Transcription
We live in a world of hedging. We live in a world of thinking with bets, backup plans, you know, contingencies, etc. And in a sense, that's very rational. Okay.
Um, but what if you didn't live in that world? Like what if you like positioned yourself against that? And what if like you tortured everything you worked on to try to be great, you know, within the context of a company? And I think that is the core of a miracle factory.
All right. I'm super excited to be here with Ali Reagani. He was the COO at Twitter in some of the most formative years. You had exec roles at Pixar, worked directly with Steve Jobs for many years. You started and ran the YC growth fund. You've been an angel investor in amazing current companies like Curser, Deagon. You've got your own fund now. You've also been like an adviser to a bunch of people in our ecosystem like me over the years and so many others. Um, and so you're just someone I've looked up to and wanting to talk to on the show for a long time. So, thank you for doing this.
>> Oh, it's a pleasure. I'm psyched to be here.
The thing I want to start with that is so interesting to me is the Pixar experience. And you were there for 10 years around 2000 to 2010, give or take. And what's shocking to me above all is it seems like year after year after year, they just released like bangers and everyone was good. And most movie studios I feel like some of the products are good, some are not. But like here we had we had Monsters Inc., Finding Nemo, The Incredibles, Cars, Ratatouille, Wall-E, Toy Story, like it's just up. It's just crazy.
>> And so I guess my first question is, >> and I don't think I skipped like a bunch of misses or something. How did that happen? Like how is the quality bar? What What went into making that happen time after time?
>> You know, Pixar was a miracle factory. That's that's how I thought of it. Um, you know, you start with a blank sheet of paper and then four years later you have Finding Nemo and then you start with another blank sheet of paper and four years later you have The Incredibles, Ratatouille, Up and so on. So like the interesting question is exactly what you asked like how is that possible? And I think for me I thought a lot about this question and I think for me it kind of boils down to really three big things.
One of them is we only made movies that the directors themselves felt really passionate about. It wasn't uh film making by committee. It wasn't like some executives ordering up a movie or like let's do a mad mad lip style with focus groups or whatever else. None of that. It was like what was the story that somebody who was really talented truly wanted to tell.
>> and then we put all of our eggs in one basket. Like there was no thinking in bets.
>> There was no hedging.
>> Stuff wasn't getting killed along the way.
>> No. No. And it was once we were committed to a director and to an idea, it was like
>> allin and it was this focus almost like it had to be great. The future of the studio depended on it so it would be great.
>> What percent of the studio would work on a given movie while it was being worked on?
>> At the beginning before we could have multiple films going at the same time, 100% of the studio worked on one film. So I would say for the first three movies or so, 100% of the studio worked on on the film. And that started to change with Toy Story 2, which I think is kind of the seminal movie in Pixar history. Because Toy Story 2, it was a new creative team, not the creative team that made the first couple movies, new creative team made that movie. And when the creative team like finished up on Bug's Life, which was the second movie, they turned their attention to Toy Story 2, which was supposed to come out just one year later. And they looked at and they were like, "This isn't good enough."
>> And so they replaced the creative team. They took over the movie 9 months before it was supposed to come out. And if you know anything about animated film making, 9 months before the movie comes out is like not when you start over. You these films take multiple years to make. And they rewrote and remade the movie from scratch. And it almost like killed the studio to do that. But you know, Ed Catal talks about that was the the moment in Pixar history because faced with a choice of like do we release something we're not proud of or do we kill ourselves to release something we're really proud of, the studio made the choice to to like stop everything and focus on like making it great. And that established a culture like a set of norms and this notion of like we don't think in bets like we're all in no hedging like and and I think that really means something. So that's the foundation of it.
Um and then there are two other things in terms of the process that I think are super important. One is like the the Pixar films were made and remade and made and remade like a dozen times before the audience ever saw them. And not many people know that. But what we would do is we'd have this process called story reels and we would expect the directors to write essentially a moving comic strip version of their movie and temporary version of the movie produce that three to four times a year and then and that was and it was shown in p in public within the studio and you know we'd get the brain trust of the studio creative brain trust together and they'd give a bunch of notes on this thing. So there was a rapid prototyping process and the thing that was important was not how bad the movies are when they started but that they were showing like improvement from screening to screening to screening. And so this like making and remaking making and remaking process um was really important. So that's two.
The last thing is there was an incredible sort of like open feedback on the films um meaning like you were expected as a director to hear the feedback of other filmmakers on your movie. you you you had the you know the decisions were yours in terms of what to do but um but you had to hear it you know and so we built this uh sort of culture of it being safe and okay to show work that wasn't finished to show imperfect work and that just meant that the work in process work always got better as opposed to someone working for two years and finally showing you something and you saying like okay that's crap you know if it's that kind of a kind of a culture then the feedback is is shattering and it's not sought but if it's feedback where it's like okay to like show incomplete work and the leaders of the studio when they're making films are showing their work when they know it's not very good then it I think breeds this culture of like always getting better.
>> Yeah.
>> That decade like the 2000s I guess Apple was and is also very much like that. Like you know you back you go back and you think about going all in on the iPod and then the iPhone like that was also I guess it couldn't have been a thinking in bets culture there either, right? Certainly in terms of the quality bar that everything they release to the public has to be great and that you take the time to make sure it's great. I think in that sense um probably I don't know if Apple had I think from just hearing from the outside there were lots of things they were working on that they killed you know along the way that they just didn't think was good enough or I mean there was rumors about a television set and all this other stuff that you know you and I have heard about. So I think there probably are some similarities.
Um but
>> you know different businesses like different process. I think I didn't fully realize this until we were chatting before, but Steve Jobs was CEO of both, right? Like he was running Apple through this, I guess, turnaround. Yeah. And getting, you know, the sort of iPod and iPhone and everything else in those years, but he was CEO of Pixar during that same time.
>> Yep.
>> And for at least some number of those years, you worked directly with him.
>> So, I guess I don't know other people who have worked directly with Steve, so I kind of want to ask a few questions about that.
Um,
>> what was I guess just to start like what was he like? like what was working with him like in a sort of regular cadence business? What was that like?
>> You know, he was the most um impressive like business creature um I've ever been around in a room. And it wasn't because he was famous or was like, "Oh, there's Steve or anything like that." Um and in the end of the day for me it boiled down to a set of basic skills that he had. You know his ability to break down a problem in real time. His ability to communicate it really clearly. His ability to inject urgency and kind of like cadence and urgency and importance to everything that we did.
Um all of his stuff kind of was in service of like um all of his basic skills were in service of like trying to create as fast as possible a map of the world, a map of reality in every discussion that would help like guide the discussion and help us get to the truth. And so he was so good at like you know developing this generating a map of the world and even if it had he was wrong about certain things like you fed him new data and he would like recalculate it and it was it you always had the feeling being around him that like
>> wow like this you know I thought this game we were playing was like level one to three but then you saw somebody that was like at level 20 and it was like incredibly inspiring just the way he did the basic stuff.
So, like what are some of those like those basics like communication and like understanding and pulling things out of people? What what specific sort of things stuck out to you there? Like can you share more of those like basics done really well? Cuz I feel like I can't remember where I saw this recently, but someone was talking about like if you don't know what like your equivalent of practicing scales is, you like, you know, need to figure that out. And I feel like when you're talking about basics, like that's something that doesn't get discussed enough in like business. Yeah. because especially as a CEO or an executive or an investor, you kind of don't even know what your basics are a lot of times. Like what what were those?
>> Yeah. So, I mean, it was really some of the things I mentioned and I think what happens with most of us, you know, I'm certainly with me is like you get pretty good at communicating. You get pretty good at like exchanging ideas or like trying to decipher something or developing your own mental map of the universe or mental map of a particular problem, particular discussion.
>> Yeah. And then you feel like you don't need to refine it more.
>> Yeah. And you don't even think about it anymore. Like you just take it for granted like I'm pretty good at this, you know? And it reminds me of like I was a German student. I went to Germany and for the first like six months I was there, my German was terrible. And every day I would come home and I would work and work and work and work to get my uh German better. And I got to a certain place where I could no longer embarrass myself and stop working on it, you know. And the thing with Steve was you got the impression that he was like always sharpening the the saw. He was always like, you know, it was always it could be better with everything. It could be better. I could communicate better. My the email could be better. I could motivate better. I could communicate. like he just it just felt like he really worked at it. And you know, um I've been asked a lot over the years, what was it like to work with Steve, etc. And you know, I would I would say some version of this talk about basic skills, you know, not knowing if it really landed or people understood.
And then on the 10th anniversary of his passing, I read um an obituary that was written for him in the Wall Street Journal by Johnny IV, who's obviously the famous head of design who worked probably more closely with Steve than anyone. And there was a line in that obituary that really stuck with me. It said something like um Steve was obsessed with the nature and quality of his own thinking >> and he worked so hard at it to be able to always uh think with a rare elegance, vitality and discipline or something like that.
>> And when I read that I was like that's what I meant. That's it. That he worked on his own thinking. So he was not just thinking about like the business, the products, his team. He was thinking about his own thinking. Wow. As like the generator function of like everything he did and everyone he interacted with and every idea that he like critiqued.
>> Do you think that was like an internal process or did he practice that with others somehow? Like did he let other people in to give him feedback on his thinking and that's how he did it or was he just so reflective and so focused on it? And I guess the reason I'm asking is if somebody else wanted to do that, if I wanted to try to be better at that, what's like the path to improving my own thinking?
>> The honest answer is I don't know. Um like he may have had certainly early in his life people who like you know mentored him or that he learned a lot from or but I think honestly it's um mostly a solitary thing for all of us. And the nice thing in a way is like we live in a world where like a lot of our communication now is recorded. Like if you think about you know all the meeting recorders on Zoom and you know you give a talk in front of a big group or you know this watch this
>> yeah you can watch it and then you can always ask yourself like how could I have been clear? How could I have asked this better? How could I have been more motivating? How could I have injected more urgency into it? And and the important thing is recognizing that there are 20 levels to the game. They're not just three. And don't be satisfied with like getting to level three and you're pretty good because like Steve was at level 20 and then when you were so good at the basic stuff, the stuff you use every single day to generate your mental model of reality and find the path, the strategic path forward,
>> those basic skills over a career compound more than anything else because these are skills you use every single day.
>> It's funny that you say that about it being solitary. One of the things that I feel sad about for myself and I think this is probably true for everybody is like I think people don't think enough. Like I think people don't just quietly think very often and like you know any downtime we have like we're on our screen and people just rarely I think this is why like walks are powerful honestly it's like one of the easiest ways to just like go think
>> right yeah I mean another thing about Steve is you know he was a he he thought really quickly on his feet for sure but you know whenever he had big presentations to give for Apple or whatever he would spend like two months preparing he would go into this hermit phase and we would rarely see him during that phase at Pixar he would come crumb around less and he would just be working on this presentation And so I think there were a bunch of lessons by himself
>> by well no I'm sure he had a team but like it was primarily like a lot of focused attention on his presentation and rehearsing it and rehearsing it and making it better.
>> Um look I think the lesson for all of us and especially like the lesson for like anyone trying to get something off the ground or early stage founder or whatever
>> is like like just always focus on sharpening the the the saw. Always focus on that. Don't assume like you know you're good enough ever. There's always better.
>> Um and if you focus on like the basic stuff like that like really compounds. So I guess like think about your own thinking because if you can make that better the like downstream impact of it is really profound.
>> What what did you learn that you can share about Ed Catmill or John Lacader who are the other leaders? I think Ed Catmill was the architect of the miracle factory in my view and um he um you know like this idea that like we have to make everything great.
Um uh which by the way like if you think about it you know again applying it to like I mean what what greater aspiration would anyone trying to start anything have than to try to build a miracle factory of their own you know and so like you know I think really for Ed it started with like having an extremely high bar
>> for what was great you know and always trying to you know you perform to your own expectations or you perform down to your own expectations and like he helped he and John both um who was the chief creative officer at Pixar held the studio to an incredibly high bar about what was good and they were willing to pay the costs of you know whatever cost was necessary to maintain that bar. So
>> I think that's the key. It's easy to say but there's cost associated and they're personal and emotional financial there's a lot of cost associated with maintaining a high standard.
>> That's right. So I you know I mentioned the Toy Story 2 story. The other the other story at at Pixar was Ratatouille where you know the film wasn't coming together and the director of the film was replaced. another director was put on the film and then the film was essentially and then they delayed the release of the film by I think six or nine months or maybe a year I don't know some period of time which in animation time is a big deal and it makes the movie a lot more expensive.
>> Um but then Ratatouille becomes like one of these incredible you know members of the sort of like cannon of Pixar.
>> There was this great uh tweet from John Collison and it ended with basically like the world's a museum of passion projects or something like that. basically just that like every good thing you see in the world like somebody had to sacrifice a lot to produce anything at a high standard. Yeah. That sticks with me. That's right. Hurts. Yeah. Yeah. And you know and we live in this world where you know particularly investors and look investing isn't like Pixar but in a lot of ways but like you know we live in a world of hedging. We live in a world of thinking with bets backup plans you know contingencies etc. And in a sense that's very rational. Okay.
>> Um but what if you didn't live in that world? Like what if you like positioned yourself against that? And what if like you tortured everything you worked on to try to be great, you know, within the context of a company? And I think that is the core of a miracle factory because what you say about like how did they repeatably produce success with no flops.
>> Yeah.
>> It's because like they had that mentality like everything had to be great. It's funny the I would say the thinking in bets mentality is um it's not discussed that much but it's extremely central in tech like to how startups think to how investors operate
>> to even how you know people working at startups manage their careers I think people think in bets in a real way and you're kind of describing the the extreme opposite
>> yeah and I personally I don't think startup founders should think in bets there's an argument for investors thinking in bets it's just a different game but startup founders thinking in bets I I don't think is the right thing. You have to choose the quest that you have like extreme conviction in and like you'll sort of like die trying to make this thing work.
>> because it's so hard and if you're not committed pot committed then it's just that much harder.
>> Okay, I want to move over to Twitter now X. Um you were COO there from 2010 to 14
>> and obviously those were like crazy years. I guess on some level it seems like for the company all the years are crazy years but there was a lot going on then. Can you just like tell me about what was happening at a leadership founder level? Like what were the what were the big chess pieces moving around at that time?
>> So when I joined Twitter, we had um less than 100 employees. We had no revenue. We didn't have a business model. We weren't sure we were going to make our money with ads or some other charge memberships. Like there were all sorts of site was going down all the time.
>> The site was going down all the time. The fail. Yeah. There was a logo for those who don't remember. The company built its own logo for the site crashing and site going down which was the fail.
>> Um, it was kind of a bit of a laughingstock company. It clearly touched a certain cultural zeitgeist. You know, it had about 15 million users. We just ran twitter.com. We didn't have any mobile apps. We didn't have any mobile engineers at the company. And, you know, about 8 months or so after I joined, um, the founder, you know, there've been a lot of founder turmoil between Jack and Ev. And EV was the CEO when I joined and he was out um, and Biz kind of walked out with him. And so, we were sort of founderless um, about 8 months into into the tenure. And it was both a sort of like hyperscaling challenge um because the opportunity was so large and effectively a turnaround because you know all the leadership was pushed out. There were a lot of wrong people in the wrong in the in various positions.
>> It's a very interesting case study because it seems like it had unstoppable product market fit and then was just not run well.
>> That's largely right.
>> It's better than the inverse I guess.
>> Yes. Yes.
>> Yeah.
>> Yeah. Sometimes product market fit is so powerful that it allows you to make a lot of mistakes at the top.
>> Reddit had this for a long time.
>> Yep. Yeah, that's right. Yeah. And so, um, yeah, so I joined it when it was in that state. I left about four or five years later and we'd gone from no revenue to two billion in revenue. We'd gone from 50 million users, 300 million users. We'd gone from just one office in San Francisco to 23 offices in 14 countries.
And when I look back, I think there are a couple things we did great and a couple things I wish I could have over again. Um, I think there two things that we did great. One is, um, I think we got monetization right. And the core of it was I think we figured out before any social platform that if you could make the ad unit and the content unit the same in our case tweets. Yeah.
>> Then um you have the ability to make ads feel more like content and you have you can judge them based on relevance and you give advertisers the ability to participate in a conversation. And like my favorite example of this, you may remember um the year when in the Super Bowl, like when the lights went out at the Super Bowl, um Oreo, which was Oreo cookies, which was a advertiser on Twitter, right at that time when like the lights are out, it sends out this advert this tweet, promoted tweet that that talks about like Dunk after dark.
>> That's good.
>> So, you know, Dunk your Oreo cookie and milk is dark or whatever, right? When the So, and it got a lot of attention, a lot of buzz, and it was just clever. It was content. Or was it an ad? I don't know. It made people laugh, right? So um I think we got that notion of the ad unit and the content unit being the same right. And the nice thing was it was graceful as like the platform shifted from desktop to mobile. Um Facebook at the time you may remember kind of stumbled because its ad units were built for the desktop which is the majority majority users that's how they interface with Facebook until that changed. And so they kind of had to figure out what their ad units would look like in a mobile world. I I think Twitter kind of nailed that.
Um the second thing is you know we scaled the company globally really fast and generally pretty well and as a result our um you there was a big global audience and we built a global business quickly. I think those were the things I think we got right. I think the things that I regret or big learnings for me um were um probably the biggest one is the company never showed enough curiosity about its own users
>> and we had a mental model of who a Twitter user was that way lagged the reality of what Twitter users were you know across all these countries across all these devices you know using it in my
>> way I can imagine that the early adopters in like the middle of the pack of the curve are completely different
>> yeah and this is an interesting thing for like any any in any business which is um
>> your mental model um of your customer uh naturally lags. There's inertia in how that model like moves relative to like reality. And you have to if you're going to kind of keep up with like who your users actually are and what their needs are. You have to actually develop a ton of discipline and a ton of like rituals and processes to keep up. I remember um Patrick asked me years ago to attend one of their um all hands and this is all I talked about. All I talked about was like hey your platform is starting to take off and let's talk about the ways in which your views of your users are maybe outdated to what you who your users actually are today and what they're doing.
>> Um so that was a huge thing at uh at Twitter.
>> Um and you know unfortunately you know there are big product launches that we that we had. One of them was uh the conversations feature. You remember the blue light?
>> I do remember that was so hard to use.
>> Yeah. Well, what happened was um there were there probably our most engaged users of Twitter were people who were using the platform to subtweet their friends often with false identities, kids usually. And that feature broke Twitter for them. So our most engaged users in the United States like we launched a feature that broke Twitter for them. And that was simply because we didn't really understand like who they were. We were building for ourselves. That that seemed nifty. And so that's a really dangerous thing to do.
>> Y
>> the other thing the other learning for me was um we were too precious. I mean we were too precious about 140 characters. too precious about the reverse chronological timeline. And I think one of the things I give Elon for is he like sacrificed Yeah. sacrificed all the sacred cows like
>> he basically trusted that the network was strong enough that he was free to experiment.
>> Yeah. Yeah.
>> Whereas I guess old Twitter was afraid of breaking the golden goose.
>> Yeah. or they had this um there was definitely part fear but part I think there was a belief that our differentiation was in making the the product exceedingly real time and shorter tweets that are reverse chronological
>> make it more like the pulse of the planet more real time but I think the mistake was that actually wasn't what the majority of humans wanted um it was just what a subset of humans want
>> and also of course you can design the algorithm to make it so that when important stuff is happening it comes to the top
>> which is how I think it basically seems to work Yeah. Yeah.
>> It must be interesting for you to watch Elon do what he's been doing with it, which is so different from what you were doing. And I'm sure there must be a lot of things that he's doing that you think are really good. I'm sure there's some things where you're just like, what are we doing? I'm curious to hear your like, you know, observations.
>> Look, I think he made a bunch of unforced errors. Like I think the check marks thing I think was really poorly handled. Wasn't letting people buy the check marks and then obviously
>> shouldn't have done that. shouldn't have been handled the way it was handled where like the thing that verified your identity was suddenly for sale. Yeah. And of course like you know somebody bought the drug makers handle the check mark and then tweeted and
>> I think the blue checks thing was driving a lot of people like it made this multiclass system in a thing that I think didn't feel good.
>> So I I actually
>> I think what you're saying is like it wasn't necessarily it was a bad idea. It was just the way that it went down.
>> The roll out was bad. Yeah. It wasn't as thoughtful, you know.
>> Um
>> but look, I never expected him to change the name, you know.
>> Yeah. That was that was surprising.
>> Yeah. I mean, I think it's in a sense indicates that he has something bigger in mind and maybe that's cool.
>> Um, uh, you know, he took a lot of costs out of the business.
>> I also wonder if it was just like a sign to say like nothing sacred like even without a big plan just like I'll change the name like says something I guess.
>> Oh, yeah. For sure. For sure. Yeah.
>> But I think
>> took a ton of costs out. Yeah. Of course.
>> Yeah. But I think you're right. I think the powerful thing is the network is so durable and um you know we can debate whether we like Twitter more now or before or whatever whatever whatever but I think it's um I mean one of the things I'm proud of is I got to work on something that I think is going to be around like when my kids grow up probably.
It doesn't seem like it's going to have a chance to go away just in a good which I'm happy about. I think it's really good.
>> Yeah. Me too.
>> Yeah. Okay. So um you had those experiences and then you went into venture, right?
>> So um talk about that.
>> Well I joined YC.
>> You joined YC.
>> Yeah. Is that venture? Is that now venture? Yes, you had you had a large venture fund at YC but really were at YC.
>> Um, but like so that was like the beginning of the growth fund, right? Like there wasn't one like that was right at the beginning of it
>> and um obviously you invested in like a ton of great companies and you learned a lot from it. So I guess can you share maybe like I I I want to spend more time talking about what you're doing now, but like can you share just like a little bit about that?
Yeah. So, um, you know, I I feel like everything kind of happened serendipitously. Like, you know, I joined Pixar because I was like in awe of how could anyone make Toy Story 2. Yeah. And and they were a public company at the time and it was kind of like this like as we said, Miracle Factory that attracted me and I was there for a decade. And then I went and joined Twitter and that what I learned there was like an experience there was this hyperscaling thing and taking something from zero revenue through through IPO and YC which is another serendipitous thing and I was approached by Sam and he said hey would you join YC initially just as a visiting partner and hang out with some of the growing companies at YC and how could I turn that down like a blast and then a few months later he said hey we're going to raise a fund would you lead it for us and so I was like wow start a fund from scratch and I've never been an investor on top of this amazing platform in the the world's great university
>> one of the only strong network effects which you would obviously learn from Twitter is extremely durable.
>> Exactly. Yeah. Exactly. So, you know, how could I say no to that? And so, it's a bunch of serendipity, but the thing that like I really um what what um YC really taught or showed me was like it exposed me to um early stage startups at like massive scale. I mean, I was at YC almost 10 years and I think close to 4,000 companies went through the batch program during those 10 years.
>> Um and there were probably two to 300 series A rounds every year. There were more than a hundred series B rounds every year. And you know, my team wasn't involved in admissions to the batch or like really the batch program, which is YC's bread and butter and what they're best at in the world. But what we did is we helped founders after demo day with a whole series of stuff like their series A's and you know, helping with their decks and feedback and you know all and we ran all these programs and so so forth. But the thing like that I take away from it, you know, now a few years later is like, wow, I got to see a lot of stuff at the very beginning. And um the influence is influenced both what I do now, but also the way I just think about like the stages of life. And I kind of think think of a the beginning as like and what YC does so well is like they it's like they're the they plant seeds, you know I mean Justin Khan used to work at YC said we're not hunters like VCs we're farmers you know and they plant seeds and try to get everyone from seed to sapling right so like hopefully work on the right idea hopefully like you know uh launch your product you know have a successful demo day raise money and get a few customers right and that gets you to this uh sapling phase and then at the sapling phase that's actually interesting so like we talk about 0 to1 maybe that's 0 to point2 or 0 to point4 or You know, and then there's a phase in the sapling phase before the tree phase. And the tree phase for me is like when you scale a company, you know, in the sapling phase, which is actually where all the death lurks.
>> Yes.
>> That's where startups die.
>> I did a program with you in 2019, I think it was with the growth program
>> and then I did YC in 2016, but we didn't have product market fit when we left YC. We were a 2 sapling still. So, it was very much about like getting the DNA and the mindset right and learning stuff, you know, like. So I'm I'm fascinated by this sapling phase of like what actually happens here. Yeah. because it's actually hard to support founders here because the you know the great thing about the seed stage and I think in many ways the scale stage seeds and trees is that there are a set of common things that if you like really do well for founders as a support to founders it helps all of them or almost all of them you know some of the basic lessons of YC some of the basic writings of PG etc. like they're gold you know
>> um and at the scaling of building a company phase same thing you know there are a set of things about how to hire executives what is the job of the CEO, you know, how to manage, how to like develop strategy, communicate more broadly, figure out HR, all that stuff. Like there are a lot of commonalities across companies. But at this sapling stage,
>> everything is much more bespoke. It's not really about hiring. It's not really about it's really about like trying to like find the right customer, find the right problem, solve it really well, and then figure out a way to like do it again and again and again like repeatability, you know, at that phase. And I think to help founders at this phase like you know I I personally I mean the whole industry as you and I have talked about has like gone to much more scale. You know YC is a lot bigger than it used to be. All of the venture funds are way way bigger than they used to be in terms of capital and investments made and so on.
And I think there are aspects of this industry that scale works really well for and there are aspects of this industry or the journey of a startup where I don't think
>> it's the ends where it works. Like YC YC I think can actually scale more if they wanted to where you can plant as many of these seeds. And what's interesting with YC is they don't just like invest like a lot of times they create the conditions for somebody to start a company that wouldn't have otherwise. So you could have as many of those as you wanted
>> and then at the far other end of the bell curve where you can just put tons of money into these company billions of dollars into companies that are scaling like that obviously grows.
And even even at the phase where like okay we're now starting to hire a bunch of executives and we need intros of Fortune 500 companies and you know like there's a there it's not just like very very late stage.
You're talking like series B and C type of stage. that
>> yeah I think like you know to me like there's like pre-traction and post-raction and so the question is like where is the line right and to me it's like5 or $10 million of revenue is the line it's not a million y
>> you know it's definitely at 500k
>> why do you say it's not a million because a lot of times people are like oh a million dollars that's product market fit that's the a
>> there's no repeatability at a million dollars and you haven't proven repeatability and um you've just proven that you can you know get someone to pay you or get five people to pay you or seven people whatever it is you know um and to get to one you have to prove repeatability in my mind, you know, which means that like you found a problem that enough people have and you found a way to like be able to like convince people to like buy it, right? And the other thing obviously you have to prove in that phase is like not only do you convince them to buy it, but they use it.
They like it and
>> they like it and they want to buy it again or renew or buy buy more or if you're in a consumer business like the cohorts stick. Yeah. you know or you know and similarly in a B2B business like the renewals and expansion are happening and and renewals and expansion are the probably the best you know metric for product market fit it's a lagging metric that's the problem you don't know yeah you don't know you can you got to get good at figuring out the leading indicators of it but you don't know so yeah so basically I think scale works at the two ends and I don't think scale works at the sapling phase and so what I'm trying to do now is I I saw a bunch of patterns of where things went wrong at this phase for companies and how certain founders like find their way through the maze and swim through.
Um, and I think the the the most the hardest one, it's a simple slippery problem that I saw people encounter over and over again, which was like who should my initial customer behind the customer really broadly that anyone's will who's willing to pay me is a good customer. And so, you know, founders would let customers choose them instead of being extremely selective and choosing customers. And that requires some degree of courage to like turn down some growth, you know, because you're looking for someone that you can deeply satisfy. And the broader and more diver diverse your customer set is with a small team and a immature product, the harder it is to keep them all happy.
I think that this exact phase I think is one of the most psychologically demanding for founders cuz you you so badly want things to be just moving and you want to just grow. You want to tell people you're growing. You want to take customers. You don't want to think that you need to pivot or adjust your product because like then you have to like feel like you're admitting defeat somehow. I think this phase is so mentally difficult.
>> Yeah. So for me it's the funnest time in a startup and I think it's like where all the death lurks you know like where the you know death zone is whether someone raises an A or not you know that's kind of irrelevant. You can mostly this is like the pre- series A.
>> It's definitely pre- series A but I think in a lot a lot of times it's post series A too. I mean like who raises a series A at $10 million? I'm saying it's through like at least five, you know, until you've proven this.
>> So, you're talking what's interesting to me is I think different than a lot of conversations where people would say 3 to 5 million, you're on your way. And you're talking about no, that's still fragile. It's still a little fire that needs to be like tended to.
>> Yeah. Like I think that until you've proven like retention and um expansion and until you've proven repeatability, which I I think happens somewhere around five and maybe as far as 10 depending on the business and stuff like that.
>> Um a certain amount of time has to elapse, you know, um to be able to really judge it. And so I mean I think there's a pre-traction phase and a post-traction phase. And I think there's a there's a inception stage which is like where YC lives and they do the best job in the world. And as you say, you know, they both cause there to be more startups and cause promising and help promising founders work on better ideas. Like we all owe them a gr big debt of gratitude for that.
And then there's a sapling phase where I think all the death lurks whether it's pre or post a y
>> and then there's this uh tree phase where like hey you're at 5 or 10 million of revenue your bark is now hard like a rain's not going to wash you away. You've got roots and now it's about company building and I think VCs are great at that. actually can you talk about for a second um I have shared your blog post a ton of times about the like second stage of second phase I'll link it because I think it's an extremely good post but like can you talk about that
>> transition for the CEO and like what that post was about
>> yeah so the interesting thing is like I think that if you if you like this analogy of the three three phases you know seed and sapling and tree the CEO founder CEO's job changes a lot between sapling and tree and because the job becomes at the beginning the job is just like about build a great product and find customers and keep those customers happy and get them to renew etc. So it's about product and customer, product and customer, right?
Once you get to this place where like, oh, I'm now a tree. It's taken root. I have a business. It's repeatable. I know like, you know,
>> I have some foundation. At that point, then the job of the CEO changes from building the product and selling the product to building the company. You become the like you need to build a machine that builds
The machine. You become the PM of the company, not so much the PM of the product. And so that means you got to find people to do all the you got to get yourself out of these vital things you were doing before. That's super hard.
Um, and so that you can focus on, you know, um, the second job, which is like company building.
Yeah.
Yeah. That's the basic point of. So when you thought about putting your firm together, you also were doing like a program. Like how did you, I guess, just how did you decide what structure of firm and approach you wanted to do? So what I'm interested in doing is I'm interested in working very intently and intensely with a very small group of these sapling kinds of companies and really on either side of a Series A. I'm a little bit indifferent about that, but people who have launched their product, they've got some traction, they've got they're committed to what they're doing, there's some beginnings of, you know, something. Like I don't think I'm very good at the seed stage. Um, I did a lot of the growth stage and I know that know that pretty well, but the sapling stage is, I think, where founders need the most help. And in order to help them, you have to do it almost subscale. Like you have to do it really, really intimately and closely. And so I want to work with a very small group of folks.
Um, and try to make a contribution there.
And, um, and so, yeah, so that's that's basically my my hope.
That's great. One of the things that you've talked to me about before is that you think, um, I don't want to put words in your mouth, but I think you said like the Series A is often like a bit of a ripoff and that people take way more dilution than they need, that it's like the rounds are bigger than they have to be.
Yeah.
Is that an accurate thing that you at least expected to continue? Is that the, um, traditional ownership that a traditional Series A investor would get in a Series A has degraded and will continue to degrade?
Yeah.
Cuz it used to be like 25%.
Even more, but yes. Yeah.
And so, um, and that's just driven by the supply and demand of capital and the like, you know, like very sort of burgeoning nature of the seed ecosystem. And I think that, um,
I also think you have a dynamic where there's not just the availability of capital or the prices are low, but it's like the venture firms are winning and they're pushing the founder take more money than the founder even thinks they need and they're like, "Okay, but I want to work with whoever."
That's right. Yeah. So I think that like the nature of like the Series A is changing. And I think the nature, and I think largely to the benefit of founders. Um, but the other thing that's kind of fascinating that's that's happened, I think, over the last five, seven years, especially as more capital has flooded into the system. You know, deals are getting done in a blink of an eye. And founders don't fundraise anymore. They just get preempted, the good ones, and or the promising ones. And so,
And their plan is to do it. I mean, and I think that's correct, but the plan is to say, "I'm going to fundraise at this time," and they have a couple conversations and they let the round happen before it's going to happen.
Yeah. Sometimes like the founders encourage or or
They make themselves available. Yeah.
But but sometimes it comes out of the blue. I mean, you see that too. Um, so, so in this world of like super rapid fundraising where founders aren't generally fundraising, they're just getting preempted. I think that obviously there's a lot of convenience there for, for, for, for, for, for, for, for, for, for, for, for, for a good founder. But on the other hand, I think what what happens, what I don't think I've seen a single fundraise in the last five or seven years, tell me if you disagree, where there was actually any urgency to fundraise at that time.
You know, this preemption mentality, it's not the founders aren't the founders aren't driving the timeline.
No. And they're actually like, "When should I raise so that I don't need the money?" I mean, people plan to raise, which again, they should. It makes things easier. As I'm thinking out loud, I I do actually think, so I think you're right that a lot of the strong companies go for the preemption.
There actually might be on the far other side of like the very, very outlier companies, they actually do run a process because they're so confident that it's going to work that they basically are like, "We're going to get a true market price here."
Yeah. I definitely I think it definitely happens. I think I'm farther
In or or or they get preempted and they use that to like trigger something, you know, but again, over three days, you know, not not like a. Yeah. And so
Which I think is in some cases a shame. Like if you're going to like spot pick a board member in three days, I don't I don't know if that's always as long as you've got enough trust in your cap table to know what you're getting, it's good. But, um, I don't know. I think sometimes it's like worth a little more time to get to know people.
I I tend to agree with you. I think it really depends where you are in this journey. Like I think if you're already a tree and like it's now you know primarily about
You know, terms and maybe who you want or like prestige of a particular name or ability of a certain investor to open some doors or whatever. I think that maybe make
You're also usually dealing with very known quantities at that point.
Yeah. And and you know, for companies that are trees and have been around five years, you know, you've had a chance to hobnob with investors over that long period of time. It's only for companies that are like one or two or three years old and haven't have just met someone or you know, that someone heard about something and they swooped in and now you're in a conversation for the first time with some famous investor. Um, I think those are the ones where maybe slowing down is is is beneficial. Like to me, I look if especially if you're in the sapling phase, I think it really pays to slow down enough to be able to, I don't know, ideally simulate like what it would be like to work with someone and then make your decision, you know, and just know that you actually control the timeline and don't necessarily seed that to an investor. Investors, I think, are extremely good at hijacking the timeline of a fundraise, you know, because they practice it so much, you know, and sometimes that's fine, you know, I'm not saying in all cases like, hey, raise money, it's easy, it's there, etc. You love the investor, you know the investor, but I I don't think in all cases it makes sense to to do that.
Are there any other structure of the way you're doing things aside? Are there any other like ideas or beliefs you're sort of operating against right now that are sort of driving the way that you work?
Well, I just, you know, it's it's funny and this may be a wrong strategy. You know, it's certainly contrarian, but like I I don't really I want to try to get to know the founders and businesses that I invest in like deeply. And in some cases, um, that's related to working with me on something or in some cases relationships I've had before or whatever else. Yeah.
But like, you know, as I said, more capital is meant that deals happen in two days. And it's become kind of like this first person shooter video game. And and I don't want to play that game.
I also guess the nature of the way you're doing this is with your program where you're, you know, you're trying to help before you have any equity in people, which is, I guess, on some level fundamentally unscalable because you can only help so many people where you're not in business with them at a time. But like the advantage of that is this.
Yes, that's right. Yeah. I mean, uh, and look, something I learned at YC. I mean, we, um, YC was obviously an insider on all the companies within YC, but our growth fund wasn't, and we helped tons and tons of founders that we never invested in. I mean, it was good for YC to do that, of course, but like,
Um, that mentality of like, hey, the more help you provide, it finds its way back to you. Just that like karmic thought and just my own personal belief that's how I'm I'm wired. I just think like, hey, you help people without, you know, expectation of return, and it pays it back in one way or another, um, is something I believe and just how I want to work, you know, so we'll see how it goes.
All right, well Olly, this was awesome. Thank you so much for making the time. I really enjoyed it.
It was a pleasure, Jack. Thanks for having me.