Startup Therapy Podcast

Episode #186

Ryan Rutan: Welcome back to that episode of the startup therapy podcast. This is Ryan Rotan from startups dot com, joined as always by Will Schroeder, my friend, the founder and CEO of startups dot com. Well, it's awesome to be the cool kid, the new kid, the one where everything is going up into the right. Everybody loves us. We're hiring, we're raising funds, we're adding users and then things slow down sometimes just even a little bit or they plateau completely and now we're just kind of in this, you know, stable but not necessarily growing anymore. And all of a sudden we're not nearly as cool what happens like what happens when all of a sudden that growth curve and that cool factor wear off a little bit.

Wil Schroter: I think what happens and I think this is, this is what I see time and time again and you're seeing it now because, you know, as we record this, we're kind of in the what might be the beginning of a recession. Nobody can quite tell. But needless to say it's been one of the worst capital markets in like seven years. And so now you're seeing all of these wildly funded companies dry up overnight.

Ryan Rutan: The valuation changes have been painful to watch. I

Wil Schroter: just read that 64% last quarter. Q three of 2022 63% of all fund raises among existing funded companies have been at or below their last valuation. Yeah, that's,

Ryan Rutan: that's unheard of. It's, I was gonna say it's that, that we've never seen that before. We've certainly seen periods of a little bit of pullback or less funding, but we have never seen down rounds at this scale. That's almost

Wil Schroter: like everybody's doing a down round and nobody's talking about how bad those down rounds are. That's just meaning that at or blow doesn't see how bad,

Ryan Rutan: right? Everybody's doing it. So it's ok. It's not ok. It sucks every time, like every down round is so painful.

Wil Schroter: I mean, at 6% it sucks. 64

Ryan Rutan: percent. Come on Apocalypse. But

Wil Schroter: it's, it's indicative of where founders like us are all at. At this point. It's indicative of the fact that just five seconds ago, it felt like everyone was giving me money. I was growing, everything was cool. And then by the way, it's not even just fundraising, you know, I don't want to point to that as the only, you know, metric that we can look at just starting a company you mentioned at the top of the show, we get into a place where all of a sudden we're hiring like crazy and we're, we're adding, our metrics are amazing and all these great things are happening and everyone's telling us what an amazing leader we are. It always cracks me up because I always ask myself when they say, oh, is that a, is that a great founder? Is that a great leader? And I say, compared to what, in other words, they haven't had anything go wrong yet. You don't really know whether you're the good captain of a ship on calm seas. Exactly. It's 50 ft up in the air and you find out who the captain really is. So that's what we'll talk about today. We want to talk about what happens when good times turn to bad times and what it's like to be so easily loved in the good times and have no idea that it's because of the good times. You know what I mean?

Ryan Rutan: Right. I think that's something that catches a lot of founders off guard is that they assume that that love will last, you know, forever. Right. It's like, it's like when you pick a co-founder, right? You assume that because we get along today when all we're doing is sketching out ideas on a cocktail napkin that the first time we have to go through a round, a round of layoffs that we're also gonna just really still just be oozing with love for each other. Right. Like things tend to change when, when shit gets hard. Right. We, we, we understand this fundamentally, we get this and yet we seem to be really good at not applying this in terms of forward thinking about like, well, what happens when? Right, once those things start to happen, that we get caught off guard, we get shocked by the fact that people's opinions about us change, that people's attitudes towards us change. And this is everything from our customers, to our employees, to our partners, to our investors, to our co-founders and beyond. Right? I think

Wil Schroter: that one of the places we see it every single time, I mean, almost without question is the moment a company announces a funding round. And so let, let me set the stage for that. Here's what happens. We've got some idea, we put together, we just raised a bunch of money or maybe in some cases, we've raised more money and so we make all the typical announcements, you know, we're on techcrunch, we're on Twitter, we're all these places that, you know, are hearing about our fresh capital. The cool thing about raising fresh capital is you haven't had a chance to fuck anything up yet. Kind of. That's true.

Ryan Rutan: Right. So it

Wil Schroter: is the, you know, to stick with your analogy before. It's the first date of the relationship of our business, right? We just haven't done anything wrong yet. I can think of maybe two instances in the history of history and I know I spend a lot of time talking about this stuff where I could ever think of where somebody made a mistake while they raised capital. Right. Yeah. Yeah. But short of that, the other 99.9% of the time it was all companies who, when they announced they were coming out, you know, they're, they're, they just got funded et cetera. They look like heroes every single time

Ryan Rutan: they look like and they're treated like and they feel like heroes. Right. Because everybody has just given them all the possible high fives, right. They came out, they pitched, they managed to convince investors and now they've got the money then to your other point, they're now hiring people. There's stuff happening, right? All this good stuff is happening. But yeah, you haven't had a chance to screw it up yet. You know, you've now cracked the champagne bottle on the side of your ship and you're shoving off, you're still very much in safe harbor at this point. Right. Right. Let's clear the mouth of that pass and hit the open water and now let's see what happens and that's where things start to get a little hairy. Right.

Wil Schroter: I'll give you some examples. Just this happens every time new company funded and they just announce how many people they're hiring. We're staffing up like crazy. It's, it's always the thing, right? We're staffing them, we hire, we got the money, we're staffing them. Ok? All I can think to myself is you are exponentially creating more liabilities that you probably can't survive with. Right. Ok.

Ryan Rutan: Exactly. You're taking on weight at this point. Right. You're, oh, my

Wil Schroter: God. Like good luck with the liabilities. The second one, they don't do this anymore, but like, just signed a huge new office lease. Right? I used to do that all the time. I said, ok, time, time to, you know, sign the, the lease, get the sign up on the side of the building and show that we've

Ryan Rutan: arrived. How many times did you hear people smugly talk about the annex, right? The other building that we need? Because we've had it's so much overhead that we need to add some more overhead to house our overheads

Wil Schroter: 100%.

Ryan Rutan: Oh my God. Yeah. And they're so they were so smug and proud of it at the moment. I'm not making, you know, of course, they were happy to see the company growing, right? I'm not, I'm not taking a shot at these folks, but it's like as somebody who's been on the other side of that, you know that like this is, it's not the sign of positivity that you're looking for. I'm like, I'm always thinking in the back of my head like tell me about the revenue that goes along with this, right? Tell me about the nine months of cash you have saved in case shit turns the other direction. Tell me some other parts of the story that aren't just you adding up this list of liabilities that somehow you're proud of.

Wil Schroter: And on top of that, I always joke, I said that office lease will outlast the company, right? That 7 to 10 year office lease, you just said, well, likely it, of course, we're not betting against startups. Nobody cares more about them.

Ryan Rutan: We just have read the statistics. We've lived the statistics. I just watched this story so many

Wil Schroter: times. I know. Right. It's kind of like every now and again, every now and again, I'll talk to a founder and they'll say we've raised a bunch of money, but we need to make it last. We don't know when we're gonna have more. We don't know when the next round is gonna come and we need to make it less. I've got a friend of mine, a friend of mine. He just raised about 100 and $50 million. I think it was if I recall it that matter. And he said to me, it's a lot of money and he said, you know what? We need to make every dollar count. It's exactly the right answer. That's the right answer. Yes. It's exactly the right answer. It's not like, hey, how can we spend this as fast as possible? With the idea is when you have that much cash. And Ryan before the show, you and I were talking about a company that was featured today in Bloomberg called Go Puff who raised $3 billion

Ryan Rutan: featured is a nice way of putting it. Yeah. Yeah, skewed. Might have been the word

Wil Schroter: that I know. And again, when we talk ill of a startup, we have no ill will toward founders. Let's, let's be clear of that.

Ryan Rutan: A lot of sympathy. Yeah. Yeah.

Wil Schroter: A lot of sympathy. It's probably the best way to say it. It's a great way to say it. We genuinely understand what, where their heads were at and we just scratch our heads and go, oh my God. It's like Wiley Coyote. You know, he's gonna go off the, the cliff, you know, he's gonna do it every time. You're like, oh, come on, please. Not this time. And so you watched it happen, they raise $3 billion. They grow as fast as possible. They try to create a business that defies the laws of economics as many companies have

Ryan Rutan: ends the same way every time.

Wil Schroter: Yeah, exactly. The hubris to it though. I don't have any problem with people shooting for the stars. I dig it. But in those early stages when all you have is the capital, you don't have the revenue yet. You haven't proven anything. You know what I mean?

Ryan Rutan: Nothing. You've proven that you have an idea that people think is viable to the point where they're willing to hand you money so you can go and prove it. And then somehow along the way, we've got the money in hand and we forget that our job is to go prove it right. Like you're supposed to do something with that, something meaningful. Right. We're

Wil Schroter: not in the money raising business.

Ryan Rutan: Yeah, that's it. And then people do, like, how many money raising businesses have we seen? And that's a big part of why we're seeing these, this, you know, 60% of these companies being in down rounds. It's because they were all professional capital raisers who forgot to build a business that could sustain itself with things like revenue, right? That's what we're out to

Wil Schroter: do and in a short period of time they felt right. That's really what we're talking about in this episode is this founder mentality that I'm so right. I haven't actually proven my business yet, but damned I'm right because look at all that money we've got in the bank.

Ryan Rutan: Yeah. Look at all the people that said it was right. Look at all the people who believe I was right. What they're forgetting is that what they believed in? Isn't that? You're right? But that you've got a chance at being right. If you go and do all the things you said you're gonna do, which somehow seem to get, I don't know, maybe it just gets hidden behind the mountain of cash and I'm not sure what it is. It is. Right. It, it, it certainly becomes apparent once the cash disappears. Right? So once the cash is all gone again, now we see founders scrambling and trying to figure out how to turn on things like revenue or right size those overheads or limit some of those liabilities that they gleefully took on. When they were the cool kids with all the fresh

Wil Schroter: cash, you know, and when I'm the cool kid with all the fresh cash, there are so many people that want to high five me, high five me with one hand and clear out my pocket with the other. right? Oh my God, I've got recruiters calling me. They want to help me staff so bad. They think this is the best idea ever. Those same people in the not too distant future will be recruiting all of the people away from my company by the

Ryan Rutan: way. Yeah, there's a lot of emperor's new clothes going on when the, when the cash is raised, right? Everybody's because they, they'll tell you exactly what you need to hear so that you feel like they're on your team so that they can extract what they need from you. Yeah, it happens all the time. It used

Wil Schroter: to be your, your pr firm would come in. This is such a good idea. This is an amazing idea. We're so glad to be on board. They didn't even understand the problem, right? And so you get all of these people that are surrounding you because you've got all this cash that are telling you how awesome you are. And it's hard not to get swept up in that it's hard. I'm actually not pointing the finger that, you know, we, we, we mentioned, uh go puff, you know, hard. It is to do what they did. It's, it's, they're one of point. Oh, oh, oh, 1% of people that will ever even get to that level. So, no disrespect. The point is when you're in that world, this is what we're talking about when you're in that world at that moment, you are so blinded because you're so loved because it's good times. It

Ryan Rutan: is, it's good times and, and you start to focus on a very singular metric right at that point or one of a few, right? Which is raising capital or you've got you, you know, you've done well enough with, with revenue or something or user acquisition to be able to start adding those overheads and the team members. But I think we get focused on the wrong me tricks, right? Where, where we don't have enough real metrics to be able to have any other version or vision of our business. So we're using these false metrics like we raised funds. Ergo, we're awesome air go, we will be successful and we'll get everything else that we want because we got the first thing that we asked for and so that will just continue forever and final destination, Shangri La Exit Yacht, that's just not how it typically works, right? And, and we're seeing that in droves right now

Wil Schroter: and it's not even all just big raises. I'm talking to people who raised a million dollars, $2 million. Whereas at the beginning, the money just got wired into your account, you're $2 million richer. At that very moment, you feel awfully invincible again. You feel very right because you've got lots of capital, but it's almost like a seesaw on one end of the seesaw is your fresh capital. And on the other end of the seesaw is a gun to your head with months left of burn rate. And all that's happening with time is that seesaw invariably moves from, you know, one end to the other one moment, you felt amazing that you're on the right side of the seesaw and you have the fresh capital and you're invincible and all of a sudden this thing happens and it happens so fast you turn around, you're on the ass end of the seesaw. We have a gun to

Ryan Rutan: your head. Everybody on the other end stood up and got off and you just plummeted. Right? I can, I can feel my teeth clacking together right

Wil Schroter: now. I've been there again, having raised money before. I've been at that moment where you look back and you're like, wait a minute, didn't we just raise money five seconds ago? What the hell happened?

Ryan Rutan: Right. Yeah, we ran out of money and popularity at the same time. This hurts

Wil Schroter: funny how these things come together. So let's talk about the next thing that blows us up and that's when we're staffing up. Here's why it's so interesting to me because at the beginning when we're just starting to add lots of people, now, this could be a bootstrap company, a funded company. It doesn't matter when we're in the early, early days of adding people. We get this weird thing that happens where everyone just got to the party. Right. Everyone's cool so far and everyone just got their job, their new job at the same time. It's kind of like everyone went to freshman dorms at the same time, everyone's fired up. You don't know who the assholes are yet. That's the problem. It's probably you. But when I look at it, I say, look, the early days when you're staffing up is the most ignorant moment you'll ever have in your company because you don't know who's supposed to be there yet. And that's a challenge.

Ryan Rutan: Right. Yeah, because you're, you're still guessing at where you're going, but you're building the team, right? You're not even entirely sure what sport you're playing, but you're, you're starting to staff up with, with various professional athletes. Right? It's so hard. Right. It's, it's so hard and it's so easy to get wrong and right. And so no blame cast here in terms of getting this wrong. Uh, you, you do have to work through this. Right. You have to hire, you have to fire, you have to figure out where you're going and as the company changes, so do the needs. But I think that the challenge that you're talking about specifically here and, and again, it doesn't have to be a funded company. Certainly we see this exacerbated in a funded company because all of a sudden they've got a war chest of cash to go and really, really outsize their liabilities and also obscure. And this is the other thing that I think gets lost in translation. Sometimes the faster we move, we've talked about this before, the faster you move, the less likely you are to be aware of the mistakes you're making as you go along and, or you get to make a whole lot more of them in a shorter period of time, which makes it that much harder to unwind. Right? If you're only hiring ones of people the likelihood of the su successful onboarding or understanding where they fit that much higher. The minute you've got that extra cash, you can make bad decisions a lot faster, right? You're just accelerating, you're not improving, you're just going somewhere faster, not necessarily the somewhere you need to be and then you run out of cash. It's kind of like driving off in the wrong direction and running out of gas. You then have to backtrack all the way back to where you started, hopefully find some gas and then continue on your way. Right. There's

Wil Schroter: two sides of it, you know, one side of it we're talking about where we just hired all these people and, and we don't know who's terrible yet. The other side of it is they just got here and they don't know that we're terrible yet that we're so hard to work for. We're so Underqualified. Right.

Ryan Rutan: Because what they looked at was they just got funded, er, go, they can pay me that salary that I'm after, you know, I've always wanted to work for a startup or I've only ever worked for startups. Right. This will be fine. Actually, the people who have only ever worked for startups probably know the drill at this point and keep coming back. Yeah. No, you're 100% right. There's failure on both sides of that, right? And it's not, not failure in the sense that like you, you didn't do what you were supposed to but you, that didn't necessarily know what you were supposed to do. Right. And, and that's, that exists both at the leadership level and at the staff level because again, when you don't know where you're heading, right. Charting, that course is tough and knowing who you need to help you get there really, really hard at those early stages.

Wil Schroter: You know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you, which means the answer already exists. You may just not know it but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot startups dot com. So if any of this sounds familiar, stop guessing about what to do, let us just give you the answers to the test and be done with it. It's good times. It's good times because everybody got there. Everyone's excited. You're going out, you're doing happy hours back when people were actually together with each other, you're going out, you're doing happy hours and everyone's happy because nothing's broken

Ryan Rutan: yet. The office snack machine is

Wil Schroter: full. Yeah. Exactly. To, to be honest, it's a great time. You haven't had consequences yet. Consequences will come. Some of them will, will crop up early through some odd random things as you're scaling up a little bit. Right. You'll have some personality disconnects, et cetera. But everybody's got like a little bit of a cushion from a personality standpoint to be able to say, right. Let's say you and I are working together and we're working for some founder and we get into some sort of scuffle. Wow. We don't really know each other that well and maybe, I don't know you well enough. So I kind of give it a minute but it may turn out that we're both a bunch of a holes actually. That's probably true. You know, it's, well, it up, it's gonna be given but it's gonna take a long time for the founder to figure that out. So there's all this kind of first dates happening all at the same time. Meanwhile, the founder is feeling so great because everyone comes in and high fives, them, everyone loves their new boss until they find out who the boss is or as these things tend to happen until things start going poorly.

Ryan Rutan: Yeah, the first dinner on the Titanic was probably amazing. Right. Like,

Wil Schroter: like, think about it, you've probably got the moment you really start staffing up or even just adding staff at all, even if you're bootstrap the first six to, let's see, I'm gonna go as far as 18 months, you probably won't have a major issue where staff revolts in some way. But you will just, doesn't matter who you are, right? You will. It's just people being people, right? People are gonna eventually be shitty in some way and when you haven't had to deal with that yet and everybody is in high five mode, you're thinking to yourself. This is wonderful. I'm great at staffing up. I'm great at building teams. No, you're not. I'm

Ryan Rutan: so good at hiring people who needed jobs. It's amazing.

Wil Schroter: I'm so good at spending money. Congratulations. You're spending money. I mean, we could, we go further and say it's not until you pay for those people that you've actually done your job. But, you know, that's a whole other conversation. Pay

Ryan Rutan: for those people in the sense that, like, the company is generating enough money to pay for those people, right, to clarify. That's what, that's what, that's what I'm. Yeah,

Wil Schroter: which statistically rarely happens and you just call it what it is, but you get in a situation where everybody thinks everything is great until again, things start like cropping up all of a sudden, word gets out that we have eight months of runway left. Now, those very same people that were flocking to us to be able to work with us, et cetera. They're all in slack right now saying, dude, have you heard about this? Like, what's up? You want to call that same recruiter that brought us in? Uh

Ryan Rutan: uh hang on, I'll, I'll, I'll get back to you in a second. I'm updating my linkedin. Well, that's the

Wil Schroter: thing. And I got to tell you the moment you announced that first layoff, there was nobody hopping on to Twitter to high five. You, no one is talking about what a great experience they had with. You

Ryan Rutan: typically gets reduced by four fingers.

Wil Schroter: It's a single finger salute on Twitter and everywhere else. Like all of a sudden, all the people that lauded us for so long revolt on us. And I don't think a lot of founders because you've probably never been through this before even understands that that can happen. It happens a lot.

Ryan Rutan: It does, it happens a lot. And again, it's painful because you're, you're dealing with something else like you're, you're entering crisis mode. Right? And so the kind of one thing that you're hoping for is that you're gonna be able to come together as a team and power through this and then you get exactly the opposite reaction, which is that everybody's sort of looking for the life rafts instead of figuring out how they can paddle harder and help to get through the storm or bale water or whatever analogy I'm trying to use here that involves some sort of maritime disaster that is really, really hard to stomach because it's like getting punched in the face and then kicked in the neck at the same time. You're like, ok, this is bad, but we're gonna get through this and everybody else is like, good luck.

Wil Schroter: Yeah, you might get through it. I'm out of here,

Ryan Rutan: you might get through this. Right. Yeah, here's my take on this and that's that I'm taking my shit and I'm leaving, you know, bomb voyage. So it's really tough. And we, we watch founders go through this all the time and we've recently had a couple of founders have this very thing happen. One of them in fact, was tied to a down round and won't name any names here, obviously. But uh they were, you know, in the midst of raising another round and then all of a sudden the valuations changed big time. They had to have this discussion with the staff that, hey, by the way, the stock options that were valued at this now, this is what happens in a down round and people are like, wait, what you're taking away our fake money. Yes, we're taking away fake money and they're having major issues right now. I mean, like they are, they're seeing staff attrition which also like, just think about what that says about people's confidence levels at this point. Not exactly a hot job market and yet people are willing to jump ship because of what they see happening, right? And just, just the fickle nature of things that happen in startup companies. But it is super tough on the founders when you go through this

Wil Schroter: stuff. When I was reading that Go Puff article in Bloomberg, one of the executives that was cited said I left all my options behind to give you an idea of how good I felt about the company, right? I mean, in his head that says it all. But I think what we're really talking about is how the founder feels, the founder feels emotionally betrayed. I don't understand. I thought all these people were high five. Me, we were a team, right? I

Ryan Rutan: gave them a job. I gave them this opportunity. I built this thing for them and now they're all fleeing like, you know,

Wil Schroter: yeah, they're a team in good times. Just keep that in mind, right? The team is a team in good times and by the way, if you can't pay them, of course, they're gonna leave. Like, what else would they do? Right. So, so I think that's, it's incumbent on us and unfortunately we tend to learn this at the worst possible time for the first time, which is why we cover stuff like this. So that founders that are listening are going, oh, you know, it kind of feels like good times. Like either I just put together some cash, probably not right about now or I'm just getting started and everything feels pretty good and we're like, look, it's going to feel good until it's not. I'll give you another example when founders first get started, the coolest thing about every startup when you first get started is all your metrics start at zero, you go from one customer to two customers, you are up by 100%. It is easy to be loved before you have any real metrics before when you're still talking about projections and bullshit startup metrics. And that's typically what we raise on.

Ryan Rutan: These are numbers that people can believe in. They're not real, but people can believe in them. Yeah, it's a dangerous, dangerous way to set the course.

Wil Schroter: There's an old adage that says if you ever want to guarantee you won't raise money, show the real metrics of what you actually did the actual numbers versus the forecasted numbers. And it pretty much guarantees that will be the, the last time you raise money, we raise money based on a future that might be, we rarely see that future. That's just the nature of the world. Right. It's very hard to ever achieve those. Some companies go on and do it. A fraction of a fraction of a fraction.

Ryan Rutan: We're placing bets, but

Wil Schroter: everybody's betting on what might be. And so for us, for, for the founders in the early days when we're just getting started, we just invented the, and we think about what it could be, we can get crazy with our bullshit fake metrics. We can talk about everything about what it could be here. Here's a great example that happens all the time.

Ryan Rutan: We haven't proven that we can't do any of those things yet.

Wil Schroter: Exactly. It's such a great, great way to put it.

Ryan Rutan: So it's easy to buy

Wil Schroter: into. We did $100 of sales this month, $200 of sales the next month, $300 of sales the next month. So clearly, if you just use math idiot, we're gonna be a billion dollar company.

Ryan Rutan: Yeah. Watch this. Let me just let me just extrapolate this out across the next five years and assume there's no change in rate or cost or anything else. And it looks wonderful,

Wil Schroter: you know, who doesn't get to do that? Public companies where they actually have to be accountable to those numbers, right. They can't say stuff like that.

Ryan Rutan: Yeah. Audited financials are a thing.

Wil Schroter: Yeah. Yeah, you'll get one quarter of doing that and you'll never get trusted again. But in the early days when everything we do, like when we get our 1st $100 in the door, when we get our 1st 1000 followers on social, whatever it is, it's a massive milestone. And Brian, you and I will will not discount that. No,

Ryan Rutan: we celebrate those. You have to, right? You just can't allow that to become an expectation, right? We talked about this last time, right? This sense of entitlement that because I did this, I deserve this right. It's not it, there's no guaranteed results here other than you're guaranteed not to get the same results that you have last quarter, right? It's always a different ballgame.

Wil Schroter: And I think that in the early days because we can project metrics in such beautiful ways. We're getting an article written about us and they're talking about how our insane growth and they always talk about staffing, which again, I always think is a hilarious metric of growth is staffing is a cost of growth and it's not the growth. But I think that for most of us, we look at these early numbers and we do these projections and we're like, wow, this is gonna be amazing. But before we know it, we're called to actually hit those numbers, we raised this money. We hired these people and that's what we said a moment ago. And now we have to pay for them and it's easy to be loved by investors, by staff, by, by media, everybody when we can just run off the bullshit projections of what it might be. Yeah,

Ryan Rutan: because it's fiction at that point. Right.

Wil Schroter: It's easy to be loved with a fictional version of what we could be then in the not too distant future, always faster than we think we're getting into real numbers. Right. We go from what it could be to holy shit. Look at our burn

Ryan Rutan: rate, right? The dystopian reality, right.

Wil Schroter: Yeah. All of a sudden we're not so popular anymore. All of a sudden, all of a sudden we're not selling the Pixie dust. We're actually trying to figure out how to pay for people and everything changes. And I think maybe if we zoom out and say, what are these costs that we keep talking about? We say it's easy to be loved in good times. But what are these costs that we're actually talking about? The costs? Are that in the good times? We get fooled? It's that simple, right? We get fooled and we're so easily misled because all the signs sound positive that we haven't been around the block long enough to understand that it always starts like this, right? If you didn't know any better, you would assume that like you must have figured out at this one time. It's like, dude, everyone starts like this. It's the rest of the story that's actually what makes you a CEO or a founder?

Ryan Rutan: Yeah. It's, it's everything we do from this point forward that determines success. You know, how we'll be remembered and, and the rest of it. Right. Yeah. It, like you said, it, it always starts the same way. Right. And it's, it's happy, it's good times and I think that it makes us really, really susceptible as founders to making really shit decisions and those shit decisions have really, well, I was gonna say long term consequences. Unfortunately, sometimes they're short term consequences because the company is not around long term, right? So, you know, take that for what you will. But what do you think some of the the key ones are here? What do we get fooled into?

Wil Schroter: Well, again, at a macro level, it's thinking that good times are a predictor of the future and not realizing that that these are artificially good times because nothing's broken yet again, it's our first year of marriage, so to speak. You know, nothing can go that wrong yet. We just got married, we just had the wedding. Everything's wonderful. Everybody's celebrating. It doesn't account for what the future will actually be. It's very hard. I think one of the, the challenges that I see founders have is when things do turn and what we tell them is your value as a founder, as a leader is not tested in good times, it's not tested about how much money you have to spend, it's tested in bad times. I'll give you an example, years ago when we were running, uh, the agency, the dot com bust hit, we had like 700 people on staff and we were running heavy about 10 million, about a month of payroll. And for the first time, we had to let people go. I mean, we went from like 100 and 50 open job positions to like having layoff people. It wasn't that many. It was like maybe 50 to 100 but it was so foreign to

Ryan Rutan: us. All of a sudden you're heading the opposite direction, right? And it, and it feels like you're going the wrong way on a one way street

Wil Schroter: first time ever. And here's what was interesting if you rewound not a long time. Eight weeks, 12 weeks prior, everyone had an opinion on where the business should go. Everyone had an opinion on the staffing plan, how they much had to staff up. Everyone wanted to be in leadership, ok? Just to be clear, actually make this very clear. Everyone wanted to be in leadership,

Ryan Rutan: such a popular room in good times. And then, yeah. Oh

Wil Schroter: man, when things turned, no one wanted to be.

Ryan Rutan: No, no, because then you're having to make hard decisions, right? You're making decisions that have real consequence, painful consequence, right? It's not the what if it's not the ideation on the white board that says, hey, if we do this, maybe this will happen if we do this, maybe this will happen. Right. It becomes the, if we don't do this, this will certainly happen. And it's a bad thing. That's certainly going to happen. Right. Very, very different set of people showing up for that game

Wil Schroter: in a nutshell. I wanna be a team. I wanna have these 15 people working under me, you know, I wanna grow this team. Awesome. Ok. Now you have to like, oh half the team. No, no, I, I don't want that responsibility.

Ryan Rutan: I know that's not the job. Yeah, I know that wasn't what I signed up for, right? But that is the job. I

Wil Schroter: only want good times leadership. Bad times. It sounds sweet. Can I have that job? So I think again, at a macro level, our value as founders, our value is the team, right? Is measured in bad times. Anybody can sail the ship and clean water. It's when things get choppy that you actually become who you are and you're seeing it and all of these founders right now, it's about having to make those hard decisions when everything goes south, hard decisions where you're letting people go that you care about right, hard decisions when you have to just eat it in the public eye to say yes, I said six months ago that we were gonna grow like crazy. But guess what? We're laying people off left and right. That sucks.

Ryan Rutan: I got the crazy part, right. Uh the, the growth part, I was half

Wil Schroter: right. You know, but there's another side of it and I feel really strongly about this. It's measured in what your relationships look like through that storm because again, everyone's high five friends when everything is going well. But, you know, when, when shit hits the fan and it will, it always does, by the way, you know, whether it's recession or some version of the business that didn't go the way you want funding around the bus will always happen. You're gonna find out who your friends are and you're also going to find out how good you are at relationships. And by the way, not a lot of people are very good at that, right? It was like, hey, I, I loved you all when things were good, but now that things are bad, like, you know, you all and that's, that's a shit leadership, right? That, that doesn't work at all. And so in my mind, the measure of founders, the measure of us as leaders is measured in bad times,

Ryan Rutan: tough times, tough times, I wanna just slightly caveat that and to say tough times because it isn't necessarily bad times in the sense that like it's always some sort of downward spiral or some sort of failure. Sometimes it's just tough times. Sometimes we're going through a period where maybe we've had massive user growth and all of a sudden we are not keeping up to our you know, our, our service promises or whatever it is, right? We're not able to deliver on projects now, we overstepped in some way, right. So tough times, maybe a a distinction I would like to throw out rather than just bad times, certainly in bad times, but also in tough times, right, good things can be happening that create tough times, right? We go through massive revenue growth and we have, we do have to staff up necessitous, right? That can be really tough as we grow beyond that point or just even some milestones in the business, right? You and I have talked about this before when you're growing a company and you're going from like 0 to 20. The culture is far more easily maintained as you go from 20 to 50. All of a sudden you start to get this campiness and you get clicks and you get, you know, there's derision and there's, there's, you know, you're not in touch with everybody in the same way. And as a leader, it becomes a lot harder and you go from 50 to 100 to 100 and 50 to 200. All of a sudden you don't know everybody's names anymore, let alone like everybody's kids names and where they get all that stuff that you used to know. And so this is when leadership metal is really tested, right? It's the tough times and again, sometimes tough times can be created by good things happening, doesn't make them any less tough and doesn't make it any less of a challenge for leadership.

Wil Schroter: I don't think that a creation of our character is truly found in any of us. Not when things are given, but when everything is taken away.

Ryan Rutan: That's it. Right. Mike Tyson's quote. Right. Everybody's got a plan until I punch him in the face. Right.

Wil Schroter: That's a great quote.

Ryan Rutan: Yeah, it's, and that's it. Right. Like we all think we know exactly what we're doing and it all is going great. Right. Like in the gym in the warm ups, you know, I do my walkout song and then I get cracked in the nose and all of a sudden it's like, oh, well, maybe, I don't know exactly what I'm doing. Maybe I'm not quite the leader I thought. And your corner is thinking the same thing. Damn. Maybe he's not quite as good boxer as we thought he was duck next time.

Wil Schroter: So, yeah, don't get the ring with Mike Tyson. Yeah. Well,

Ryan Rutan: there, there'd be a starter

Wil Schroter: if you look at a couple of people in history that could have, would have made that turn and I'll give you somebody who didn't and then somebody who did take Adam Newman with the implosion of wework. If Adam Newman could have stayed on now, he was shown the door. But if he had, could have stayed on and had the order to, to turn that around, it still wasn't a bad business. People do pay money to be in offices. Right. So again, the, the, the foundations are there even if, if they were overblown, if he could have taken that and brought it back from the brink and built it into a great company and IP O it, et cetera, that would have been a great example of character. I'll give you an example of somebody who did do it. Although in a very bizarre path, Steve Jobs, Steve Jobs takes apple from the good times. Gets fired. Of course, gets brought back when this thing was on the brink of death. Death in a weird way, people tend to forget they had like $10 billion of cash in the bank. But there was that. But from a market standpoint,

Ryan Rutan: yeah. No, that was the thing that 10 billion in cash was likely to get consumed very, very quickly. Had they not turned things around that was fuel about to be burnt at a crazy

Wil Schroter: rate. But he comes back and this is a measure of character of what he's truly capable of. And he turns that thing into a global power and arguably one of the most valuable companies in the world. To me, that's the character of a founder. He did have props and good times. He had, you know, amazing good times, but he also got fired, but he also comes back and builds one of the most valuable companies in the world. You can't overlook Elon Musk for a very similar story we've talked about this before, comes from the brink of bankruptcy to become the world's wealthiest man,

Ryan Rutan: borrowing money to pay rent. You know,

Wil Schroter: ideally you don't have to do that, but it shows the character of who you are being able to make that full circle. So what I would say is folks that are listening for this, the good times are great and we all love them and by all means, please enjoy them, know that the good times have a very specific timer and that timer will go off, whether it's now or a little bit later, it will go off and you will not be tested. You will not be known as a founder, you hope to be known for until you weather that moment. So in addition to all the stuff related to founder groups, you've also got full access to everything on startups dot com. That includes all of our education tracks, which will be funding customer acquisition, even how to manage your monthly finances. They're so much stuff in there. All of our software including BIZ plan for putting together detailed business plans and financials launch rock for attracting early customers and of course, fund for attracting investment capital. When you log into the startups dot com site, you'll find all of these resources available.

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