?

Ryan Rutan: Let's see. We've got um

Wil Schroter: Justin

Ryan Rutan: most of that marriage is because you don't know any other options. It's like parenting, right? You guinea pig, the firstborn and then you're so much smarter for the second kid. So I can tell that you don't have kids Justin because actually that the first one turns out perfect. It's you get more experimental as they go like I'm on the third now and we literally referred to him as the spare child Jack. I hope you listen to this someday buddy. Just so you know where you stood in all of this? Yeah, I mean so yes, I can agree with some of that, right. You're definitely kind of trying to figure things out. Were you referring to like the first go around. Is that what you were when you say that marriage.

Wil Schroter: Yes. Absolutely. So just a quick kind of reference point, there is a book that I was reading about Israeli startups? Apparently Israeli investors actually don't invest in the first startup, they always asked the question, have you failed at a startup before? And if they don't like that, if they know then they're out

Ryan Rutan: alright, everybody go make up fake startups that failed. Done, check, it

Wil Schroter: was spectacular,

Ryan Rutan: it was the greatest failure ever, right?

Wil Schroter: But like that, that's

Ryan Rutan: an interesting tactic actually,

Wil Schroter: that's actually very synonymous with why founders who have been around the block once, even if they weren't successful, can often get checks the second time, because from uh, an investor standpoint, think about it, if you had to bet on all people who have never played the sport before, or one person who has played the sport before, you're probably going to go with the latter, because everybody else you're gonna find out for the first time whether they're worth their salt, at least the other person understands the lay of the land and kind of what they're really signing up for. It's a tough position for investors because we think about it from the standpoint of, well, they want to deploy capital toward ideas. Not really everybody's got an idea, they're trying to find people that have their ship together and that is not easy to do because we're all figuring it out for the first time. It's really, really tricky. Is that why Tom Brady continues to come out of retirement? Tom Brady complete at least 90 at this point, I mean, the fact that he's still meeting people at his age, but it is though, it's very rare that you can find a proven commodity in this business and when you do all the money goes toward them, it's a very, it's a very special designation. Okay, hold on. I like this one paul, it seems like failure happens more often with partners from the ground up. I had to rebuild the team four times before I got it. Right. Well, I mean it is that analogy with having kids I think is pretty spot on or being married because you know, that vertical learning curve teaches you so much and every time you fail, you think, okay, what went wrong? Well now I have to address that on this next chapter and say, okay, if we're gonna try this again, how do we anticipate these contingencies or how do we at least have a conversation about it so that we know how we're gonna handle this when the situation comes up again. And it, I mean it really, I came at it and I think a lot of us will become when we come into a new business, we're getting into something we don't know anything about. So I'm, you know, I understand construction, this is a vertical learning curve that, you know, the most expensive lessons are our own mistakes. And so that whole growth process really helped me understand the necessity of putting together a good contract and really taking the time to analyze, hey, what happens if you get sidetracked or you bow out or what happens if we can't get anywhere or if we're not fulfilling our obligations. What's our contingency? What's our backup and how are we going to not end up back at square one again?

Ryan Rutan: Hey, on that contract, just do something really quick. Do a control F uh and then do a find and replace for if and change it to win, right? Because all of those things will happen, right? It's not as if it's like when these things happen, right? When people this team, when we fall off track. Yeah. Yeah. No, you're you're spot on with that man.

Wil Schroter: So

Ryan Rutan: how so you've done this? You've done this four times now. You said is this within the uh, it was this with the same startup.

Wil Schroter: It's the same company the same idea. It took me that long to get the right programmers the right approach, the right scaffolding to get the traction and I don't know. Ryan, if you remember, but you recommended to me a couple of weeks ago. The book traction and I can't thank you enough for that.

Ryan Rutan: All right, Good man. You're using it to probable corner of your desk. We're getting a lot of work done,

Wil Schroter: right? You're actually

Ryan Rutan: reading the damn thing.

Wil Schroter: Awesome.

Ryan Rutan: Fantastic. Um All right. We've got a comment here. It's it's kind of a back and forth between Justin and and Andreas. I'm trying to I'm trying to go back in time just to figure out what you were referencing when you made your comment. I think I understand where Andreas is going to want to make sure that we got this right.

Wil Schroter: Justin I I kind of felt like like maybe where your head was out with that conversation is like let's just take a take a beat before we start like splitting up equity and get yeah, get a feel for whether this makes sense. Um I think what ends up happening is we have the equity discussion first, right? We split up the company and then find out if we should be working together. You know like like it's it's really backward. It's it's getting married first and then dating, right? It's really not the way they should go. And when you put that that into that analogy of that construct, it just kind of makes sense. And yet we all do it, we all do it. And one of the suggestions we had was try dating for a minute, try creating a contract situation which says, hey, we're going to give this a few months three months and we're going to see how things work out if things work out here is roughly the terms, you know that that will will look to discuss, but let's see where it goes. Let's just give it three months, anybody can afford to invest three months and see what happens. Here's what tends to happen Really quickly. You realize that adding one person is great, it's just not 50% of the company, great, right? And you realize we're gonna like 10 more of these and putting all my chips on one person typically isn't a great idea. If it is awesome. If you marry the person that you met in high school and it works out and you're together forever, awesome typically doesn't go so well, Ryan, let's jump down to Justin. Um well actually we're gonna answer this Justin were saying, how do you date co founders? That would be a good practice. And we're saying essentially, maybe you start them as contractors. Um let's jump down a little bit further. Sorry, I'm kind of jumping ahead here blah blah blah, pushing equity down the road is, in my opinion. Disaster. Okay, actually this is interesting. Andreas you had a different taking a pushing equity down the road is, in my opinion a disaster waiting to happen. Better to set up clear goals in time work. That is equal for everyone. Most people overvalue their contribution to the company and thus want a bigger cut than they earn. That's really interesting. Can you talk about that a little bit? Yeah, I think, I mean I I absolutely agree that we shouldn't like slice the pie right at the start, but the longer we push it, everyone in my experience, like everyone thinks that well I did a lot, right? I did more than half and everyone feels the same way. So if you don't have that conversation early, uh, doesn't have to be the first date kind of, but the longer you push it, the more likely it is that people are going to be disappointed. Um, so if you kind of have, when we reach this, you get this, if you jump out before we reach this, you will lose some of your equity. So having earn outs, having clear set goals in the chair, clear goals and clear expectations and and kind of understanding where everyone stands relatively early, I think it's really important, Otherwise everyone is just going to disappoint.

Ryan Rutan: Yeah, right. There's there's a yeah, there's there's an interesting point in there as well. Andres, which is that

Wil Schroter: when things

Ryan Rutan: go well, this is particularly true, right? When things go bad and that nobody really cares, right? We all fail together, nobody cares. Um, when things go well to your point, everybody will overstate their involvement in that going well right? It doesn't matter what your role was. If we if we achieved, you know, triple revenue. I was definitely an equal contributor to that regardless of what I was doing, right? And so, yeah, I think pushing it down the road without some definition, you know, I think you're you're both right in that

Wil Schroter: doing it

Ryan Rutan: too soon can be problematic. But I think having a framework for how it gets divvied up makes a lot of sense. And then having in some of those protective measures like vesting like claw back, um, absolutely need to be in there so that you can deal with the true disaster scenarios because that's where it tends to go the absolute worst. Right? It can be contentious. We have to try to figure out, you know, shifting the splits around. Um, it's more like, Well, you haven't actually been here for three years, but you're still in 20% of the company. What the hell do we do about that? All right. That's a big problem that you don't want to have to try to address after the fact that needs to be something in writing that says, here's what we do in that scenario that works for everybody.

Wil Schroter: You know, it's something interesting that that Justin said, uh, just I want to ask you about this, you said you would have brought on advisors before, you would have brought on co founders. Yeah, so I brought on a co founder and it was a lot of we did a lot of great practices, we did the whole like asking each other the 37 questions and then, um, you know, we spent we created just an initial founders agreement and spent three months working together, we had worked together on a project before, so there was a little bit of previous relationship. Um, so it all looked like, man, we're doing all the right stuff, this is all going really well, and this is going to be a great, great co founding relationship. And then we just got to a point where there was a fundamental disagreement about how we wanted to continue to capitalize the company. Um, and I realized that man, if I would have actually started with advisers, several of the advisors that I have now that maybe they could have made introductions to other potential co founders. And uh, and maybe that would have given me some more optionality around who I might want to actually, you know, become a co founder with. And you know, you were making the point about dating like how you do that. Well, if you do it on contract, what does that mean? Ak I'm paying people, um, out of my own pocket first. Um, but but maybe if you have the advisors first, your ability to sort of try it out for three months with a few different folks is increased. So anyhow, that that was just an interesting thought,

Ryan Rutan: paying people out of your pocket early on can be painful. But it's less painful than paying people with your soul down the line. It's just, it hurts so bad. Well, you have a question, I've got one too, but

Wil Schroter: well, what I'm just gonna attack onto that to say part of the leverage we keep talking about is how we're financially leveraged. One of the things we haven't talked about is how we're knowledge leveraged were first getting started building started for the first time we don't know Jack Ship, right? We don't understand how any of this stuff works. We don't understand how fundraising work. Some of us don't understand how business works, etcetera. We are knowledge leveraged, which means the first person that shows up that has more knowledge than we do seems like Yoda, no matter who they are right, your business professor is the best example of this, right? Not knocking your business professor. I'm sure they're wonderful. But as far as you're concerned, they're teaching the textbook, right? They must be the smartest person about this topic and maybe they are, maybe you actually just got like an incredible lecture entrees like no, but my point is at that moment they're the smartest person there is about this topic because you're knowledge leveraged, you don't know better. The same goes for advisors, early advisers come on board and they are, oh my God, the smartest people ever and everything they're telling you makes so much sense until you realize later They haven't done this for 20 years. The stuff they're talking to you about right is from like the industrial revolution. Like they're so irrelevant to how this thing works, but you don't know any better. You don't know any better. And so part of this biding your time is just starting to kind of look at your other options, get some other opinions. Talk to some other folks and try to triangulate where you are in this equation, I think that's important.

Ryan Rutan: It is super important Justin I see you're actually using one of the most common early stage startup advisors right there in the background, some of you will know it as a dartboard.

Wil Schroter: The

Ryan Rutan: question I

Wil Schroter: had

Ryan Rutan: harkened back to, to your comment, which was that, you know, if I'd had advisers earlier on, maybe they would have led me to and you may or may not be able to answer this because it's required, kind of going back in time. What do you think the advisers would have been able to see at that point? That would have allowed them to direct you differently. Either to a different person or to say like, no, you actually don't need anybody right now.

Wil Schroter: Kind of

Ryan Rutan: a two part here, which is also, what was your motivation for getting a co founder? Why did you feel like you needed one or one on one at that point?

Wil Schroter: Yeah. Two good questions. So I'll start with the second one, which is um, you know, I have a product management and marketing background, but not a development background, right? So technical resources are necessary. Um you know, I had the idea first, I was kind of going out and looking for a co founder, um and it was about money, it was about finding somebody who could work for no salary for a period of time and and then be able to pay for that with Equity, which I know is not, That's when you're, when you're leveraged, uh, you know, that's kind of the

Ryan Rutan: point, right? Yeah. Not you wouldn't have been your first choice, right? You would've rather paid with cash.

Wil Schroter: But I looked around,

Ryan Rutan: I didn't find any cash.

Wil Schroter: It turned out that was not under my pillow. Um, so yeah, that was, that was my motivation there. I think early on there was a discussion around how we would fund the company and my co founder was much more into the bootstrapped approach and I was, I was kind of open to all possibilities. They're all just tools, right? So maybe in bootstrapping for awhile works, but at some point if we need to get funding, I have no problem with that. And, and it seemed to me like, you know, that was going to be something that we could maybe overcome. But eventually it became, you know, a reason that we could not continue. And uh, and I think a, I think a, some advisers would have been a little more like, hey, this is a red flag that you just can't ignore. Um, and might have, you know, said that a little more frankly early on and then the potential that they might know other people in their network. Um, and since they're, you know, somewhat invested, they might be able to make those introductions anyhow, that was, that was the thought Justin stick with you and skipping around a little bit, You asked how many co founders are enough, uh, you know, to have considered just out of curiosity, anyone in the room right now, has anyone here dated a bunch of co founders before they chose a co founder? Um, and okay, if not, I'm just, again, it actually don't hear it that often and I would love to hear, you know, somebody who has, well, that pretty much sums up crickets. Alright, that kind of says it all. Um, alright, uh, okay, joe slaughter, you said that you've been, uh, you've been kind of dating someone I have dated. I've tried using sharper the app. I've tried using bumble bizz, I've tried using a whole bunch of different things and so far I would say most of the connections were a waste of your time, kind of thing. It wasn't the right field of people to try and be dating among. There's not even a platform to do that properly, but the top links I have, I guess would be coming from y Combinator. Currently the most technical matched to my experience. But even that's kind of like, it's, people have to take the time and effort to go and find and hunt. There's no matchmaking service really in between it. Yeah, it's also a very tall order, uh, interesting Rasheeda, I'm going to call on, you said this is the first community where I'm consistently asked about a co founder, like I was even considering a co founder and you're still not. Um, but it's interesting to hear why people look for co founders. Um, what, what is that pressure, so to speak, that that you're seeing or hearing about getting a co founder? I'm not even sure. Um, you know, I went to business school and I've gotten, um, you know, I used to be an underwriter, so I've seen a lot of business plans, I'm like, I've done and seen a lot of this, but where people were directly asking me about, oh, so do you have a co founder? I was like, is this a qualifier for kind of where people say like, Should we be talking to two people, someone else? Like, you know, you have a partner, you have a spouse, like that kind of thing. Like are there others that we should be talking to? And it wasn't even and interest, I'm, I'm looking for people who can implement for pay I was never really thinking of and I was like, this is the only place that almost every, it comes up in all intro meetings. Um, when we're just getting to know each other, um, people always ask about, you have a co founder, are you looking for one? And I'm stunned that it's a consistent message? And I was like, am I missing something? Why would I maybe I should be considering it? And I don't even know why I would consider it, but not from this call I'm like, nope, I'm still probably not. Well, the reason that investors kind of make it a thing just to be clear is they're looking for some downside protection. If Rasheeda goes off the rails, let's hope there's one other person that can keep things going. You know? So it's a little bit of a backup protection. Um, and sometimes it just helps to know that if, if Rasheeda, you know, for whatever reason, can't keep things going, um, that someone else will step in or if there's a disagreement between the investor and the team, sometimes it helps to have a team, you know, to be able to talk to other people and get differing opinions. Um, because again, you're really trying to bet on on this person you just met five minutes ago. I mean the investor to the founder and that I'm actually not raising capital. So let me just throw that out. There is a little, oh yeah, Okay, well then then you're about to get asked about a billion times more if you decided to, that's for sure. Um, alright, Ryan, let's, uh, let's wrap this up. Um, final thoughts on your own. I

Ryan Rutan: think this is awesome. I mean, I think that we, we went over a bunch of fun stuff today. It's always lovely to hear from everybody. Um, and I think that we were right in our assumption that everybody's sort of been through this this route where, you know, there's the perception of choice and yet in so many cases as founders, we, we are truly leveraged but great discussion. Um, I don't have any real parting thoughts today, man,

Wil Schroter: wow, what kind of outro is that? We worked really hard on this, that this, that this was your moment, man.

Ryan Rutan: No, I didn't know. I didn't even think about the fact that we still need to do an actual outro. I didn't even think about that. Yeah, I know. I like your turn. You try it.

Wil Schroter: I don't have an outro. Anyway, look, let

Ryan Rutan: me read the last paragraph in our article that'll do

Wil Schroter: uh, now

Ryan Rutan: none of these choices are fun and most of our options suck. Yeah. Look guys, uh,

Wil Schroter: thanks folks, Thanks for coming today. Thanks for having us. This was an awesome topic. If you guys want to pick it up, you know, where to find us groups at startups dot com, pick it up from there. Alright, so that was fun. But let's actually keep this conversation going. You've heard what we think about this. But you know, Ryan and I would really like to hear what you think and we're online, like all day long, pretty much talking about every startup topic you could think of from fundraising, the customer acquisition to just really have to get all of this crazy startup stuff out of your head and there's tons of other founders just like you, they're weighing in on these topics so you'll get a chance to just hang out and meet. Some really smart founders were also super, super easy to find. You head over to groups dot startups dot com and let Ryan and I hear what's on your mind, let's get to know each other a little bit and let's just start having more of these conversations.

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