Startup Therapy Podcast

Episode #147


Ryan Rutan: Welcome back to another episode of the startup therapy podcast. This is Ryan. Rutan joined as always by Wil Schroder, the founder and Ceo

Wil Schroter: of startups dot

Ryan Rutan: com. Well, it's cool to be a startup, right? And I mean it wasn't always, but it is now. Um, but is this, is this creating a little bit of a trap for us in that we're, we're all like super happy to just say we're startups when we should be working really hard to not be a startup anymore.

Wil Schroter: It's funny because somewhere along the way, it became cool to be a startup, almost like almost like if we were in high school, I think we'd probably be able to use this analogy a lot here that it's cool to be a freshman, but somehow not cool to be a graduated senior as if the freshman was the goal and everybody's trying to, trying to try to move towards that goal. And like you said, it wasn't always this wet.

Ryan Rutan: No, not at all.

Wil Schroter: Used to be the case that when you were a freshman, you got stuffed in lockers wasn't cool at all. Alright, so before we get into this next topic, I just want to let you know what we talk about here is like 1% of the conversation, you know, really, this conversation is going on all day long online at groups dot startups dot com. Well Ryan and I pretty much talk endlessly with founders about every one of these topics. So if by the end of this discussion, you like the topic and you want to dig into it a little bit more with Ryan and I just had two groups, startups dot com and we'll pick it up from there. When you first started Ryan, we're gonna go back to the Stone Age when you first started, How did people respond to you being a start? Oh

Ryan Rutan: Yeah, well, number one didn't even have that word in my vernacular. That's how long ago this was, we didn't even call it startups. I was, I would tell people I was an entrepreneur and when they looked at me and I was 1920, 21, I they would all just look at this kind of pitying look as if it meant I couldn't get a job, right? Oh, they're unemployable. Oh, that's, that's sad, right? And you know, there there, there was no, no business building club on campus, there was none of this stuff, I mean, and that's, that's into college, but you know, it was about as cool as saying you were the captain of the chess club, which by the way, mad respect for the captain of the chess club at this point, but in high school that wasn't something that you would have tossed around at a party, uh, at least not at a cool party, right? And so yeah, it wasn't cool, it wasn't fun, it wasn't something that we wanted to say. And it's interesting because now I, we use, we use startup as a shortcut for a lot of understanding, right? People can draw assumptions about what that means back then. What I would have to do is say, you know, I, I run my own company and then I would immediately try to bolster that with as many vanity stats as I could so that people would understand that it had some level of legitimacy, right? Because without that they were just like, well, that's cute and then move on.

Wil Schroter: Well, it's been turned on its head, right. It used to be that if you were a startup, you did everything you could to make it sound like you're a real company. You wanted to sound big, You want it to sound like an established company. Now, even established companies want to sound like a startup because somewhere along the way we kind of did this interesting twist turn where all of a sudden being a startup meant opportunity meant growth. It meant that you were exciting, had kind of a center of gravity that would pull people toward it. And I think what happened was all of a sudden it became a mask for all the things that weren't true, right or were true? And we didn't want to talk about it. It's like you sat in the interview and he said, well, do you have any money? No. Have you figured out whether people want the product?

Ryan Rutan: No.

Wil Schroter: Like the list went on and on and all of a sudden we did this amazing transition where we could boastfully say that none of these things were the case, we don't have any funding yet. We will get some, we don't have any employees, we don't have a paying client, etcetera. And be able to talk about how wonderful that is. I mean, we're

Ryan Rutan: still, we're still looking for product market fit. Right. We used to just have to say, we don't know if anybody wants this ship or not. Right, Right, right. We have the answers have become so much nicer now, but to your point, like there, there is a bit of masking, right? There's um, it's, it's a lot easier to maintain the facade at this point. I think more people are willing to accept it. Um, and not question it in the way that they used to and to some degree, I think that's, that's, that's positive, right? I, and I'm sure you remember the same thing, There was a lot of scrutiny around what I did and it wasn't necessarily positive or helpful in any way. Um, it didn't, it didn't help me at all. Like, of course, I know, I don't know what I'm doing. Nobody knows what I'm doing. There isn't a person on the planet who is qualified to go and do what I'm about to do because it's never been done before and I'm trying to build something new here. I'm not opening a quick mart, right, There is no playbook for this. Um, so you, you know, questioning me and while finger tenting, looking across the, across the table at me during thanksgiving isn't helpful, uncle john thanks anyways. Right. But that's what it was. And so I think that, you know, there is, there is some positivity to all of this and that we're not being scrutinized, but and I think this is part of we want to talk about today, there there's a downside to that as well that we can become very comfortable, right? And, and, and just sort of stay in in startup mode and start up land as opposed to trying to work ourselves into a position of a more mature company and some legitimacy. Things like, you know, stable payroll,

Wil Schroter: right? I remember a while back uh, I heard someone say and this is like the first time I heard them say this, this has had to be 10, 15 years ago, they said we're not worried about revenue right now. Never forget hearing that for the first time.

Ryan Rutan: And I'm like, what?

Wil Schroter: You're not like, what else would you be worried about? Well, we're worried about user acquisition and then once we have enough scale and user acquisition will turn on revenue later. And again, that ended up working for enough companies that everyone could kind of hop on that train as an excuse to say. We haven't figured out how to make money yet, but we just haven't told anybody yet.

Ryan Rutan: Right. Yeah. And somebody told me that a few weeks ago. And I was like, but aren't you a professional services company? They're like, yeah, yeah, yeah, yeah, okay, cool.

Wil Schroter: But you know what we're talking about today is that's not the goal. The goal is to become a real company. The whole goal here isn't to be a startup freshman. The goal is to be a graduated senior, a real moneymaking company that does have employees and payroll and consistency and sells to real customers who pay real money. That's the goal. And I think what we've started to lose sight of is that while being a startup is awesome, we've sort of dedicated our entire company name to it. So we're pretty bought

Ryan Rutan: into the concept. We're gonna have a hard time outgrowing this one will hopefully.

Wil Schroter: But while that's cool, it's, it should be only a part of what we're celebrating. I think you're being a startup is a cool way to celebrate starting. Yes, but I don't see people chest pounding in the same way that they should to say, hey, guess what? We're not a startup anymore. We're actually a real company, whereas now it's almost an admission, we're not a startup anymore. So sorry about that. And I think that's, it's a totally broken,

Ryan Rutan: broken, broken, we've become a totally boring, really stable, well paying, you know, beloved company who always, you know, takes care of their employees and their staff and all that stuff, you know, it's, I'm sorry, right. It's not. So, but let's, let's talk about that, I think because one of the challenges that people will have is, okay, well I'm a startup and then I'm gonna start up until what happens. What is that? You know, we've talked about a few things, but what are those milestones? Right? Like it's not just I. P. O. Or exit. What else happens? Where where are these lines where we can feel comfortable saying, hey we're not exactly a startup anymore.

Wil Schroter: And again, I want to be able to say that with reverence, I want to be able to say, hey good news, we're not a startup anymore. It's again, I'll keep torturing this analogy, you send your kid off to college and it's so exciting that they're a freshman, but you're not excited about them staying a freshman. If in your floor, there's still a freshman, you're kind of like, you know, that wasn't really the goal was to send you to college. I just have you come back preferably with a degree. And so I think one of the places that people have a milestone is profitability and that's an obvious at which point I no longer need to raise money at which point and maybe I do, but I don't have to again, raising money isn't tantamount to being a startup, you can raise money at any stage of billion dollar companies raise money. The point is we have enough revenue that we're self sustaining by way of that. These are all tied, We have a product that people actually want to pay for, that's a really clear one

Ryan Rutan: important. We're

Wil Schroter: making payroll on a regular basis. And again, I think people almost get gun shy anymore, but when they hit those thresholds that they're like, I guess we're not a sexy startup anymore. It's like, no, that wasn't the point. Yeah.

Ryan Rutan: Yeah. Yeah. So where do you think some of those misconceptions come from? Is it, is it fear of never getting to those things? Is it just lack of acknowledgment or not understanding how important they are? Why why do we do this? Why do we want to maintain the startup facade? Even if we're past that point?

Wil Schroter: I think startups at this point to be a startup is tantamount to saying we're high growth, high opportunity and when you take that moniker off, it must mean that those opportunities don't exist anymore. Now, to be fair, a lot of these things have have, over the last 10, 20 years gone hand in hand whereby startups have had such a compression in their growth cycles. Whereas it used to be, it takes 10 years to build a company to anything. And you know, for for what I look, let's talk about the the titans of old where it took people 10 2030 years to build an empire. Companies are doing it in three or four, not all of them, it's rare, but the fact that it's happening is making people behave. If you didn't get to that threshold in two or three years, you must not be an interesting company. And I would argue there is actually some truth to that. And bear with me, there is some truth to that. If we think about it in terms of if you haven't grown yet, if you haven't hit your stride by now, you probably won't. Now I can give you a million examples of of where that's gone otherwise. Uh But there is some truth to that and I think what we're seeing is those cycles that that that window for you to become that big thing is getting more and more and more compressed, which by the way is actually a good thing. It means the opportunity is being able to be developed faster. But I think it's leaving a lot of companies going well I guess I didn't hit that. I'm not, you know, a billion dollar valuation in two years. So I guess I'm a big loser and I'm just stuck being a company and that is a totally totally broken conception.

Ryan Rutan: Funny timing on this one. I had somebody reached out to me yesterday wanting to talk about something related to this and they had listened to our funding No man's Land episode and wanted to talk through this because they took on their last funding a number of years ago and now we're in a position where they weren't quite sure what to do. They hadn't hit that growth trajectory. They've got some ghosts in the cap table. There's all this stuff going on. And we started talking about like, well maybe maybe your run at being a high scale high growth company is over. But let's not forget they have incredible underlying metrics. They've got really, really strong monthly recurring revenue, they've got really strong profitability, they run this with a very small and efficient team. All of these things are awesome, but it's not doing this hockey stick growth, which is what they thought they wanted or needed so that they can still call themselves a starving. So that we had this very conversation yesterday which look maybe you're just not a startup anymore, you're a business now and that's okay, but you need to start to think and act accordingly because his problem was like, well how do I how do I clear this up? How do I clean this up so that I can go back into that high growth mode. And I said, well let's talk about why it didn't happen in the first place. Maybe right, maybe it just doesn't exist for this business, right? Maybe this business is what it is and that's okay too, right. But I think we have this perception that if what I started out to do doesn't occur in the way that I thought it would, that I've somehow failed.

Wil Schroter: Right, right.

Ryan Rutan: Built to do that, but this is not a failure by any stretch of the imagination. This is a, this is a mid-6 figure, a mid-7 figure business. Right? Nothing wrong with that at all. Because five years ago it was a zero figure,

Wil Schroter: Right?

Ryan Rutan: That's a hell of a long way in a relatively short period of time. And it's very meaningful given the staff size and giving the market they're in, they're doing fantastic, but they're not doing what they thought they were doing. They don't look like the cool, shiny startup kid anymore. And I think that's a big part of, right, psychologically, that has an impact, Right? I didn't do what I thought I was going to do, I did something great. That's not quite what I thought.

Wil Schroter: It's also, I think, you know, a big part of that with uh, with funding is, if I don't show the growth, I'm not going to attract capital. And so there are a very small number of businesses that can, and will attract capital on an ongoing basis. I mean, the funnel is exactly what you think it is at the top of the funnel,

Ryan Rutan: the width of

Wil Schroter: the funnel are a million companies that are going to get their first bit of funding. And when I say that, I mean, 50 K friends and family Helen, s B a loan, you name it. But that funnel shrinks really quickly when you get to the next round of capital, the next round of capital, in the next round of capital, the numbers have changed a bit, but the last time I looked at the National Venture Capital Association, the NBC A, They had indicated that there were 4000 checks. Venture checks written per year. People don't think about that. They think they're all, I care about companies all the time. There must be tons. There's a bigger number of follow on checks. These are the initial checks your series a typically checks that are written. It's a very, very, very limited number of checks which when I say that to say very few companies are going to get those checks and those are the companies that are all hoping to kind of have that hockey stick startup kind of growth For 99.9% of the rest of the world and I really mean the world in this case because venture isn't available in many parts the way it is in the us. they just can't think like that, they can't think of like, let me be, uh, I'll make revenue later. Let me try to, you know, grow at all costs kind of mentality they need to build real business is funny as it is when you build a real business that attracts even more capital. It's not just about the growth. People like to see a little bit of consistency as well, you know, by the way, I just want to mention if what we're talking about today sounds like the kind of discussion you wish you were having more often. You actually can, you know, we're online all day everyday working through exactly these types of topics with founders, just like you. So any question you would have or maybe some problem you just want to work through. We're here and we love this stuff and we're easy to find, you know, head over to groups dot startups dot com and let's just start talking.

Ryan Rutan: Yeah, I look, I love my favorite investor in the world's cash flow. Right?

Wil Schroter: She

Ryan Rutan: never does you wrong? She never screws up the cap table. Right? It's, it's, it's perfect. Right? So yeah, absolutely nothing wrong, which is building a solid and stable business. And so some of this is like a lot of things in founder land. It's just a change in how we're thinking about it. Um, and, and how, how we're, how we're measuring ourselves, right? What are we measuring against at this point? Um, if we're measuring against some uncertain future state that we set out to achieve five years ago when we hadn't ever done anything other than, you know, slapped some, um, some text on a power point and say, here, I'm a start up now, um, why the hell do we think any of that was going to come true. And why are we still saw something a couple of days ago, a friend of mine shot me a message and it was a little graphic that said, you know, Men pick their sports teams at age 11, uh, and then continue to suffer as a result for the rest of their lives, right? Which it's kind of the same thing we do in the startup space, right? Like we're like, we're gonna set up to achieve this and then we always measure ourselves against some utopian future that we created at a point where we knew almost nothing about the business we were about to go and build. And yet that remains our north star and a rubric for deciding whether we're successful or not. Kind of silly.

Wil Schroter: I feel like we've overcorrected, that's where, you know, really where my head is that I feel like it used to be like I said, Ryan, you and I started and we're entrepreneurs and we were just these total weirdos and nobody wanted anything to do with us and they weren't wrong, but they didn't see the bigger opportunity, the nineties hit, the internet revolution hit etcetera. And all of a sudden people like Mark Andriessen were on the cover of Time magazine, back when there were magazines and everybody's tuned changed for the first time, right? You know, he was more the trendsetter than people realized, but since then, you know, we've kind of afford to the Mark Zuckerberg of the world and you know, all the folks that have come up the the young entrepreneurs, these fresh faces since then. And essentially what's happened is we've created this new norm, which is, we all want to be hot startups at the start again, we all want to be freshmen and, and I think we've lost sight of what it means and what we're trying to achieve to give you an example of that from, from our standpoint at startups dot com. We wanted to get away from being a freshman as fast as possible. Everything we did, it was about becoming sustainable, about making sure that we had product market fit in as fast as possible. Uh, there's no deferral revenue. Like we'll do whatever it takes to make money from from the very beginning. In the moment, we could say we're constantly making payroll, we could interview people and say, look, you know, we're profitable, we're debt free, etcetera was the best moment we had in a weird way, I couldn't wait to get rid of the startup moniker again, the irony that were called startups dot com, but

Ryan Rutan: I could really well, I was just on go Daddy and I bought us no, really, we're a mature company with stable revenue whose services startup companies and founders dot com, That's our, that's our new domain name.

Wil Schroter: And you know, it was available. It's amazing when people are interviewing here and they say, you know, are you like a startup company, obviously it's kind of hard to distance from this one. We say no, absolutely not. We used to be, we used to be a freshman. We're seniors now. We're a real company with hundreds of employees in real revenue and we know what our market is, etcetera. And I think when we talk to people about that and they say, well, does that mean there's no opportunity here? This could be exit. We don't hate money. There can always be an exit, right? We're we're not anti exit. That's not what we're talking about. We're anti opportunity were anti growth. What we're saying is this is the point we're pounding our chests about being an actual real company and not shying away from that. If people say we start up and we say, well by that, do you mean that we don't know what our product is yet. By that. Do you mean that we have to go raise money because the list goes on. We don't do any of those things and that's what you should be pumped. About 10 out of 10 people that have ever interviewed here have agreed wholeheartedly. It's never worked against us. And I think there's a lot to be said for that. You

Ryan Rutan: know, there is there is for sure. I think it speaks to certainty. I think a lot of what we're talking about here is certainty, right? It's it's it's having answers to a lot of these fundamental questions and about being able to say because we have these answers, you know, we can't predict the future, but we can be far more certain about what happens next and under what conditions than we could 10 years ago when we started this thing. Right? At that point, it was anybody's guess like we had we had some great ideas, we had some bad ideas. Um and as time has gone on, we've become more and more certain about what we're building and what direction it needs to take, where the revenue comes from, where the revenue goes, all of these things, Right? So it's just it's there are far less unknowns at this point than there are knowns, right? You know, in the beginning stages, you just you don't know much of anything, right? And there's an allure to that, right? There's there's a lot of fun in that Phase Two because everything's exciting, everything's exploration. Um but there's also a lot of fun in sort of having that vector defined and being able to say like this is what we're trying to chase down now, and here's why um and here's what happens when we get there, which is really hard to say at that early stage, right? You you may sort of know like here's what we think we want to go do, and here's how we think we're going to do it. And here's what we think might happen if we achieve those things. Um but I think as we've, as we've evolved in any startup company evolves into just being a company, a lot of that variability and uncertainty goes away. and, and there's, there's a lot of comfort that comes from that, right?

Wil Schroter: It's, it's, there's a ton of comfort. But I also think that we've kind of given founders too much of a get out of jail free card. It's almost the equivalent of, we're now letting founders at 15 years old still be in diapers with sippy cups. It's like, dude, come on, write it off. You are far enough along now that you should have figured out product market fit by now. You're far enough along now. You should be profitable by now. It's not okay to say, oh, we're a startup, but it's all about growth and it's like, okay, maybe you're a startup, maybe it's about growth, but now you're just masking ship that real businesses are actually have supposed to have figured out by now,

Ryan Rutan: right? You say we've gone through multiple pivots. I say you've been going in circles,

Wil Schroter: right? Or you know, we just keep, we just keep raising more money. It's like the goal isn't to raise more money to make money raising is what happens when you can't make enough money to pay your bills and again, I think we've just shifted or overcorrected a little bit too far. And again, I think Ryan you and I, we love the fact that founders have more cover than you and I had, where they can say, hey, I'm doing a startup and it creates a center of gravity. That's

Ryan Rutan: awesome. I

Wil Schroter: just don't feel like we should be in a space or in an environment, you know, within this community where we're celebrating it for too long. I want to be able to say cool freshman year, you're a sophomore now. You, you can't do any of that ship anymore. You need to put up or shut up,

Ryan Rutan: You know better, you know better now. Yeah, It's funny to me like, especially the thing around like the celebration of raising funds and look, raising funds is a tough thing and, and it, and it is necessary sometimes and I'm not taking anything away from that. Um, but it's always funny to me when people do something like they'll celebrate their series a like when was the last time you saw somebody celebrate getting a

Wil Schroter: mortgage

Ryan Rutan: right? Like all you've just said to us was that, look, we raised all this money that we couldn't otherwise make on our own, right? That's what I hear. Of course there are time and place for that and it does open up a lot of doors and opportunities to do great things with that cash hopefully. Um, but you know, to your point, it's, it's money that you just hadn't made yet. It's, it's, you couldn't figure out how to get to this point of doing this on your own steam. So you gotta go raise funds right? And like it sometimes necessary and, and it, it can lead to great things and it's, it's a great propellant. Um But it's not the kind of things that we should be celebrating in in a vacuum right? It's it's not the funding that we should be celebrating. Let's celebrate when you've used those funds to achieve the things that you were trying to set out to do once you become that boring company who's no longer raising funds right? That's we need to start shouting to the rooftops

Wil Schroter: right? That's when you've won. Um and along those lines, you mentioned your friend that that you're on the phone with the other day or a founder that was making mid-7 figure revenue uh and was feeling like that you know they weren't big enough or what have you. Um I think that's also the other part of the discussion that's starting to get broken. It's that if I don't become I. P. O. I'm somehow not worthy or you know if I don't do hundreds of millions of revenue and it's like you know that never never used to come up. That was never the idea was and I think about all my neighbors actually they all own businesses for some reason has nothing to do with how to live in a fancy part of columbus. Ohio just happen to live next to some people who own businesses and I always think about where they're at in their careers, they spent their entire lives so that they could build a profitable business that would sustain their lifestyle. They didn't give a ship about what other companies were getting bank loans to start their businesses, like who was growing at what rate all they wanna do. They were, they were so myopic, they're just, I just want to fix my stuff damned everybody else. I don't give a ship what anybody else does. I love that. And I feel like we're sort of at a point where we kind of need to come back to that where companies are saying, I'm not growing fast enough that you have a seven figure business that's profitable, it's going to pay you for the rest of your life. Dude, you won, right? I don't want to see this turn into you. You weren't enough,

Ryan Rutan: right? Yeah. Were you funded along the way? Like, who cares? Right. What? Why are we? Yeah, we, we introduced so many things to, to what it means to be a successful entrepreneur um, in the startup space that really don't have any place in the equation, um, simply because we don't have enough else to talk about. I guess. Again, I think a lot of this is just, it's for external signaling purposes and or like you said, it's, it's something that we ride as an excuse longer than we should and that's what we're going to be really careful that we're not using the startup facade to simply give ourselves a pass on, on not achieving what we set out to achieve,

Wil Schroter: right? And I think that at which point you become a real company, a real, self sustaining, profitable company, product market fit all this good stuff, you won, right? And you should be celebrating that you should be telling the world holy sh it look what we are. We're a seven figure company that pays its bills every week, right? There are so few companies that can say that that's such a monumental achievement that I feel like that's where our heads should be right. I think, I think really, uh, as as founders, we should be encouraging each other to get to exactly that milestone and again, share that milestone. I don't want to get to the point within our environment, in our world, you know, etcetera, where all of a sudden we're saying you succeeded, but it wasn't successful enough. That's bullshit to me.

Ryan Rutan: We've talked about this man because there's always going to be somebody right? Like right now it's musk, somebody will, will, will displace him at some point, right? There will be a trillionaire, there will be a multi trillion, like it's, it will happen, right? These things will occur. And so, you know, I think that we've, we've talked about this on a couple of episodes, but the minute you start defining your own success as a relative measure against somebody else's, you've already lost, right? That's going to be a short lived and, and hollow victory. So, you know, to your point, um, get to this, get to this point of stability, right, grow into a real company that can do real things that's generating cash and helping you live the lifestyle that you want at that point you've won, right? Don't compare yourself to anybody else and say, well, okay, well, you know, Yeah, yeah, I've got the lifestyle I wanted, but somebody else has this other lifestyle that I never really considered, but now that I've seen it and I know that that's not what I have, that's probably what I needed and so therefore I haven't won yet. Like, come on, like why are we wasting our time with this ship?

Wil Schroter: Yeah. Look, I think for for every startup, founder, when somebody asked him at a cocktail party, what are your goals? They should literally say to not be a startup anymore. And that's the most sober, most honest thing we can say is founders. And I think if that starts to become part of our discussion, you know, part of what, what people are being forced. So, so to speak in a good way, they're being peer pressured to saying, I don't want to be a startup anymore. I want to be a real company that has a real product that pays real bills and has real employees that show up everybody every day. I think that's the point where everyone wins. Alright, so that was fun. But let's actually keep this conversation going. You've heard what we think about this, but you know, Ryan and I would really like to hear what you think and we're online, like all day long, pretty much talking about every startup topic you could think of from fundraising, the customer acquisition to just really have to get all of this crazy startup stuff out of your head. And there's tons of other founders just like you they're weighing in on these topics, so you'll get a chance to just hang out and meet some really smart founders were also super, super easy to find. You head over to groups dot startups dot com and let Ryan and I hear what's on your mind, let's get to know each other a little bit and let's just start having more of these conversations.

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