Startup Therapy Podcast

Episode #31

Ryan Rutan: as a founder, when the business is struggling, it can feel that that struggle is inextricably linked to your personal life, your personal safety and you can suffer greatly as a result on today's startup therapy podcast, we'll talk about how important it is to isolate feelings of startup peril from those of personal safety for your good and out of the business. Welcome back to another episode of the startup therapy podcast from startups dot com. This is Ryan Rutan joined as ever by my partner Ceo Will, Schroeder will, we've talked before about how to gracefully shut down a startup, Right? And that's at one end of the spectrum of starting up from, you know, everything's rosy on, on one end. Um, two were out of business on the other, but as we get towards that end of the spectrum, right? And then there's an entire spectrum within this as we start to get to that things aren't going as we hoped they would write, it's starting to tank or it is tanking. What is that like from a founder's perspective, right? As our personal safety starts to get involved in this, how does that feel?

Wil Schroter: Well, I think part of what happens for us is wherever we are in the spectrum, right? And I think if it's, we have a bad quarter, we lose an investor, you know, as we're doing fundraising or again, all the way to the far end of the spectrum, like, hey, we're about to shut this thing down when bad stuff starts to be on the horizon or it looks like it starts happening all go through the same progression. We all go through this feeling like when we start to doomsday scenario, everything that's going to

Ryan Rutan: happen, you know,

Wil Schroter: and it's, it's, it's a really bad problem because most founders don't deal with this. Well, they don't, they don't deal with the anxiety, they don't deal with the, the forecasting and they start to think about their personal safety. And when that happens, they all of a sudden make it much, much harder to navigate through the problem. To begin. It would be the equivalent of your captain of a ship. I'm not going to call it the titanic because we know how that one that's so far into the spectrum, you're captain of the ship and your boat hits something and you immediately think I'm screwed. I'm just going to jump overboard and call it a day, right? Turns

Ryan Rutan: out somebody in the in the hole just tipped over a suitcase that you didn't actually hit anything. You just heard a bump and then you jump overboard, right?

Wil Schroter: Yeah, yeah. And I think what happens is as founders, we don't develop this ability. I think we should definitely talk about this today. We don't develop this ability to separate what's happening at the startup with what's going to happen to us. And when we lose the ability to do that, we make really bad decisions because we make them out of fear

Ryan Rutan: and at a time where we need to make the best possible decision. So you know, you said this before but there's this massive compounding effect as were put in a situation where we now need to be making really good, really clear decisions based on objective data and from a mindset perspective we're just not there,

Wil Schroter: we'll think about it this way. Think about if you're running a small startup, let's say it's a 10 person startup, but you had $10 million dollars in the bank And the startup is going to fail. The $50,000 a year check that you're drawing from the startup is no longer going to come in But you have $10 million dollars in the bank. Think of how much differently you could react to challenges. Now I'm not saying having the money would mean you wouldn't have any anxiety or you wouldn't care, but you wouldn't be first thinking about your personal safety. No. And then and then dialing that into your decision tree. It's

Ryan Rutan: the difference between playing contra with the three men you're supposed to have Or using the cheat code and having 99 you play very differently.

Wil Schroter: I love that Chief cook. I originally most of us don't have that in life right? But I think I think the challenge for us is that we inherently tether, here's what's going to happen on a go forward basis with the startup with, here's what's going to happen to me personally, let me give you an example because I was actually just got off the phone a moment ago with a founder buddy of mine, a friend that you know too as well and obviously won't say who, who called up and said I'm on the far end of the spectrum. Things look like this could be the end of days for my startup. And the first thing I tried to explain to him, I said, you're going to be okay? No, I'm not, I'm not going down with the shoot. But yeah, I've been working on this thing for six years. Everything I have is tied to this. Right? All my personal savings, I took money from my parents on this one. Right, tough move. Right? I've got tons of investors have dozens of investors. I've got employees. Nothing is going to be okay. I'm not going to be personally safe. This isn't one of those cases where I've got a bunch of cash in the bank and I've got a parachute. And I said, look, man, I'm not talking. You're not going to have loss. Okay. When I say you're going to be okay. I don't mean you're going to be, Well, I said, here's what I actually mean. You're going to shut this down. You're going to have hard conversations with three dozen people. The hardest with your family and it's just a, it's a tough conversation, right? Because you did lose them. However, when all that is said and done, you're going to get a job. You actually have good skills in the market and in a short period of time every two weeks, you're going to get a paycheck and your bills are going to get paid and you're gonna get fed and you're going to go back to living now, you're gonna you're gonna wish by the time you're done with your first tour of duty at the office that you could be, you're your own boss again and you will be. But don't think that because of what's happening right now, that you're not going to eat, that you're not personally safe. And that Ryan, that personal safe part is what I like to spend the most amount of time talking about because I think we really misunderstand what that means.

Ryan Rutan: No, we do. And I think again, it's it's part of just that losing perspective, right? Because everything else is spinning out of control, we just assume that personal life is going to go along with it. And as you said, the reality is it won't right. I mean, you can only fall so far, You know, unless you're in, you know, a third world country with zero support net and even then, I would argue, you're probably still going to be fine. You can really only fall so far right? And and by the time you've you've gotten to the point where the startup is tanking again, unless you're in that scenario where you've got 10 million in the bank, which is just not the likely scenario for most people, you're ask isn't that far off the ground to begin with? You're not going to fall that far, right? You've already come most of the way down, right? The plane has descended most of the way, um, that last few feet feels like the worst part of it. But in reality it, it just isn't and you're not going to go to total loss. Yes, startup will start up will cease to exist. You as the founder, will cease to exist as the founder of the company, but not as an individual, you're still a human, as you said, you're still going to eat, um, go find your job and you'll, you'll continue on. And, and so what you will, what, what do you think we can do? Like as we're, as we're thinking through this? Because, you know, we've both been through the same the same process a number of times, right? And in all parts of the spectrum, right? We've had, we've had the bad quarter, right? We've, we've had the investors, you know, back out at the last second. We've had, you know, a partnership fall through all sorts of things that put you into this position where you feel completely destabilized, what are some good tools that we can hand hand folks that, that we've used and I've got a, I've got a couple. But what are some tools we can give people to help regain that stability or at least regain the perspective to realize they're not as unstable as they

Wil Schroter: thought. Sure. So let's play this out because we're not just talking about people on the far end of the spectrum where things are going to shut down. We're talking day in the life for most journalists, right? You know, this is a hell of a journey, it's fallacious the entire time. And I think for a lot of us, what we need to do is we need to figure out how to kind of contain or control that anxiety a bit, right? Because the moment that anxiety and by way of that anxiety is our focus, anxiety grips more focused than anything else. The moment that anxiety gets completely pointed and focused toward, oh my God, I can't eat, Oh my God, my family won't eat. Oh my God, everything's gonna gonna get crushed. For me personally, it takes directly away from what we need to be doing, which is fixing actual problems. So Ryan to your point, as far as the tools go. I think the very first tool, the one I'd recommend, I'd love to hear yours. Mine always is start by recognizing that if I don't attack this problem, the problem being the fact that I'm not calibrated properly, I increase my chances of losing at whatever I'm about to do exponentially. I look at it and I say it's like this, we're gonna wrap 16 and it gets hit and we start going into the tailspin if we freak out and say, oh my God, I can't believe it, I'm gonna die. Then we're going to die. What we have to be able to do is we have to go through a progression and say, okay, first thing I need to do is keep my ship together long enough to actually do something about

Ryan Rutan: this. It's exactly, I just went through a scenario like this yesterday. In fact we were this is a bit different, but we were training jiu jitsu and I was in a very poor position against a much more skilled and larger opponent and he had what's called a cross collar choke on me and it didn't feel good and he was beginning to tighten this and it's it's cutting off the circulation to my brain, right? And I was desperately fighting to get one of my legs free and then I start to hear a professor say, what are you doing? What are you doing? I'm trying to get a leg free, like I couldn't respond, but like he sort of knew what I was doing and then I hear him say, don't you think you might want to focus on his hands? The part that's choking

Wil Schroter: you and

Ryan Rutan: I was like, you know what absolutely right? You you got to start with like what's the most critical issue, what's the thing that's going to stop you from moving forward in this case getting that leg free was not going to help me? Like, I, I think it was more possible than getting in the end, I didn't get my hands free or his hands free, I had to tap out, he choked me up, not, not fun, but you know, I'm still here, I survived right to this circle, right? Personal safety here, I am so knowing when to tap out, but it is about recognizing what's the most critical and so like if anxiety is just overwhelming your depression is overwhelming or whatever it is, that's going to stop you from being able to take the right action, that has to become the priority for me, one of the first steps I always try to take when I realize I'm in that situation is to externalize it, get it in front of somebody else and get their feedback because getting a little bit of perspective always always helps me, right? I find if I try to unwind my own anxiety, I just end up spooling it tighter and tighter and tighter, right? The minute I put out in front of somebody else, tell them what I'm worried about, they give me some perspective, you know, and they helped unwind the, the anxiety piece of it, right? They may not answer the question of what I actually need to go do, but they remind me that it's probably not as bad as I think, and that I'm probably getting in my own way and they'll give me some advice or some assistance on how to get out of my own way and then I can come up with my own solutions, right? And I can go do the work, but until I get to that point I'm I'm stuck, right? I'm fighting with my feet when there's somebody out there hands around my neck, right, doesn't make any sense, but until somebody points that out to you, you can't always live up to that, right? And so for me, I think that one of the best tools is have that sounding board have that person that you can go to. Um and typically for me it's somebody who's not involved in the situation, right? Because I think that becomes difficult too, because they're going to have a skewed perspective as well. So having that outside board of advisors or just a friend, somebody that you can go to, who understands you well enough to know what's going to motivate you, what's going to help you out of that situation, um goes miles and miles and miles for me.

Wil Schroter: You know, I I use something similar and I developed this during my first startup when I really did think that my personal safety was in jeopardy, I was only a few years into the startup, I was essentially a college student. I had no money, but I also had no recourse, so if things didn't work if we didn't keep bringing in income I actually wasn't sure at the time how I was going to eat and I know that sounds silly and almost antithetical to what we're talking about, but this is why I'm bringing it up. It was it was my first go around with feeling this way and at the time I didn't have any mentors, I didn't have anybody I could go to that could kind of coach me through this. I was on my own. And so what I did was I remember sitting down and opening up Microsoft word version one point oh probably Windows 3 11 to give you an idea of how far back we're talking On my on my 386. And I remember saying okay at the very least so that I can be prepared. Let me write down everything that's about to happen to me. And so I I wrote down uh as as sequentially as I could okay, first thing that's going to happen is this client's going to cancel. The second thing that's going to happen is that this bill is going to come do. Third thing that's going to happen is I've got about 60 days before the bill becomes really do past due and I have to do something about it within that here are the bills that are going to come due that I'm not gonna be able to pay that have actual ramifications. One of them is my rent. If I can't pay my rent, I will get evicted within 30 days, right? So I won't have a place to stay. And then I thought about it was like, well if I didn't have a place to stay, is it absolutely the case. There's nowhere I can sleep, you know, will I be on the side of the road and I know I can go to my girlfriend's house and sleep there, right? I mean it's not ideal. Probably not ideal for her either. But I could stay there and then I said, okay, well I won't have any money at all. I don't have any income. So how am I going to buy food? And then I thought, wait a minute I can get a job. I mean I'm still broke at this point at this point in my life I can get a job anywhere and pay for food so I'm going to have a place to live shitty situation but I'll have a place to live and I'm going to have food, I'll have a job I probably hate but whatever, that's, that's where it stops. I actually wrote down line by line where things were going to fall apart and where it was going to specifically and now what that did for me was so powerful and I think it actually changed my life at that moment because the moment I could see clear as day what the outcome was going to be to the extent that I could see it, what I took off the table was what I think we all do, which is create this amorphous demon. This amorphous outcome of peril that isn't based in anything that will or could or might manifest. It's just this dark cloud that we don't give definition to. And so by way of that we can never overcome it because it never has definition the moment. Ryan. The moment I gave it definition the moment I said, ok, here's what, here's specifically what happens. I'm going to sleep on my girlfriends at my girlfriend's house and I'm going to have a shitty job. That's it, that's exactly what's going to happen. It was an ideal. That's actually

Ryan Rutan: how I thought I was.

Wil Schroter: It probably is. But but the moment I did that, every time I thought, okay the client may cancel us. This may not work again. This is just a it's just a downturn in the business. I thought, okay, what that means is I have to go work at Blockbuster. Blockbuster is still open back then by the way and I have to sleep with my girlfriends at my girlfriend's house. That's it, that's exactly, that's the cause and effect the moment I took away the Amorphous black cloud, it sort of didn't bother me as much because I knew it was going to be bad, but it wasn't,

Ryan Rutan: yep, no, by the time you illuminate it and you get down to the reality of what practical things are actually going to happen. It's a hell of a lot of scary. It doesn't make it fun, It doesn't make it a sexy outcome. But it's not the same level of peril. You don't have to go into the depths of despair at that point worrying about whether it's going to happen or not. Um And I'd argue it becomes that much less likely that it actually happens once you fully address it and realize you don't need to be scared about that part of it so you can stop worrying about that piece right? Knowing that yes, it will be okay because I think and we've already talked about that fear creates so much drag on you as a founder that you have to shed it, you have to get rid of that. I would argue that if you don't, if you don't go through that process of illuminating the downside, it will drag on you and if it doesn't create the ruination of you in the startup. Um it will at least make it that much harder to succeed. Right? So being able to shed that is really important. And I think honestly it's the same outcome that I get from from my externalization right? When I go and talk to somebody about, you know, you wrote it down. I I talk through it and I basically, instead of you know, you know pouring it out. They somebody asked me the question like what do you think or anything you're gonna starve to death? Well, well, no, of course not. Okay. What are you worried about? Well, you know, I don't even know, we're gonna have to, you know, maybe we have to change houses like, well you change house every three years. What are you worried about? Like, not really anything, I guess. Right? So like, yeah, so you just get down to those, you know, when somebody else points out to you again, it's like, hey, focus on the hands around your neck and and see how how real of a problem that is and then continue to move forward, right? But you have to shed that fear first. Um, and feel secure in your personal safety before you can possibly do anything to help the startup.

Wil Schroter: I had this happen again much, much later in my career, I was, I was running a startup and it was going horribly and I remember about halfway into it, I realized, you know, I'm spending more time these days in the shower up at night in the middle of the night, thinking about how I'm going to fail far less time thinking about what I'm going to do right? Thinking about, you know, productive decisions. And so I remember drawing this little sketching this little pie chart And I just put it at 90 Of my time in cycles right now are going toward anxiety, fear creating and managing that black cloud, going toward actually doing something about this problem, good thing. All that anxiety

Ryan Rutan: turned into cash at a local supermarket, right?

Wil Schroter: Yeah, no, it's, it's, it's ridiculous, right? It's like, and I remember sitting there thinking, jesus 10% of my time right now is going towards fixing a problem that I'm putting 90% of my concern into. And by the way, it's just so funny, this is so dumb. There's this great guns and roses line um, from, from the appetite for destruction where Axl Rose says, I don't worry about nothing because worrying is a waste of my time. And I remember thinking about that and I'm sure axle probably wasn't doing a pie chart with his 10% versus 90% of the time. His point was a little bit different. But it was so spot on for some reason that kept repeating in my head because I kept thinking It is a waste of my time, this 90% of time where I'm worried about this fake sense of safety is destroying my ability to actually go solve this problem.

Ryan Rutan: Worrying is what happened when solutions aren't

Wil Schroter: when I sit down with other founders, just like the founder, I told you I sat down with today and I see the same progression happening, you know, where we start to put all of our time and focus and energy toward, uh, worrying about whether we have safety, worrying about our anxiety stack, etcetera in there real, we all go through them. Again, there's, there's, there's no way around feeling that way. That's how you deal with it that matters. And again, we sat down and I started picking off one at a time because I'm actually forcing him to externalize it. Just like you were talking about Ryan and I started saying one time, look man, here's the, here are the things that are, here are the outcomes. You're not going to be able to get your investors their money back. This is a huge problem for you to be honest. Most of them don't give a sh it right. Most of them, you know, they already wrote the check, it's gone. They're not expecting to get it back. And so in their mind they've already passed it. So once we started to go bullet by bullet over all the things that he was worried about all of a sudden, he was like, yeah, you know what now that you put it that way, things are going to work out what we're going to work out the way I expected him to, but they're going to work out. And I think for startups specifically because we go through so many of these moments, I think that Ryan, I think that level of anxiety, that pie chart of anxiety almost stays like Baseline that 50% even relatively good times.

Ryan Rutan: Well, yeah, as with within in relatively good times, you've got to be worried that it's going to change, right? Like there's always, there's always something

Wil Schroter: and what I like to do and I use a lot of video game analogies in these podcasts, but I like to kind of have like a save point, uh, in my game, so to speak, my game being life that says, look, if everything goes to hell, I'm at least not going to go any further any lower than this point. And I'm kind of okay with that. Um as I got older in my life, it had to do with some savings, paying things off, you know, having the things that I needed in life in order to operate. And I always looked at those as a baseline and I said, so long as I can, I can get to my safe point, my baseline, I'm willing to make some big decisions and have less anxiety over them because I know I've got a fallback

Ryan Rutan: state. Oh yeah. I think there's an entire podcast just in the, in the kind of life design infrastructure, design of life that allows you to get to that point where you can kind of build that personal safety net over time. Um, not at the cost of doing other things, not the cost of doing a startup, but this isn't well, you know, save for 30 years and then once you've paid off your house and you've got the college funds already, then start your startup, But I think that there definitely are things that you can consider that would, would drive towards a better safety net, right? And again, knowing that you've got a softer landing, right? It's still not going to be awesome if the startup fails everything, tank's not going to be awesome, But again, if we can, if we can create that feeling of personal safety, it goes a long way. And again, I would argue til blue in the face that taking that fear away makes you that much more likely to succeed at the startup level.

Wil Schroter: If you can't separate your personal safety from the start up itself, I feel like that leads to so many crap decisions along the way, right? Because let's face it, for most of the time that we're building our startups, we're building it on our heels, right? We're getting knocked over time and time and time again. And so we're constantly in this place where we're worried about our downside because sh it man, it's all downside, you know, for years, it's just all downside, Burning through our personal savings, it's burning through, oh my God, I didn't think we're going to get into our four oh one K. But that's gone now, I didn't think we'd ever touch our college kids college fund probably shouldn't, but it happens right? Getting our heloc, we get into all these different buckets of cash, we never thought we'd get into if you're earlier in your career, you're burning through credit cards. You know, you're maxed out on your credit cards, not to mention your student loan debt and you're thinking I'm on my heels at every possible level. I think when we get so conditioned to feel like we're always on our heels that were always managing downside, it's really hard to be aggressive, right? It's, it's really hard

Ryan Rutan: for us. You can't switch to play offense.

Wil Schroter: Exactly, and and that's, that's brutal.

Ryan Rutan: It is, I mean, it's like, you know, you use the on your heels analogy, I, I immediately think boxing all right, you're constantly backing up, you're constantly backpedaling. It's extremely hard to turn that into offense, right? And not just continue to get pummeled. Um, and so again, I think that like a big part of that is just regaining perspective, right? And, and not arbitrarily tying it all together either. I think in the same way that we want to be able to, for our feeling of personal safety, if the startups tanking, we want to feel personally safe, I think that we also need to be able to separate things like student debt and you know, personal debt, other things that have happened that are actually outside of the startup and not let those invade how we do that either, right? I think the minute you start to allow negative confluence between life and startup, it's bad, no matter what, right? And so to be able to have that level of perspective and isolate those things and say, hey, look, there's a lot going on, right? I'm on my heels with the startup, I'm on my heels personally. Um, but those two things aren't necessarily related and so I shouldn't be afraid to be aggressive with the syrup. I shouldn't be afraid to get back on offense, I shouldn't be afraid because if I am, we can all kind of predetermine that outcome. We know where that goes. If you can't do the things that you need to do because of some psychological hang up around, you know, how you feel about your personal life in the context of the startup, it's just not going to work right? You're not going to have the power and the fortitude, you need to move this thing forward.

Wil Schroter: You know, there's another part of that, which, which I think a lot about which is how much downside am I willing to accept. And so you mentioned about moving houses every three years I think, you know, and I talked about having a personal save point, which I don't want to go lower than than than what it is sometimes what's been helpful for me is to look at the downside and say, you know what I'm actually willing to accept a little bit more downside. Now, that sounds odd, you know, where you and I are further in our careers, the idea of going backward is particularly tricky for us because we have fewer of our best years to move forward, however, and I give this a tremendous amount of thought if if I had to go a few steps back from my safe point, you know, a few tears lower than what I would be comfortable with as my lowest baseline. I also play that I might let you know, I also play that out and I say, okay, I've got a wife and two kids, if we go from living in our house to living in a rented home, because, you know, we need a little more space, but or if not an apartment, what would that look like? And here's what's interesting, we've actually done that when we lived in san Francisco, we lived in an apartment um and we still had our house in columbus, but when we lived in san Francisco, like a lot of people, we lived in an apartment, um and it was a fraction of the size of our house, not ideal, but we knew exactly what living in that space would be like, right, so if in a down downturn, if we had to go a few save points lower than where we are, we know we'd be ok at the end of the world, it's not the end of the world, it wouldn't be ideal, but it wouldn't be the end of the world, and I remember talking to my wife Sarah about this and I said, look, this is what our life would look like if sh it really hit the fan, if things really, really went

Ryan Rutan: sideways, we're gonna downsize, we're gonna, we're gonna leave one of the kids at the park and we're going to move to

Wil Schroter: jesus, but I said, uh I said it wouldn't be ideal and I'd be frustrated, but we'd be okay, and so then I think about everything, I think about every, everything that that we have as a family in life right now, if we had to take it down a couple notches, how bad would that be? Not ideal? And I got to say, I've had some friends who have been through an entire, entire cycle where they were doing okay, going into the startup, things went well for a minute and then it really, really went sideways and so, um if, if on a scale of 1 to 10, they were at a five or six going into it, they came out of it at a two or three, sometimes a one or a two, which is a hell of a fall, um but you know what, when they actually went through it, when they actually lived it firsthand, like, it wasn't as bad as I thought it was, it's not great, right? But the actuality of it, it wasn't that intense, and so what I've done as I looked at, okay, if things didn't go well, what's my, my first kind of backstop save point, but then I've also gone further, because I'm just ridiculous about this stuff, and I said, okay, what about a notch below that? And what about a notch below that. If things were almost as bad as they could be, what would they look like and doing that? It may sound like an awful lot of effort. Let me tell you what's an awful lot of effort. An awful lot of effort is spending all of your time Not knowing what that looks like. But spending 10 x more time worrying about it all the time, worrying about that. If you make this, this one decision within your business, this one bold move that if it, if it goes wrong, some amorphous weird thing will happen. So you don't have the ability to make that decision. That's what I fear. I fear not knowing what will happen.

Ryan Rutan: Right, fearing the unknown when, when you're laying on your bed and you're afraid of the monster beneath your laying there with a flashlight in your hand, right? The advices, shine the flashlight under the bed, it's not going to be nearly as bad as what you think. It's probably just your sister's cat.

Wil Schroter: Yeah. You know, um, when we, uh, when we bought zero actual, we talked about another podcast, it was a very large acquisition that we did. Um, we put a lot of money, our own money uh, up to uh, up to the table in order to make that happen or sleep. What's that? Is that in all of our sleep. Yeah, yeah. And, and, and um, you know, we made that decision on very little sleep. I didn't recall. Um but my point is the reason we could make a cowboy move like that and others that we've made is because we know exactly what our downside looks like. So this isn't Ryan, this isn't just about, hey, how do I deal with with with life in the startup when things are going poorly? This is also how do I know that I can make calculated bold bets even when things are going well because I know I know what my downstairs looks

Ryan Rutan: like. I just kept, I kept thinking R. O. I. R. O. I. R. Oi over numbers you were talking about going, you know, back using your analogy, going back another save point, back another save point down another level. Um, you're making that decision with the anticipation that there is a return on that investment, right? That's not just a concession saying like, well, I'll just accept this new state in life. No, it's a step backwards that you can take one forward. But again, I think that there's a precursor to that willingness that is having the right perspective, right? And it goes back to, you know, you plotting it out me talking it out and understanding what the reality that is right? Because you can't make that decision. You can't you can't make the R. O. I calculation unless you know what you're putting at risk, right? And then once you do know that you can have a whole hell of a lot more comfort in making that choice.

Wil Schroter: You know, this is a risk based business, This is a business where we gamble and people are gonna, are gonna want to say no, I don't gamble, I make calculated bets, no, okay, you can't predict the future right? Um when when I gamble, uh Sarah and I were actually taking a trip to las Vegas last week, in fact, when we gamble, we always do the same thing, we're lame, we play blackjack, we really enjoy it. Let me say that differently when we gamble, winning doesn't bring us that much pleasure, but we freaking hate losing. So

Ryan Rutan: how to manage downside by wil schroder.

Wil Schroter: Well, this is actually what I was going to explain, because this is I'm going to use the black jacket analogy, but I'm gonna point directly why we make similar decisions. When Sarah and I sit at the table, we split our our ships and we count how many chips we started with as soon as we're up a little bit, and for some reason we always seem to start up in blackjack, which is I guess great. The first thing Sarah does, I should give her the credit is she picks up all the chips that we put initially and she puts them in her purse Invariably as the night progresses, and we're getting up or down. I totally forget because I've had 20 vodka gimlets coming through during this entire time how many chips I started with. And but she knows the entire time the reason she's so uncomfortable because she knows we're just playing with house money. We make a calculated decision going in as to what we're willing to gamble and what we're not willing to gamble because we know what our downside is downside at this point is nothing because we're playing with house money, even still the amount of money we put on the table to gamble with to begin with. We only put the amount of money we're willing to lose calculated bet in all of these different scenarios. We're able to get more aggressive about our bets because we've already established what we're willing to lose. And we've already, in all fairness, right? That's what I was saying. We've already established a couple levels below that as well. I rarely, rarely, here startups talk about this founders talk about this. I rarely hear them say here's what I'm willing to lose at the end of the days.

Ryan Rutan: I feel like they feel like they're not sure that they can actually define that. I'm just thinking through a lot of the conversations, I've had that pointed this direction with people and I believe that there's just this fundamental misunderstanding that some of the downside truly can be managed, you can decide where it stops and I think it's I think it's rooted in the fact that you're in a situation where things that you thought you had control over your startup are now going out of control. And so I think that you lose perspective on exactly where that stops right there. You know, it can't come and take away your birthday, right? That's not that's not a thing it can do right there. There are some hard limits around where the spiraling out of control will end. Um and particularly if you're, you know, if you're aware of what those are and you kind of plan and manage to that, but I think that's where it starts. And I think it starts with a fundamental misunderstanding that I do have some hard limits on you can't stop the company from failing necessarily right, But you can limit the impact that it has in your personal life if you choose to write, you manage towards that. But I think it starts with that fundamental misunderstanding, that there are some limits to where that spiral ends.

Wil Schroter: Yeah. And there's gonna be folks that are going to say, look, I don't think what you're saying pertains to me and here's why I've put up a lot of my own personal money I have, I have every bit of my personal wealth tied into this business. So when you tell me that I can just walk away, I can get another job, I can limit my downside. No, I can't if I walk away right now, all of that debt comes with me, I'm the owner of the business etcetera. I would agree that that's entirely true. That's also part of my calculation, a lot of my cash has gone into the business. Um But I look at that as money spent and I look at that as upside lost, but I don't look at that as anything that can get worse if I don't let it.

Ryan Rutan: Right, right, that that's already spent. As you said, I mean like the time to make that decision, the time to manage that downside was when you decided to put it in. Not later. Yes.

Wil Schroter: Well and even still um at which point you've put all the money in, you know, you've you've basically all of your net worth tied into this business, which, let's face it, it is pretty commonplace, The business can still fail, I can still go find other ways to make income, I can rearrange my debt. I can be k if I have to, there's a lot of ways for me to then manage that downside in different ways. A friend of mine told me this and this is really horrible advice, but it was interesting at that time. Um um I'm probably 21 years old um starting my first business And I'm a little over $100,000 in personal debt and I've said this before, real debt, like credit cards, personal loans from banks, the kinds of things that you can't easily unwind and the only way you can unwind is with, with the bankruptcy. I'm picturing

Ryan Rutan: calling american Express and, and and just trying to talk to them like an investor like look, you know, I understand that you had high hopes for this business when you began to invest in me. Um but the reality is we're going to shutter like wait, we we we didn't invest in you, we gave you a credit card. Yeah. Oh well yeah sure. Yeah, very different discussion

Wil Schroter: and someone on the phone with a friend of mine and and he's a business owner and he said to me something that's always stuck with me and again this is, this is horrible advice. He said, well the moment that uh you owe the bank a little bit money, a bit of money that you can pay back, they're in control the moment you owe them so much money that you can't pay it back, you're in control. That's

Ryan Rutan: actually

Wil Schroter: who also said that sadly is one donald trump, remember he went through essentially a BK style process, He was about $900 million upside down I think in the, in the early nineties and he said something the same way, what's that

Ryan Rutan: said? It was a big number,

Wil Schroter: it was a huge number and and he said, he said kind of the same thing by the way, I'm by no means trying to talk about how you get out of your debt, etcetera. What I am saying is that there are leverage points when you're, when you're that upside down, because I'm talking to the folks that are that have everything in the business, they have all their savings, they have all their debt etcetera. At which point it goes so overloaded, you are in the driver's seat and how you're going to negotiate that debt, because only you have the, the opportunity to figure out how that's gonna be structured for a payback. Not ideal, what I'm saying, I don't want to manage the process. Yes, yes, it's it's a last, last, last, last resort. What I'm trying to point out is in all of these situations that all of these downside scenarios, it's your decision as to how you're going to navigate through them and if you don't proactively figure out what the downside scenario is, what all the different outcomes may be and how you'll manage those. So you can stop thinking about that, You can get that 90% of anxiety off the table And focus on the 10% that you're supposed to be focused on, which is how to get this business on the right side. So you don't have to think about the downside, that's where your head is supposed to be at,

Ryan Rutan: yep, that's that's exactly it, right, and when, when you you plot that out and you go through the modeling, you essentially end up with some, if this then that type scenarios right? And so you don't have to make the decision in the moment when you're least likely to be in the right frame of mind to make it. And you've already thought through these things, you've already set some, you know, some downside triggers in place. Um, and I think that even just that exercise again, like I'm all about trying to create that that mental and emotional freedom For the founders for ourselves, such that we don't get trapped by these things in the first place because the minute you start that pie chart shifts to 90% worry, 10% action that accelerates out of control really, really fast. You are now a tractor trailer on a downhill without brakes and and none of those escape ramps, right? It's a bad, bad situation,

Wil Schroter: Yes, terrible. But look as startup founders, it's our job to separate our downside provisions from whatever problem we're trying to solve right now and everybody is relying on us to take that step. Our investors are relying on us, our employees are relying on us, our customers are relying on us, it is our job as founders to be able to build that force field of downside set that, forget about it and focus on the job at hand. And frankly, that's probably what's going to bring our startup from the brink to begin with.

Ryan Rutan: That's a wrap for this episode of the startup therapy podcast. This is Ryan Rutan on behalf of my partner Wil Schroder and all the startups dot com family thanking you for joining us and we hope you'll continue to join us. Be sure to subscribe rate and comment on itunes or wherever you love to listen to startup therapy. You can find all of our episodes at startups dot com slash podcast. If you're looking for more amazing resources to launch or grow your startup, be sure to head to startups dot com and check out startups unlimited. It's everything we have to offer from our online university to our amazing community of experts and founders and even all the tools we've built like biz plan, fungible and launch rock. It's everything a founder needs visit startups dot com slash begin that startups dot com slash b E G I N. You'll thank me later.

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