Ryan Rutan: Welcome to today's episode of start up therapy podcast where two former male models who refuse to be coaxed out of retirement for any price will yammer about start ups? And we are also joined today by our live studio audience uh via Zoom. Of course, there's not that much room here for either of us, but we will bring them in at the end after will. And I have done our usual gig will. Today we would like to talk about this topic that comes up all the time with founders, which is, is my business big enough is my tan big enough. Is this going to be big enough to make a business out of? Right. And, and what is our response to that? Who cares? And it's funny because like I think about it in terms of who actually cares when I say, who cares? I literally mean, who cares and who cares? We'll talk about that today. You know, who actually is affected by how big our business is. TLDR. It's usually not us. It's everybody else that cares. We just want to make something that makes our lives better. Everybody else wants to get something from it, which is fair. You know, we've got staff, we've got investors, we got lots of people in our rotation. They should expect to get something from it. But all, you know, when we narrow this down, we distill it down today, we'll start to find out and kind of discover that how we feel about it is dramatically different as far as the size of the business than everyone else. And also how little it takes for it to be a big enough business for us, for anybody listening. This episode is about to make your life an awful lot easier. So let's start there, Ryan. Where do you see it? Because this conversation is coming up more and more lately because of where the economy is and stuff. Yeah. You know, it's coming up a lot and I think it's a very, very healthy new dialogue. I mean, it's, it's something that's always existed. You and I both know plenty of people who are plenty wealthy who do not run massive massive companies, they run really profitable and never expected to never expected to. Right. They didn't build with that intention. I think that's part of the challenge is that people began to build with that intention that this has to be massive or it can't be valuable. And now they're running into, well, the economy is close to the tank funding is drying up left and right. So we can't grow the way we thought we were going to because of market opportunity and because of funding. So now what do we do? The answer is you build a normal business that adds value to the world and you get money in return for it, of which you can keep. It's cool. It's fun. It's called profit. What? No, I think it's interesting because let's zoom out and say in the start up world, we've created a very unique dialogue around what it means to build a company which by the way, pretty much didn't even exist 30 years ago, you know, and barely existed 20 years ago. This nuance of it has to be big. It has to be massive, et cetera is new previously. When people build businesses, they had this crazy thought. What, how do I make it profitable? How do I make payroll? How do I make sure the customer gets the product that I actually them to get? Which were all very reasonable questions. But I think over time that's been changed now, it's been distorted by one factor and that is investors more than anything because they have to because that's, that's how their business is built in total respect for. That's how they get paid back. Yep, that's how they get paid back. But I think it's over time, it started to seep into the mindset of all founders and it's almost become like this rite of passage that if you don't have a big idea, it must be tenement to a shitty idea. And I think that's just a, a totally broken premise that, you know, we really, really, really need to unpack and kind of disparage in some ways it's broken and to your point, it's new. I mean, if we go back to the beginning of our careers, will, how many companies did you know that, that uttered the words fund raise before they were 567 years in business. And it hit a point where that was the only way to scale further. There was some major opportunity that everything was clearly defined. Nobody was asking for poker chips, right? We were like, let's go throw this on a number and see what happens. It was some type of operational gain that could be had through taking on cash. So this entire notion that like I had an idea now I could either go build or I could go raise funding just didn't exist. I mean, that bifurcation was not, not on anybody's mind 20 years ago, not in, not in my world. At least when you look back on anybody that's done this a year prior decades prior, I think about all my neighbors in my neighborhood that are all business owners for some reason, they've all built oldie, tiny businesses, businesses you would not give a shit about and businesses that no one would fund and yet they all have these amazing houses, they have all leave these amazing lives, they live lives that we all dream of building businesses we would never think of. I mean, think about like what that actually means how much opportunity there is in the world that start ups and founders are saying no to because it doesn't fit this new really broken narrative that's actually limiting a lot of us for doing the things that we'd want to do. If we just thought about it differently. In my fear, Ryan is that this is getting worse over time. My fear is that this narrative is getting more pervasive this, like, it has to be huge or it's nothing and I think it's a dangerous spot to take ourselves down and again and it's largely bullshit also, by the way, largely doesn't work. Yeah, it largely doesn't work. Right. It's, it's kind of let's use an analogy here. It's like saying, look, I'm pretty good at bouncing a basketball. Right. So my, my option is I have to go and be in the first round draft pick and I have to get a $20 million salary. Right. There's also this option where you just are really good at it. You aim for something a bit smaller and this doesn't exist basketball. Unfortunately, I don't think it does. I don't know if it does. Maybe it does where you just get paid. I don't know, a million dollars a year or $500,000 a year. Right. You don't have to do that for too many years to feel pretty good about where you're at in life. And so the idea that we're trading in stability, profit, you know, longevity of the business to maybe hit that, that really, really high point where it becomes binary because it's either it's either succeed or fail. You take away all of that, that graduated uh possibility of just different levels of success, most of which would probably satisfy all of your wildest dreams and then some, but we just aim right past that. We're like, no, no, that's not good enough, right? I, I haven't ridden my bike up a hill yet, but I need to go for Everest, Everest or bust. It's such a bad idea. And so let's talk about where this comes from. We, we've been hinting at it, you know, we know it comes from investors, et cetera. But when we say, who is this a big enough business for? We need to, let's let's focus on the who part because we're rarely saying what's a big enough business for me? We start to create this new level of outside validation. It actually starts taking us down a path that money not makes sense for us. For example, Ryan, if you and I have an idea for a business that we could somehow magically know that's going to become a $3 million top line business of a RR on a $1 million net income, we both take home 500 K and we make the assertion that it's not a big enough business. Well, we, we got a couple of things there big enough for whom? Big enough for whom? Right. If I'm an investor and I go in and I say, uh hey, I don't think this is a big enough business. I don't mean it's not a big enough business for you. I mean, it's not a big enough business for me and think of how, how exponentially bigger it has to be for me as an investor to make sense, to be able to make that call. So, think about this. You and I are taking shopping that idea around and we're talking to investors, like, ah, it's a lifestyle business or, you know, oh, that's not gonna be a big enough business. And we start looking at the business saying, ah, you know, maybe we shouldn't do this. What a calamity. I, again, I go back to all my neighbors and I'm thinking what if all of them? Because none of them had investible businesses. None of them had businesses. Like when one guy owns a, a lighting company, they're the one that owns a consulting company. Like these aren't businesses investors would ever care about. And all those guys own, like, three homes, like things worked out, ok for them. Right. And, and, and, and I think to myself, like, had we had the, the broken framework, they were fortunate enough and they're older, older than me, but like they were fortunate enough to be in an era where you didn't even have that conversation. So they were able to just go ahead and build their business like they should have and, and build something great. They didn't have to contend with who is it big enough for? And that's where I think they get a little bit stuck. You know what I mean? Yeah, I mean, why don't we just change the narrative from today? And the next time you're in a meeting with an investor and they tell you, oh, this looks like a lifestyle business. High five the shit out of yourself and go build it because isn't that what you after anyway? Like what, why did that become a negative thing? Right? That sounds like what I wanted, I wanted a lifestyle, I want something for me out of this too, right? And I'm here to, to, you know, act on your behalf and grow your wealth further because you're clearly already not working, investing. So ironically running a lifestyle business, you're right. And, and part of it too is if, if we run around Ryan again, you and I start this mythical new company and we run around, we tell everybody this could be a $3 million opportunity, kind of no one cares. OK. I just want to stick with that. If we go to investors, they definitely don't care now for those of you uh our, our wonderful audience and our friends here who have worked with Ryan and I, and helping build pitch decks and things like that. Uh You've heard me say it's got to be a billion dollars or $10 billion or $100 billion. Yes. If you're gonna go after investors, it does. Ha Yeah, we're building a pitch deck for you. That slide is not even in there. I don't give a shit how big your market size is. At that point, I care about whether you're gonna get paid. Um Which sounds pretty wonderful. Another part of it is if we're attracting talent, right? If, if, if we're trying to attract talent in same proxy as an investor, they're looking at what we're doing. And they're saying, hey, if this thing isn't X big, I probably won't be able to get my taste of it. That's fair. That's fair. But also it's still not you having that big opportunity is great, but again, for whom? And again, I think there's a lot of far more achievable, small opportunities that can be dramatically life changing forever for founders that are starting to get overlooked because of this broken narrative. And it's, it's, it's frustrated me quite a bit. They're, they're, they're leaving lots of money on the table chasing a bigger bill and it's just, it's, it's so funny. I mean, I'm, I'm sure you hear this all the time too. It's, you know, I look, I don't care how much equity I have to give up. I'm fine having a really small piece of a really big pie. And I'm always thinking like, what if you just had a whole pie? Right? Because here's the thing, it's a lot easier to achieve that. Right. We, we did an entire podcast on this one will, which was optimized for the likelihood of an outcome, not just the size, right? When we start to multiply this percentage together. Right. Right. We talk about all the time. Yeah. Right. And this is just probability math. But like when you're trying to build something small, stable cash flowing, positive, profitable, that is far easier to achieve than something that burns. A ton of cash grows really fast. Hits gargantuan status goes, liquid goes public and then you're, you know, ringing the bell at NASDAQ or whatever. Right. That's just so much harder to achieve. Oh, yeah. Exponentially there isn't usually a fallback outcome from that. Right. It's sort of that or bus once you pick that path, that's your choice. And that's a tough one. It is. And, and I gotta tell you, uh I've been having a lot of conversations recently with good friends who have built big businesses from a AVC revenue standpoint, raised a ton of money, hundreds of millions of dollars and now we're all in the same boat, which is this only had one insanely narrow outcome, right? That I could sell to one or two or three people. And that outcome is now gone just because of the, the markets are et cetera. I've raised a gazillion dollars. I'm not making any money. Right. Because the idea was we were going to scale it and, and have something worth buying or IP O which to be fair makes sense when it makes sense and until it doesn't, which is kind of where we're at. But that's, and that's just folks that have raised hundreds of millions of dollars, if not more, it still holds true for anybody that raises, which is, I still have to have a big exit here or often I can't do anything with it. And right, a lot of what we talk about is some of the challenges around fundraising, et cetera. And I always remind people, we help people raise money for a living. So we, we are not anti investor by any means, but we are kind of anti bullshit. And there's a lot of narrative in this start up game. That's just straight up bullshit. I don't care if you raise money. I don't care how far your business scales. I care how you do as a founder. That's really, and I'm Ryan, I'm sure I'm speaking for you. I just care about your out cup. Now, let somebody else coach you on, on how to make V CS money. That's not my concern. My concern is what is the best path for you as the founder at the expense of everything else. And so that's, it's kind of how we always come back to this, this premise, you know, for sure. Yeah, I think again, it just gets lost in this narrative because it's, it's funny how often when we have these conversations, we break down this process for founders, they haven't really considered that. It's just sort of like they ended up there by default. It's kind of like, well, I finished second grade, so third grade was next and fourth grade and fifth grade and sixth grade they assume that that's just the path and this is what we do and this is how we get to where we want to be without any other options because those are at best obscured and at worst they're vilified. Right. Oh, lifestyle business. Screw you. Of course, it's a lifestyle business. If we focus on anything, let's focus on what your actual goals are because at the end of the day, I don't think people do a good job with that. They gotta want to build a big business. Bullshit. Stupid goal. Right. Yeah. Yeah. What does that actually mean to you? I have endless friends right now with, with huge businesses that are worth nothing to them. Good luck with that. That's a dumb goal. Right. The goal is, is what matters to you and by the way, the money isn't always the top ranking factor. You know, you freedom, lifestyle, family, there's a million other things that people consider that building a business actually runs completely counter to. And that's why I said when we talk about your actual goals, what are they? Because when you say I want to build a big business, I just don't know that big business automatically applies all of your other check boxes because here's what you tend to think. Like, like here's how you play out big business as far as the outcome, I have big business. I make lots of money, then I get to do whatever the hell that I wanna do in. In theory. That sounds really cool. By the way, I've known a lot of people who have done it. I'm one of them and it never was exactly at all. A big business can make you do exactly what it wants you to do versus you doing exactly what you want to do. Not last night, the night before I was in Colorado with this retreat with a bunch of other founders and CEO S and I was at a dinner with a bunch of, uh, founders that are all cashed out and one of them had just cashed out like a month ago and he's trying to figure out what, what he wants to do. He's a little bit older. I think he was 66 or something like that. But he's trying to figure out what he wants to do next because he'd been running that business for 20 five years and just sold it to Blackstone. So he's trying to think like, what he wants to do next. And I was like, well, what were your goals going into this? He's like, I just wanna make payroll. Like I didn't have any goals. I was like, trying to accomplish anything other than paying my bills. I was like, ok, well, now you've accomplished everything, right? You've done all the things, right? And you get to do whatever you wanna do. What do you want to do now that you have everything? He's like, I have no idea. He's like, I, I think I'm gonna start like a music production company. It's like it sounds awesome. The old bounce right into the next start up without really thinking about it. Move. Yep. So we go around the table and I asked the other founders because I love this stuff. Uh, now that you guys have everything now what, no one had a good answer again. This is one of those parts that they don't tell you about in the brochure, you're supposed to get everything and then everything is awesome. Why? Because you don't have it right now and then you get it and you're like, yeah, I mean, I'm glad I have it. Like nobody ever gives it back, but at the same time, it never achieves the things that people could have set out to achieve with way less money. Right. From the beginning, I had a conversation yesterday with a founder at at the exact opposite end of the spectrum, who's just getting started, just trying to figure things out and, and was convinced by the, the, the zeitgeist, you know, the, the story, the narrative all around him that he need to go and raise funding. And as we really started to peel back what he needed the funding for, he, it was like, OK, so you're trying to build it to this size, you gotta do this, you know what, what's your, you know, you get, you have an exit in mind. What are you going to do with the money from the exit? He's like, no, no, it's like I just really realized that I feel amazing when I help people. I was like, ok, well, awesome. And here's some great news, you're currently taking the most circuitous path to that possible when you could just jump directly in and start helping people and just do the thing that you actually want to do. And he's like I can do that, you can do that, right. You can just, it was just like it was just needed to hear. It just needed some permission to say, I don't have to go build this based on the rubric laid out by some other people who have built a thing in a certain way. I can go build this the way I want to, right? And he can get to that thing that he really cares about way faster. And with way more certainty than by taking the, let's go pitch this, let's go prove this, let's go get enough traction to get money. And I said, look, you're gonna have to do some of the things you want to do anyways to get there to prove that this thing is gonna work. But don't short change yourself and say like I will delay gratify action on the thing I really want to do for an infinite amount of time. And maybe never when I could just do it right now, right? And it's, it was, you could just see like the the relief on his face. So freeing to have this conversation and know I can now, I'm now unshackled. I can just go do what I actually want to do. But he completely thought that he had to follow this other path because that's how it's done. Well, it's not how it's done. It's not also the path to freedom is very different than what people think it is. People think the path to freedom is this like massive amount of wealth where I get to do it all, everything I wanna do. That's not entirely true. By the way that that rarely happens, even when that happens. What it is is you want a level of freedom, right? You wanna be able to get up in the morning and kind of do whatever you want to do. Now, there's one version of that where you have so much money in the bank that you don't have to do anything at all. By the way, often winds up being the worst place in life to be. Because when you strip out need and ambition and consequence, life gets really frigging, boring really fast. And, and I have an endless list of founders that can tell you exactly this, which is why they all start businesses again to try to recreate the consequence that they once had to try to like play the game once again to escape the misery of not having a purpose, right? At some point, they just like, I just can't, right. We have so many episodes on this that said when we talk about what unlocks freedom as an actual goal because again, the subtopic here is what is an actual goal? And one of your goals might be, I just want a little bit of freedom, right? I wanna be able to operate my way, et cetera. Great, awesome, perfect goal. It doesn't take that much money to create and operate at a level. You want to, let's say you make 50 K now, right? And I always use that because people are like, oh, you couldn't possibly live on 50 K. I was like, dude, the world's a big place. A lot of people make 50 K, let's say you make 50 K now, right? And, and you're like, I want to make 100 K, do you know a business of almost any size can get you there. Like you, you'd have a hard time short of building a lemonade stand and not getting to your 100 K number. Now, I'm not, I'm not saying it'll be successful. I'm saying that the size of the business opportunity will rarely cap out. At that point. Guy running a contracting company that mowed my lawn in Florida was making 100 and 15 a year. Yeah. Yeah. And I'm saying, there's a lot of ways to get there, which is why I make that point. Right? And I'm saying, hey, a business of almost any opportunistic size can get you from 50 K to 100 K. Awesome. Why wouldn't you do it? Right. In other words, if you're sitting at your shitty job now and you're like, ah, you know, I'm all up, but you're making 80 K now and you're like, ah, best case I'll, I'll be able to make 200 K on this thing. Dude, if you haven't made 200 K before, that is all the money in the world. When people belittle, what more money is. It's usually because they haven't made it right when people say, oh, a million dollars isn't shit. It's because you've probably never made it, right. 250 K will change your life. In fact, I think that's one of the first episodes we ever did. 250 K is probably the most life-changing amount of money you'll ever get, and I think a lot of people overlook that because they don't look at these micro goals, they don't look at, hey, what would meaningfully change my life right now? 50 to 100 K would dramatically change my life. Yeah. But I couldn't retire on it. Who cares? You make 50 K right now, why do you care about whether you can retire on this? That's the dumbest goal or, you know, I, I only 10 million or something, dude, try making 10 million and then, and, and come to me with your problems then until then you're gonna be OK. I get an email every year on the anniversary date of a clarity call that I did with a founder who was having this existential crisis for this exact reason. And he, he came to me and he said, like, look, I really want to do this thing like, but it looks like it's gonna top out around like 300 K a year with about 50% of that going in my pocket. And I said, OK, what are you making now? He's like 100 and 20. Like, do you love it? He's like, I hate it. Like I, I get up every day and I want to smash my face into the sink and not go to work. I'm like, OK, so arguably even if it just got to 300 K or even just got to 240 you were putting 100 and 20 in your pocket. You didn't hate life. That would be better, right? I just, I can't see it that way. And so we talked for about an hour and a half until he finally said I, I, ok, I, I can see this. I get an email, this was in 2016 every year. On the date of that call, I get an email from him saying thank you. And the business is actually doing about 500 K now that magic 250 in his pocket and every year, I'm just like, thank God we had that call, right? And, and it's, it's amazing, but this, it was again, life changing for him but couldn't see it. Why? Because everybody around him, including people who aren't even talking to him are telling him through the narrative that exists out there. It's not good enough. Why would you put all that risk and, and whatever into doing this? If it's not gonna be massive? Well, guess what turns out if you don't aim at massive from the beginning? It's a hell of a lot less risky. Yeah. Well, also why are these goals, these goals, if you say I need to make a million dollars a year? Ok. That's a lot of money. Ok. And just let's be clear, I'm hearing a narrative that a million dollars isn't enough. Ok? Now, of course, these are all people that have made it right. This is all speculative. This is all saying, well, that could only be a $3 million business. Best case it throws off a million dollars a year. I'm like, do you make a million dollars a year now? Right. Oh, you don't? Well, then why is that a problem also, if you could build a business that does 3 million in a RR and consistently throws off a million dollars a year. Number one, there's almost nothing in life you can't do and, and don't come at me with yachts and jets. I'm not talking about that even then you could rent him. If you really wanted to at a million dollars, you've almost unlocked financially everything you can do. You're the top 1% of income earners in the world in the and by the way, in all of human history, just to be clear, you're OK, you're gonna get by, right? And so if you're looking at your $3 million opportunity and you're like, it could only make me a million dollars. I'm like, what are you, you know, like, why did you set your goal at joining the oligarchy? Right? Why does that, that have to be part of it? Right? Like what's like, can't you just be really, really well off, you have to be like, you know, superlatively well off. Like what is this like? Why? So this is, this is a whole series of just bad assumptions, right? And I think we fall into them because when we're just kind of spitballing, when we're just saying, hey, here's what it could be, here's what it should be, et cetera. It's easy for us to make kind of hard calls to be able to say, no, not gonna do that because again, it's only 3 million in a RR, you talk to people who have a $3 million in annual recurring revenue business and, and they are pulling down a million dollars and you ask them if they want to turn that off because it's shitty to laugh at you. Like, are you in your mind? I mean, how did you get into this resort will be their next question? And actually, you know, it's funny you should say that when Sarah, my wife and I, when we travel, I'm chatty as hell as you guys have figured out. So I literally talk to everybody all the time and I'm also incapable of small talk. So I go straight to like, you know, how is your relationship with your father the moment I meet you and, and so I get into people's worlds very fast and Ryan, you've experienced this way too many times. My point is whenever I meet people on vacation, we get deep into stuff. And every time I talk to people and they built like a great business, it's never a business like you would think it's never like this, you know, venture funded business and those are the people I talk to most of the time. It's always some esoteric business and some bizarre industry that no one would have ever funded and they're crushing it at life. Right. And, and so back to the narrative. The other thing we, we look at too is all of those businesses and all of the business owners, we've talked that have built businesses over years. They didn't try to start to build a big business. That wasn't the goal, but they did something that most start ups overlooked. They got on base first. They figured out how do I get to sustainability? Yeah, maybe 500,000 in total revenue, maybe a million dollars in a RR whatever. But they, because they weren't worried about whether it was a big business, they were worried about survivability, which as you can appreciate in our economy right now. Yeah. Right. They were worried about, is it big enough to pay the payroll? Right. Is it big enough to be around next year? That was all that mattered. Here was the fallacy in our logic, start ups as a whole versus their logic. Their logic was basically, if I can get on to first base, then at least I have a chance of hitting a home run or scoring a point, so to speak. Right in most start ups cases. And this is the fallacy part. They're trying to think. I only want to hit a home run. I have to hit a home run. Or it's nothing. Here's the part that you're missing in that equation. A $3 million business that's throwing off any amount of money that actually doesn't even matter isn't the end of the business. It's not like if this thing hits $3 million you just throw your hands up. Like, oh, I guess I can't think of anything else to do with this business. I guess. I have no other way to spend my time and, and it just ends here and there's a lot like in a lot of prediction logic, this is always the fallacy that at some point in this futuristic point, you just stop and you no longer have any agency to do anything else. You're, you're, you're forced to declare whether you'll ever grow again or not. From that day, you sign in blood and sacrifice a kidney and then you're allowed to proceed, right? It's not how it works, it's not how it works. In other words, you get to a million, 3 million whatever. And now you can afford to actually show up every day and do your job. Cool. Then let's go after a bigger market. If we think that's so important. By the way, you probably won't because you don't have to, which is the bigger point. But the point is instead of thinking, will this be a big business in my prediction today? Say, will this be a sustainable business that I can actually be around long enough to go build a big business. That would be cool. You know what I mean? Are you saying that big businesses start with small businesses? Imagine that? I think Starbucks just started as a national chain. It didn't start as a copy. Now. They were on every block, every other block everywhere immediately. It was like, done. It kills me though because I think the probability we've talked about this millions of times, the probability that you're going to build a big business is so infinitely small, right? Even if you check all the boxes, if this is an A I start up, that's the competitor to chat. GP T that's literally checking every box you could check right now. The probability that that's gonna go the way you think it is is so insanely small. Take it from guys that have been doing this for 30 years and this is all we do and I've seen a million companies through this gauntlet. The probability is insanely small, which is fine. So long as you don't try to start off by optimizing for that goal for that. If you zoom out a little bit and you say, hey, I, I don't know what's an achievable goal that would actually keep us around till next year. So we can pivot and change and do all the things we need to do or by the way or not or not. Just, hey, hang out here with this. Yeah, this thing puking cash into our accounts every month. This will be ok. This is fine. Yeah, we'll get by. So I think what we're really talking about here is when we think about how to picture at a streamline kind of our future to say how big this business is going to be. I don't think we should be thinking about how is this a home run, the one hit that, that will end them all and win the game? I think what we should be focused on right now is getting on base so that we can be around long enough ideally to score some runs to score some points for this game because that's the only way you win. And if you look at time and time and time again, it's how every founder eventually wins. And that's a better approach. You know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you, which means the answer already exists. You may just not know it, but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot start ups dot com. So if any of this sounds familiar, stop guessing about what to do, let us just give you the answers to the test and be done with it and with that very definitive ending. Let's open this up to a crowd discussion as we do when we've got the audience here with us. Hi, audience, audience. I'm not seeing, let me, let me run back up through here. We didn't get a lot of chat but, but we got some good discussions. Hey, uh, will, can we bring you in dimes versus dollars businesses? Yeah. So, I mean, it's interesting. That was something that a co-founder and I used to throw around a lot when we were first getting started. For me, it was always about building product for him. It was about how could we get to like financial padding. And we talked about, you know, in our vision, how do we grow and um and build a company that is maybe focused on, on dimes in the short order and then maybe dollars later, like it doesn't need to be this massive corporation, it just needs to start somewhere small and, you know, if you can pay your bills and kind of get out of that headspace of like, where's the next next check? Where's the next customer coming from and start to, you know, get out of that and go, you know, more towards vision and opening up to new services, things like that, that was really enabling for him in terms of building the next business. For me, it was always about product and um product impact. So I also think that, you know, starts to be a question of why are you in business? You know, um and uh what's the purpose for you? But yeah, that was kind of a contrasting belief that him and I had and how we started to look through it and, and build a framework around it for the companies that we were starting. So he, he will was his opinion any different than yours. Yeah. You know, he was at a different stage of his career and really wanted to build like some massive large scale business and would come to me with these crazy visions. And for me, you know, I'm, I'm in operations. Um I was always a product ops guy. So building, you know, clickable prototypes and workflows was always my jam and um you know, for me, it's about impact. And so the reasons that we wanted to be in business were unique and different and, and we played off of each other pretty well for a long time and, and ultimately we ended up going our separate ways. But the reality was, is, you know, I don't think that there's a wrong answer to that question, at least in, in the context of how him and I looked at it, we just wanted different things. So how you compromise. Well, I think my role was innately, you know, fulfilling for me, like I was focused on the how questions, right? And he was focused on the vision questions. And so um it allowed us to both play into our ideologies when it came to what we wanted out of the business. And at times, we were totally butt heads in terms of timelines and what we wanted and, and, you know, uh what we thought the business needed. But ultimately, the compromise was in the responsibility we maintained to one another and to ourselves to just be one honest about what we wanted and to, um you know, focused on what we thought would be best for the business. So that's always a challenge. But it's also an important conversation to have early on. Right? Because a lot of time, you know, my concern isn't that, hey, I want to build a business, big business. You don't, it's the why like, like, again, will you touched on it? You said, why do I want to build this type of business? What's important to me? And I, I gotta say, and r maybe you see the same thing. A lot of times people just don't even think to have that conversation. It's like going into a marriage and not knowing what your goals are gonna be totally and how the bank accounts should be structured. Yeah. Right. It's important. All right. The next comment we had, this is just statistical. But I, but I think it's a, it's a good reinforcement and this was mate dropped in that, you know, there's something around 4% of all businesses do. Only 4% of, of all businesses do them more than a million dollars a year. Right. Which tells you a lot about what, aiming significantly higher than that actually means. Right. It means that you're trying to buck statistical odds, which is always a fun game. Why we don't see this for what it is, uh, is still a mystery to me in the sense that like the same way that we wouldn't say, look, my kindergartener seems pretty talented. Let me call Harvard, right? Why do you think you need to skip all of those levels? Why do you think that is how we define success for that? Because in that you inherently see the dangers of that, right? You inherently see there's a lot of mist growing up, there's a lot of things in our gonna happen that should have happened. It's the same thing in start up plan, right? There's, there's no, no version of us needing to skip. Sometimes it happens, right? Sometimes you just, you, you click on an idea and it just all of a sudden it goes and it grows really fast and that's wonderful. And there's nothing wrong with that, but that is by circumstance, not by design in pretty much every case, right? This idea that we are from ideation all the way forward. This was designed to scale. Cool. And there are some business that have done that. They're all so a massive graveyard of businesses who've tried that and failed right in M uh mentioning that uh Andrew Gaz Decky from uh choir dot com had tweeted about that this morning. I wasn't sure if that was the, that was the, the quote you're referring to, but somebody asked him to consider the source and Gaz only 4% of SAS companies reach 1 million revenue and only 0.4% make it to 10 million. This is the valley of death that has eliminated countless businesses scaling the 10 million A RR beyond is where a lot of promising start ups dissolve as revenue numbers increase. That number shrinks even more, which is basically, it's just trying to say, look man, as you try to, you know, accelerate these goals and try to make them more audacious sounds cool. I mean, you, you, you, you sound like a hero but actually pulling it off statistically, it's really low and so it's, it's almost like you're marching into a, into a valley of death of uh lower prospects and, and probability which is dangerous. Super. All right. Madeline, you're asking what metric is being applied. I think when we were talking about the goals of the business or the, the size of the business, do you remember what you're thinking there?
Wil Schroter: I mean, that was more of a Snyder mark than a question. But no, I I am genuinely curious, you know what? Uh and I'm sure there's, there's more than one meaning but yeah, I'd be interested in both of your guys' thoughts on, you know, what counts as what falls into that like large scale category. And then a second question I have off of that is like when you decide Ryan referred to it as the bifurcation, I believe, like when you're at that fork in the road, you know, put the founders feelings aside, right? Obviously, that's necessary but, but not sufficient to make the decision, the business itself. Are there like bright line rules you guys are or patterns you guys have picked up on in your decades of experience that allow you to kind of tell, you know, what type of business is really has to go the the big business route.
Ryan Rutan: Sure, I'll touch on the. So just to directly address the ego piece sometimes, yes, that is, that is where it starts, right? But it's interesting, I've just as frequently seen this be ego by proxy, which is to say that they walk into a room where then people expect them to expect to grow really big because of their own ego in this situation, right? They're the investor there, you know, they're gonna tell them like, you know, this isn't worth it if it doesn't become this and then all of a sudden they're like, OK, I guess this isn't worth it if it doesn't become this. So it's not even necessarily the the ego of the founder, right? It it's kind of this collective ego of the narrative that I think has really created the problem most of the time. I, I find that, you know, founders would be OK with the outcomes that, that are actually achievable, except that they're starting to allow the, the third party narratives to define kind of what they think they need to do. They're not picking their own goals, they're letting somebody else define the goals for them. Well, do you see that any differently? Yeah, I think it's a couple of problems. One, I think when, when um when we talk about the goals of the business, et cetera and, and Madeline, I want to point out, I think this, this whole point of this discussion today is, is we're talking about very different goals. The business needs to be this big. And my question is always why, why does it need to be that big? And, and so in my mind, if it doesn't map back to what you're trying to accomplish specifically, and I would argue that people's fidelity on their own goals is very poor. There is when I say how much money do you need? Like, well, I need 10 million in the bank so I can earn 8% so I can pay all these things. I'm like, yeah, you, you really don't need to hit that number. Like by the way, you probably won't. In second. That's not exactly uh how this needs to work because there's a million goals you're, you're missing in between there that could get you to the same place, you could have a business that makes $800,000 a year to the same place. Uh, obviously having the cash in the bank would be wonderful. But making that your only outcome or more specifically, not thinking through exactly down to the penny, how much of that money you need and where you're going to spend it. Because the other thing people don't think about is they, uh, like, well, I need to buy a house and I would love to get a boat and I'd love to go on nice vacations, et cetera. I'm like, cool, run a spreadsheet. Figure out exactly how much that costs down to the penny. And by the way, people don't pay for things in cash at that price point, you either mortgage them or you lease them. So saying I need to have $10 million because a yacht's 1.5 million, you don't buy yachts with $1.5 million you lease them or you run uh on them, which is dramatically cheaper. The reason I say that is because when people run these things, they kind of miss some really important aspects. Like if you talk to a kid in college, he's like, yeah, I want to have a million dollar house someday. So I need to have a million dollars in the bank is like, yeah, it's not exactly how you buy houses. So that's kind of a broken premise. My point is you don't have the fidelity on your goals. You've said I need to make X amount of money, but you never actually determined if that's how much money you actually need. What if you don't, what if, what you need is $321,000 per year to pretty much do every anything you've ever wanted to do in your life with very little to give up. But now you're optimizing for some uh goal that you probably won't achieve anyway, in making a series of bad decisions on your way to a goal that has no fidelity. That's my point. And I think that's a dangerous place. I think the man, I think that the goals are often messed up because they don't come from a place of high, high specificity agreed, agreed um to the second part of the question around the the bifurcation kind of the the the need for funding, right? The need to scale the determination of when that should happen. Are there bright line rules? Yes and no. Right. So I think that as we, as we get to a point where the ability to scale starts to become a bit more obvious, right? But that's kind of the point here in the beginning we're speculating, we're saying this thing could be big if all of these other things happen, right? In the case with later stage scale, what we typically see is there's a very strong indication that by adding another, you know, whether it's, it's marketing dollars or additional sales team or acquiring a couple of competitors, whatever it is at this point, this later stage scale, once you've proven out that, you know, you, you have that stable business, you are profitable and you make the determination you actually want to get bigger because this is the thing that, you know, will and I were, were harping on early. A lot of folks get to a certain point in the business and they go, you know, what growth comes at a real cost. Maybe I'll just pause here in cruise, right. This is actually a very comfortable pace of life of revenue. The team size is good. I still know everybody. I don't need this to be bigger. But I think that generally speaking and again, super super general here. But yeah, there are some, there are some good indicators when you get to that point. Are they static? Are they all the same for every company? Absolutely not, right. There's so many dynamics in a business, all that has to be taken into account. But it is far easier to see whether taking that step at all later stage will actually achieve that outcome. The probability is much more likely at that point. I don't know that, you know, the the level of certainty certainly increases, right, the target becomes significantly larger at that point. You're just that much closer to it, right? When we're starting out at zero and we're like, could this be a billion dollar business? Fuck if I know, right. If you're at half a billion dollars and you're like, could we get this to a billion dollars? Like, well, you're twice as likely as you were when we talked more than twice like this where we talking, you had $0 right. So, I think there are a lot of little things that happen that, that start to check boxes along the way that say yes, this thing has what it takes to achieve scale. Right. Right. Jack, you had some thoughts iii I considered like how big of a business could the start it be? One thing that really hit me was why does it matter? And why am I asking that question? Because as I reflect on that in my own founder journey, it seems to overlook a really critical point which is what problem are you solving and for whom and the reason that really comes to mind is because we know as start up founders, resources are scarce, which means we have to be super capital efficient with time, energy and money. And if I spend an inordinate amount of time on answering that question, which I have and I've learned the lesson of not to do that instead of really focusing on that problem solving to the point of finding really clear repeatability with use cases and an ideal customer profile. It's really, I think a waste of resources because, I mean, at the end of the day, the reason to raise funds might be, I know everybody's case is different but it could be that you do need to, you know, hire more talent to grow faster. But if you're asking that question too soon, um, at least in my case, we certainly learned, it's a, it's a miss, it could easily be a misguided question. Yeah, 100% of people need more than they have. Now, that's the nature of what we do, right? So if for anyone to say, I, I need to raise money because I need resources that I don't have. That's like no shit. Welcome to build up a start up for us. What we're really saying is, can I get this done without capital right now? And now it's very intimidating in the, in the formative stages to be able to answer yes to that. It's a very, very hard thing to answer because again, you will never be at a more leveraged state than you are at the moment. You're thinking about whether you need more capital because in your mind, you have a bunch of things that you need and if you don't have them, you can't continue. And so that feels like a pretty binary choice. So you go and raise capital sometimes that makes a ton of sense. Well, Jack, the one thing I'm just pointing out there to build on what you were saying was you always need more resources. It's not like because I need resources, I should raise money. Everyone needs resources. Whether you bootstrap or not. The question is, can I do it without capital? Which is, which is always where it becomes harder to be fair. 99% of businesses do it without capital. So when you think you're the only person that can't get it done, you gotta look at the numbers and say um maybe not but intimidating all the same. Yeah. And to your point around the the timing of that ask, I think it's, it's important. It is kind of what we were illustrating in the, in the previous question with, with Madeline. But I think that, you know, when, when I'm talking to founders and they're like, well, we, we need, we need money or we need this, we need that and they're like, why we need to accelerate or we need to scale. I'm like, ok, what's working really? Well right now? Nothing, I'm like, hang on a second. So nothing's working but you want it to go faster, nothing's working, but you want to scale it. You want to duplicate stuff that's not working and make it go faster. You like now that you say it that way, right? Maybe not, maybe not Hector, he had some thoughts for us. So you said you live this experience in 2012, tell us about it. Yeah. Well, you know, when, when when you and Ryan were talking about this uh this atmosphere, this environment that is in, in the start up world, like, you know, in 2012, I, I had a business, a consulting business and we use money to be an angel investor for a start up at the time. But you know, it was and, and I will go to the founder to pit us on, you know, San Hill Road and San Francisco and all that. And it was, it was a very intoxicating atmosphere that it always says it into VC. It's like, wow, but you know, what are your projections so low? What is your target market so low? And, and the founder got caught up in all that, you know, conversation about, well, we we, we need to be able to make it bigger people to make it bigger and bigger and bigger. And then pretty soon there was no direction in the company we were doing whatever the investors were looking for instead of what we were trying to do from the beginning. That's kind of how it goes. You guys kind of how it goes. Yeah, and it became a game to try to please investors in order to get the next round because every big business is built on trying to please investors because customers look around going. I don't want to use this app unless I know it's gonna please investors, right? That looks interesting. But who was the lead investor in their series a round, right? Like it me up but but it's real because you get to this point where the focal point of the company changes from external being, finding customers, et cetera to internal, we're focused on how, how satisfy your internal stakeholders. By the way, it's not just investors. When companies get to a certain size, they also lose external visibility in most of everyone's career progression is internally focused. Think of like any big business, any fortune 500. Your goal at that company is to please your boss and their boss and to have internal wins and maybe by proxy, the customers make out in the end. But as a company gets bigger and dysfunction increases, the focal point goes inward Hector like you were talking about as the company increases and one of those stakeholders becomes an investor, you start focusing inward, you're not thinking about what do customers want, you think about? How could we raise more money and what does the story have to be? So you make a lot of short term decisions often that don't make sense and you're usually not rewarded by investors either. The irony is once you start doing that, you're screwed anyway because the drug dealer taking their own stuff, right? You're no longer selling out work and it's a really, really difficult place to be. It usually ends poorly. Ryan, what are your thoughts? I agree. You know, it's funny, it's not just the capital market that we get caught up in this, right? It's, it's this kind of general issue that I see sometimes with founders that all of a sudden they're presented with a puzzle and instead of thinking about why or if, right, why do I need capital? Should I raise capital? Right. Why do I need to build this? Should I build this? They just, they get caught up in the, in the how like how can I make investors buy into my company? How can I meet up to the expectations that they have? How can we build that feature? How can we do this and all of the the existential question around the the why is this, what we should be doing right now? Just gets left in the dust, right? And this doesn't just happen with, with fundraising, this happens all over the place. And I think it's a really dangerous spot to be in. But you certainly and I like the way that you put that Hector it is an intoxicating environment. There's a lot of different intoxicants in, in the start up space and, and most of them are pretty bad for us because you know, we go from having that North Star and that clarity around what it was that we set out to build to all of a sudden an investor telling us the sky is full of stars. Why pick just one? Right? And I think that is the, that's, that's the road to disaster because at that point, you no longer have anything guiding your purpose and it becomes really tough to, to steer the ship. At that point. I think for all of us, when we look at, you know, our businesses as a whole and we think to yourself, ok, how do we scale this thing or, you know, how do we step back and say, are we building this for ourselves? And that's really kind of like the the core tenant here is who are we building this for? And why I think it's easy to get lost. I think Hector, you saw from investors, but we see it all over the place. Will you and your partner talked about it and you said, hey, you know, we don't necessarily, we're not building for the same things, having a very specific purpose as to why you do what you do. It's actually came up a couple of days ago, I was talking to an investor at some conference and he was saying, hey, you guys start, you know, help grow all these companies. Why don't you own a piece of all the companies? And I said that's not what we're trying to do. Like we're not an investor, we're just trying to help founders scale companies and he just couldn't wrap his head around it. And I was like, that's why we do what we do, right? He's like, I would take stock in all of them like, it sounds cool. We don't hate it. It sounds like a cool idea. It's just not what we're, what we're built to do. And he was just like beside himself that we could have a purpose that didn't align with this. That's my point though, knowing what you're there to do, knowing what you care about and actually just be able to pursue your own path. Guess what, at the expense of everybody else. This is actually pretty powerful. On that note, guys, we loved having you here. You guys take some time to spend with us. Uh Also all the folks that are listening, Ryan, you and I have been talking about this lately. We've talked to people that have said, hey, I've listened to all your episodes, which is over 200 episodes. I was at uh a founder dinner uh last week actually. And two of the ladies there said, hey, we've listened to all of your episodes and I thought to myself, that's incredible. You guys don't understand how much we appreciate the time you spend with us and we know it takes time and we love it. So again. Thank you so much for spending the time. Thanks for being on the podcast with us today and we'll see you guys online. So in addition to all the stuff related to founder groups, you've also got full access to everything on start ups dot com that includes all of our education tracks, which will be funding customer acquisition, even how to manage your monthly finances. They're so, so much stuff in there. All of our software including BIZ plan for putting together detailed business plans and financials launch rock for attracting early customers and of course, fundable for attracting investment capital. When you log into the start ups dot com site, you'll find all of these resources available.