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The "No BS" version of how startups are really built, taught by actual startup Founders who have lived through all of it. Hosts Wil Schroter and Ryan Rutan talk candidly about the intense struggles Founders face both personally and professionally as they try to turn their idea into something that will change the world.
00;00;00;00 - 00;00;15;10
Unknown
Welcome back to the episode of the start up Therapy podcast. This is Ryan Roots and joined, as always, by Will Schroeder, my friend, the founder and CEO of startups.com. Will startups are a bet at all and or go home type business, right? We just have to risk everything, risk it all, put all the chips in, you know, bet the farm.
00;00;15;16 - 00;00;37;21
Unknown
It's the only way we can do this right. And it's the it's the right thing to do. Yeah. The only people you hear that from or the people whose bets one. you don't hear that advice from all the people where the bets failed. You know, I've been watching the show, with my kids, you know, history remembers these awesome kind of mock you entries, if you will, about, like, the toys that built America and like that.
00;00;37;21 - 00;00;59;01
Unknown
Yeah, yeah, men that built America and all these things. And I love them. Except they're just fairly untrue, right? You know, it's more mythology than it is actuality. So they do all these little, vignettes where they'll show some entrepreneur at a critical moment making, like, a bet at all decision. Hey, we were watching the one the Toys That Built America, and they were talking about, like, Hot Wheels in, like, the big decisions they had to make.
00;00;59;01 - 00;01;27;02
Unknown
And they were talking about, Barbie doll and Trivial Pursuit and all these things. And again, every time they show this fictionalized vignette of the entrepreneur being like, bucket, let's just do it right, right. And I'm sitting there going, number one, no one does that in number two. What a moron. Right. Look, we'll also you know what? You didn't see the other 300 room cams where people also said, okay, let's do it, and then became absolutely nothing but abject failures, right?
00;01;27;02 - 00;01;43;11
Unknown
They just went out of business and faded into obscurity. They didn't make the highlight reel. That's the thing. Yeah, sometimes big risks pay off. But if we only look at the times, the big risks pay off, we start to assume that the only way to do this is to take the risks without any downside protection, which, yeah, you can do that.
00;01;43;13 - 00;02;10;04
Unknown
if you want to join the 99% of startups fail, I think it's become yet another chapter in startup lore where everyone believes that. I heard this is the way it was done by big companies that are big companies now are successful entrepreneurs. So I guess that's the way to do it. And I love when I hear that because I'm like, that is such broken logic and we're in such a unique spot, you and I, and that we talk to thousands and thousands of founders.
00;02;10;11 - 00;02;30;05
Unknown
So we get to live everyone else's lives. And I can tell you, we have way more discussions where that conversation went wrong than when it went right. Yeah. Because like, this is not the way to do it. It's it's broken on both sides. The logic, because it's assuming that then the only people who made it there also took those kind of big risks.
00;02;30;05 - 00;02;50;28
Unknown
Right. The big risk is the only way to get to that outcome. And that's the only outcome that happens. So clearly there's a lot of downside taking big risks. And your vast likelihood is that it will hurt you more than it will help you in the event that it does help you. There's also this implication. That was the only way I could have gotten to where I got to write that, that moment where where, you know, the the Hot Wheels gang said, okay, we're all in.
00;02;51;02 - 00;03;09;05
Unknown
That was the only way that they could have gotten to where they were. No, it's just empirically untrue. Well, probability tells us there were plenty of other pathways that could have gotten in there. Maybe not in exactly the same way, but I think we got to be really careful that we're being super, super selective in the narrative. We're taking the Instagrammable moment and applying that tools.
00;03;09;10 - 00;03;26;01
Unknown
We should just wait. Yeah. You know, so when I share people, all the stuff that I've done, all the bets that I've taken, etc., I always get, oh my God, you know, you must have been so bold or brave to make that decision. I was like, I'm decent at making big bets, but I am Sun Tzu when it comes to downside planning.
00;03;26;01 - 00;03;46;24
Unknown
Right? That's it, I got him. Yeah, I am all about plans. Have backup plans for their backup plan. That's the point, though, because. And the reason I can make cowboy moves is because I spend a lot of time planning for downside. Right? Yeah. And that's the part that no one really talks about, right? You know, in that mockumentary no one's like.
00;03;46;25 - 00;04;03;19
Unknown
And then Cornelius Vanderbilt built this downside protection case. The whole railroad thing didn't work out. And that's what I don't want to talk about today. I want to talk about how to take big bets by focusing on downside risk, not just the upside risk. It's like, oh, well, if we land this contract, we're gonna have to hire so many people.
00;04;03;19 - 00;04;16;15
Unknown
It's going to be such a challenge. It's like, nope, we miss the contract. Let's go. Let's go hire the people that we were going to have to hire anyways. And then we get this big contract and then, or we miss the big contract and then we don't, we don't have the cash from the contract, but the overheads.
00;04;16;15 - 00;04;34;11
Unknown
Well all right. Exactly, exactly. The first thing when I hear people taking big bets, like making, you know, I'm going to quit my job. That's usually the first one, right? Right. Yeah. But my job, I'm going to risk it all at risk. Okay? Now I'm like, okay, so what's the downside plan if that doesn't work, what's your plan?
00;04;34;13 - 00;04;49;25
Unknown
You know, you and I were talking earlier. You're saying, hey, when people go to raise capital, they're like, I have to raise capital and like, cool it if you don't. What's your plan? Well, I have no pet. That's lazy. Right? Like, not a good plan. It's just lazy, right? It is. It's like, how could you make that bet and think about this?
00;04;49;25 - 00;05;11;26
Unknown
Like, as we get further into in building a startup, we're responsible for a lot of people. So if we make a cowboy bet and it doesn't pan out, those are real jobs and lives, you know, that are at stake because we are too lazy to come up with a plan B. There is nothing glamorous about jumping off the cliff with no idea what's at the bottom, right?
00;05;11;26 - 00;05;34;14
Unknown
There's nothing glamorous that is lazy at best, irresponsible at worst. I think you keep having this conversation in regards to founders funding. Nothing wrong with funding, nothing wrong seeking funding. But there is absolutely something wrong with seeking funding without a plan B right there. Like look, I there's no way I can bootstrap this thing. Wild logic. The only option is to go raise funds, because we need all that money to do all these things.
00;05;34;20 - 00;06;03;13
Unknown
Sure. To build that version of the business we decided on that. You still don't know? Can't exist or not, right? You're telling me your future imagination has figured out exactly how this only one way this can end. And it starts with funding. Come on. Right. So I think that when we we take these, like, old and hyperbolas pads now, and not only can we convince everybody else around us that this is the only way we can do this, but this is the idea that we convince ourselves, be this ourselves in a really, really dangerous territory.
00;06;03;15 - 00;06;25;08
Unknown
Right? Like, oh, go, go attempt to raise funding. But tell me, what's the bootstrap as in parallel, they will also, by the way, support the traction you need to actually qualify to to receive that funding in the first place. Right. The two have to go. Let's walk through a massive cowboy move that we made in how we actually manage downside risk.
00;06;25;08 - 00;06;41;20
Unknown
I don't even have to tell you what I'm going to suggest, because clearly it's when we bought virtual. So to to give some folks some idea of the context. So companies called virtual.com, it's a virtual assistant business. You can, you know, hop online in for a monthly fee, hires a virtual virtual assistant. We bought that business, right.
00;06;41;20 - 00;06;59;20
Unknown
If you can believe it. Almost ten years ago, that was 2015. What's interesting about how we bought that business is that business had one of the most bizarre paths of all time. I'm not going to go into a ton of detail, but the short version is they were on fire. Eight figure revenue 450 full time employees were just about to close another round of funding.
00;06;59;21 - 00;07;26;28
Unknown
The round fell through, which this rarely happens like this. And they shut down. They had to shut down within like 24 hours, right? I've never seen anything like it. We got the call at like 10:00 at night on a Sunday. And, short story long, we ended up buying the company at 5 a.m. Monday, completely sight unseen. Eight figure revenue company, 450 full time employees, 2000 plus clients and a business we had never worked on.
00;07;26;28 - 00;07;47;29
Unknown
We had barely heard of. And we bought it totally sight unseen. Okay, now it doesn't get more cowboy than that, but isn't that okay? So the first instinct would be, oh, that's one of those quintessential bet it all. Whatever. But that is not how we went into it. We went into it. We sat down 9 a.m. on Monday.
00;07;47;29 - 00;08;11;15
Unknown
You remember when we huddled in the conference room 90? I'm sure we were in there by like 530, but yeah, by 9 a.m. we had settled into the fact that we were doing it. From that point on, we just isolated every variable. Yep. Right. So to give folks an example of what that looks like okay. Number one, we now have 450 people on our payroll that we've never met, never met, never got to oh my God are great.
00;08;11;17 - 00;08;32;10
Unknown
Yeah we were smiling and dial in that day right. They're all going to quit. Who knows right. Also, they have no idea what just happened. Like even the CEO, the original founder. Yeah. Kind of just found out like 24 hours ago. On top of that, 2000 plus clients that could just as soon say, screw this in bail tomorrow.
00;08;32;11 - 00;08;47;08
Unknown
Yeah. Right. In many did, by the way just to be. And he did. Yeah. The question wasn't if it was helmet right. It was degree out. How many businesses are we going to lose. How many how many assistants are we going to lose. You bet. Right. And this is going to hit the press cycle, which it did. You can Google it.
00;08;47;08 - 00;09;06;24
Unknown
It's on TechCrunch. It's whatever. Like it didn't go unnoticed. Right. So all of this. Right. Not to mention all the people they owed money to. Right. This. Right. A lot of debt to a lot of people. All of those were just line item after line item of risks. Some people may look at that and say, yeah, but you've got, you know, eight figure revenue coming in maybe.
00;09;06;27 - 00;09;28;06
Unknown
So our whole game plan was what happens if everything goes wrong okay. Right. So so you compartmentalize and you say, okay, we have 450 full time VA's. What if it goes down to 5100? What does the business look like? What can we sustain? We look at the clients. We have 2000. What if that goes down to 200? Like how do we manage for all of that?
00;09;28;14 - 00;09;50;19
Unknown
The reason that business, Ryan, the reason I think that worked so well and that became a phenomenal business for us. The reason that works so well for us, I think, is because we were so good and so diligent at making a downside decision. I bet you know, something that's really funny about everything we talk about here is that none of it is new.
00;09;50;23 - 00;10;12;14
Unknown
Everything you're dealing with right now has been done a thousand times before you, which means the answer already exists. You may just not know it, but that's okay. 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 group start start ups.com. So if any of this sounds familiar, stop guessing about what to do.
00;10;12;20 - 00;10;32;04
Unknown
Let us just give you the answers to the test and be done with it. We looked at worst case scenarios across the board. Yeah. And so it was like but that's it's such a great point right? Yes. Maybe the the upside eventually comes and we'll deal with that. Right. Like did we have to worry about well let's in case we lose half of our assistance, let's go and hire a bunch more right now.
00;10;32;07 - 00;10;52;24
Unknown
No. Well let's do create a hiring pipeline so that we're ready for that. Let's let's do some things. But we were we were very, very cautiously optimistic about the upside. And we were very conservatively pessimistic on on the downside. And we had plans were what happens in these cases. Right. And it's and of course it's it's calculus. It's not simple arithmetic.
00;10;52;24 - 00;11;12;28
Unknown
It wasn't like, okay, well pick a problem. Right. What if we lose some of the clients. Right. Okay. Solve that problem in a vacuum. What if we lose some of the assistants in a vacuum? Right. We didn't. It had to be done across the board and and understanding what's the impacts of these sliders. This much of the business goes away and we lose this many assistants.
00;11;13;05 - 00;11;26;23
Unknown
If that works in parallel then maybe that's actually a benefit. If one goes one way and one goes the other, like we all the assistants and none of the business, that's a big problem to how do we plan for this? How do we what are the contingencies for these things? But we had a plan. Is the point on this?
00;11;26;23 - 00;11;44;29
Unknown
Yes, exactly. We had to plan for it. Well, first week we had visibility and awareness. Right. So go back to our example of the founder who saying I'm going to go raise funds. And if I don't raise funds, I'll go, I'll go. It just goes bust, right? We could have said the same thing. All right. You only thing we can possibly do here is hang on to all the assistants and all the business.
00;11;45;02 - 00;12;03;20
Unknown
Otherwise it's just going to go bust. We won't think about what the scenarios look like. Either works really well or it doesn't. We can very clearly say at this point, hindsight being what it is, had we not had those plans in place, it would have followed that second path, right? The business would not have worked out as well as it did for us, and that is due to those downside protections in place.
00;12;03;21 - 00;12;17;26
Unknown
And by focusing on this thing. Yeah, taking diffused mentality. I hear that a lot too. It's like, well why just focus on the downside? Why focus on the negative? Do we have to grow to be. Yeah, but you got to be around to grow. You miss the downside, right? You're like, yeah, I have to run fast to win the race.
00;12;17;28 - 00;12;34;21
Unknown
Yeah. But if you trip over the first hurdle, guess what. Right. So you got to watch the downside to it. And I think the continuity is is a point we should really kind of harp on for a second. We want to be able to risk enough but still have a little bit left over it. And so the analogy I always use is like the blackjack table, right?
00;12;34;21 - 00;12;55;24
Unknown
So you're at the blackjack table and it feels great like from an adrenaline standpoint to say I'm all in on this hand. That's the dumbest idea in the world, especially as a startup. Number one, if you go all in that hand and you win, that's great. You you maximize the upside, okay? But if you lose and statistically you're likely going to lose.
00;12;55;24 - 00;13;17;15
Unknown
You're out of the game. You can't come back. Yeah. Bet 70% of your chips. At least you have 30% left to play with. And when you push them all in, metaphorically, you're making the dumbest possible bet. You're like, don't make a bet. You can't come back from. It's kind of that simple. Even if you come back in skeleton form, at least you come back, right?
00;13;17;22 - 00;13;41;15
Unknown
I'm going to apply something that you said in the past around giving equity away in return for things that aren't really worth giving equity away for. When you say like, do you feel like you're betting with monopoly, right. You're it doesn't have any value. And and you said something that I love and all the time, which is that you have to remember that while that value may seem low value or valueless at this point, it represents 100% of the future value of your company.
00;13;41;18 - 00;13;56;06
Unknown
Apply that here and I because I think it's it's very similar mechanism, which is that at the early stage we feel like I can bet at all. Right, I've spent a year on this, I've spent two years on this. We've got whatever we've got, I'm going to bet it all and we're either going to where are you going to make the big hit or we're going to or we're done.
00;13;56;09 - 00;14;26;01
Unknown
Right. Because it doesn't feel like there's that much at risk at that point. We haven't come that far. We've done. You're betting 100% of the future outcomes of the company could have achieved, based on that one moment, without a downside protection. It's it's as dumb as it sounds, but we see it all the time. And I think it's partially because of those blinders that say, well, not really risking that much at today, but you're risking 100% of the potential outcomes on this one bet, which just is as bad as it sounds when we talk about it.
00;14;26;01 - 00;14;42;23
Unknown
Like when we said when people quit their job. Well, you know, there's so much work to do on this business. If I quit my job, I will, you know, spend all the time in the business, okay? At the expense of not paying your bills. Which one of those is likely going to run out first? Right. Like you might make more money in this new thing, but you will run out of money for year.
00;14;42;24 - 00;15;02;27
Unknown
That's it. Right? Like the risk enough is cut back your hours, get a part time gig, do consulting, don't cut off income right. Cut off your exposure to hours, but don't cut off your income, right? That's just lazy. Again, that's no backup plan. Another version is is when we hire, we're like, oh, we need this person full time.
00;15;03;02 - 00;15;30;01
Unknown
Maybe. And maybe you need them full time and maybe they're going to work out and maybe you paid them. What they're what you should have, etc.. Oh, like I am a contractor, right. See if they work out. If over time. If over time, it turns out that that they work out great, awesome. I think there's there's something about that one too, which is like the, the most of these bets that we make, they're very, very few times where it's like, we have to we got to decide now, guys, the the future of the factories in the line.
00;15;30;01 - 00;15;43;26
Unknown
Are we going VHS or beta? Right. Which way are we going? What are we going to make here? Right. They're very few of those in almost every case. Like a hire is a perfect example. Right. And it doesn't seem that risky as a one off. It's like, well, if they work out they work out. If they don't work, we'll do it again.
00;15;43;29 - 00;16;03;28
Unknown
But you also don't have to treat it that way. And right. If you treat 100 decisions that way, it adds up to big, big bets, right? So instead but these things in terms of incremental bets and to your point, higher that person is on track, do a single project with you, something that allows you to, kind of get a preview of what the outcome that that's going to look like and then build from there.
00;16;04;04 - 00;16;23;27
Unknown
There's so few things that require immediate and full binary decision of invest or don't in the startup space, that it's almost laughable that we make any decision framework. In my personal life, I'm used to just making bets on things, right? I'll be like, oh, like, you know, I do a lot of woodworking. Like, I'll just start building this and I'll just figure it out as I go, right?
00;16;24;03 - 00;16;47;04
Unknown
Because I'm like, look, at the end of the day, it's $800 worth of wood, right? Like if I, if I don't like, fix, you know, figure this out, I can build this cabin or what the hell I'm doing. It's an $800 problem. My downside, right, just isn't enough to worry about the bet I'm making. And I think, like, I process every single decision I make in a very what's the worst that could happen?
00;16;47;06 - 00;17;08;28
Unknown
You know, what's my downside risk? And it's interesting because a lot of people don't do this like in their everyday. They're like something bad could happen. And therefore I can't make the decision. Right, right. And it's like, no, that's lazy. What exactly is going to happen? We've talked about this in previous episodes like, you know, this the A paper demons as, as I call them.
00;17;08;28 - 00;17;31;03
Unknown
Like you know, where they don't actually exist, but because we believe that there be a problem rarely as bad as we as we imagined it to be. Also. Right. You've got a quantified downside. I made a bad higher. Okay. That will cost real money, right? There's there may be severance involved, you know, etc. but you can unwind it like it's not like these things are unfixable or so doesn't mean you never hire anyone again because you made a bet higher, right?
00;17;31;03 - 00;17;52;17
Unknown
I think that's the other thing is we start to compound as decisions we don't take. We assume we didn't take any learnings from it. And part of that is because and I think this is this is a great point because we didn't do the downside analysis the first place, we didn't really look at and quantify that and say we didn't take any any notice of it, even after it's happened, we don't even really fully account for it and go, okay, I'm just not going to do any more of that, right?
00;17;52;17 - 00;18;06;22
Unknown
Yeah. Eight spend on Google didn't work for us. I'm never going to try that again. I'm not going to. Else I didn't look at the downside. We looked at the upside. We didn't get the upset we wanted. And now we just won't do that again without going back and saying, okay, let's reevaluate the downside and see if that actually makes sense.
00;18;06;22 - 00;18;24;05
Unknown
In terms of the calculus, we're trying to make. Just that doesn't seem to happen with the frequency of people's personal lives, a great reflection that even in the business world or like hard to expect things to be run up on the spreadsheet, they're not in my mind, like we are in the business of bets, right? We are in the the started as a startup.
00;18;24;05 - 00;18;42;12
Unknown
You were in the business of of risk, right? It's important to be good at the business of risk. Right. And being good at the business of risk is how to manage downside. Like we keep saying the upside is never a problem, right? I've had those ultimate moments where like a huge contract came in that was life changing and we had to hire hundreds and hundreds of people to solve it.
00;18;42;14 - 00;19;05;01
Unknown
Yes, it's work, but it's not a problem, right? But a problem is when you don't get the contract and you have to fire hundreds of people like that's a problem. When I think about, like any startup, right. I think about this entire journey. Right? It's just a series of bets. But I think what we've learned in you and I've been do this together for a long time, what we've learned is, yeah, we'll make bad bets.
00;19;05;01 - 00;19;21;22
Unknown
Who cares? But we won't make, like, Game over bets and we won't make un calculated bets. We won't make bets. Where we go. Damn, that worked out a lot worse than we ever thought it might have. I don't remember having ever said that. Right. We've said bet didn't work out as we'd hoped or. Well, that's. You know what?
00;19;21;22 - 00;19;39;11
Unknown
It's funny, I would say that, like in 90% of our bets that go wrong, which is probably just 90% of our bets, we we typically will end up saying some version of, well, that kind of went as expected. I love not being surprised by the bad bets. It gives you a lot of comfort to wake up in the morning knowing that we take this approach.
00;19;39;14 - 00;20;01;01
Unknown
It speaks to longevity, right? It speaks to extending the runway, speaks to being around to make that next bet and never been caught off guard by them, I think. So it prepares you for the big things that you didn't see coming to it, right? Like the pandemic pops up. If you've also got a bunch of other floating bets out there that you didn't know what the potential downside was, and they're now magnified by some weird black swan event, yeah, that's really problematic.
00;20;01;01 - 00;20;24;11
Unknown
And we saw a lot of really good otherwise startup companies die as a result set right. Because there wasn't downside management placed I think like that's the pushback for folks when they say, hey, I'm making whatever the bet is and no matter how small, even, you know, as entrepreneurs within our company, in the teams, you know, each person making their own bets, I think what's important for us is to be able to say, hey, yes, we're making whatever bet.
00;20;24;13 - 00;20;38;04
Unknown
What's your backup plan? Well, my backup plan is this if this doesn't work, here's what we'll do. Cool. Then make the bet. I think it's empowering that way. Right? Because like you said, we know how to come back from it. I think the part of it, it's not an admission of a bad bet. Right? I think people are saying planning for failure.
00;20;38;04 - 00;20;56;10
Unknown
Well, you know, that's just negative. It's like, no, that's the foundation for being able to make a different for everybody who's out there right now going what you hit, what you aim at. So you guys are asking us to aim for failure, rescue the aim for failure, rescue to understand it, we're asking you to calculate it into your bets and to make sure that we know if this is a game of bets.
00;20;56;10 - 00;21;11;19
Unknown
This is a game of being able to make as many bets as we can, and to be able to defray the risk across those bets to benefit from the upside, but to understand the downside so that making one bad bet doesn't mean the end of our startup. Overthinking your startup because you're going it alone. You don't have to.
00;21;11;19 - 00;22;00;02
Unknown
And honestly, you shouldn't. Because instead, you can learn directly from peers who've been in your shoes. Connect with bootstrap founders and the advisors helping them win in the startup scheme community. Check out the startups.com community@startups.com to see if it's for you. Could be just the thing you need. I hope to see you inside.