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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.
EP257
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Ryan Rutan: [00:00:00] Welcome back to their episode of the startup therapy podcast. This is Ryan Rutan joined as always by Wil Schroter, the founder and CEO of startups. com. Wil let's just pretend I'm starting an early stage company. People are coming to me and they're willing to give me money. They're willing to work for me.
Just in return for my monopoly money, also known as equity. Why should I be saying no to some of these folks?
Wil Schroter: That monopoly money is about to be the most expensive money you ever spend. It sounds like it's free, right? It's, it sounds like I just made up this stupid idea and all of a sudden people want to give me real money for it.
They want to put in real time for it. I got them and then you realize, damn, that was the dumbest maneuver I ever made. It reminds me of how my son feels. When he gets done playing Skee Ball and he has all those tickets, and he goes to spend them at the counter, he's Dad, I have to have this thing.
And I'm like, dude, that is the, I'd say a student, but that is the dumbest trinket I could possibly imagine. That's where you want to put all here
Ryan Rutan: just fill your pocket with Starbursts and give me half. That's the right move. This is what I convince my kids to do every time. [00:01:00]
Wil Schroter: All right.
What I really want to talk about isn't just the fact that, we're spending Monopoly money, it's when we're spending the Monopoly money. We're spending this At our most vulnerable time. Yep. Let, lemme put it this way, if you could fast forward three years, that ain't that far of the future, three years from now, and I could say there's two versions of your outcome.
One where you own 22% of your company and one where you own 72% of the company. I'm pretty confident I know which one you would say. Now, some people would say, yeah, but if I gave up more, it's 'cause I got all these resources and it was worth it. Not necessarily. And what if it wasn't and you spent that money anyway?
That's what I want to talk about.
Ryan Rutan: That's exactly it. And I want to hit on the point one more time, because you said this really elegantly once. It's the monopoly money, right? The equity, it seems so valueless now. You said something really powerful, which was it represents 100 percent of the future value of your company, right?
And so [00:02:00] it's always funny to me when you're talking to a founder and they're like look, it's just equity right now. The company's not worth much. In one breath, so they're like, I'll spend my equity. In the next breath, they're like, it's going to be worth 150 million in the next two years.
Which one is it, bro? Where are we going with this, pal? Wish you got to pick one here. We can't play with two kinds of math. We got to pick one and stick to it.
Wil Schroter: Let's talk about all the places where, we'll dig into a few big ones, like finding a co founder or getting investors. But let me just talk about all the places it gets chipped away at.
First one I hear about all the time, I have an attorney that's willing to help me out, but he's either going to do deferred comp or take a piece of the company. I have an advisor that's willing to help me out, but they're going to take a piece of the company. And we actually feel thankful that they're willing to do that, that they're willing to take our equity.
Now, I've done this so many times. So this sits in me pointing a finger at you foolish founders. I'm talking from experience. Here's what it looked like for me, just so you understand, like why I felt so good about it at the time. I've got this idea. And with every idea, [00:03:00] Comes this yearning for validation.
We want other people to tell us, yes, it's a good idea. And if they're willing to say, I want to become an advisor. Now we are validated. Our securities are addressed or insecurities are addressed. And so we're like, yes, here's 1 percent of the company, which sounds meaningless in the grand scheme.
Wait till you find, any billionaires own 1 percent of a company, a lot. At the time we feel validated. So we say yes to these decisions. What we do such or job of in the early formative stages is understanding how to say no. I had to look back and say, that's a terrible decision. I would never do that.
Ryan Rutan: Never do that. Yeah. It's so funny, man. That vulnerability is such a big piece of this. I remember back what's the, how do you make going over the falls in a barrel less scary, but somebody else in the barrel with you, right? And that was literally what it was because it's not like I was hiring like really amazing, highly [00:04:00] qualified people.
I was grabbing my college classmates, some of whom I had to train to do the job. Yeah. Yeah. That I just gave away a piece of my company to entice them to come and do it, right? And so it was just about that. It was vulnerability. It was wanting somebody to say I believe in what you're doing.
And I was willing to pay real money in the form of equity to hear that. It sounds so ludicrous now, but in the moment it felt like such a good trade. It felt like such a positive and powerful thing because nobody else believed in it. I believed in it. Nobody else did. And now I could buy people's belief.
This was amazing. And so it made me feel less vulnerable. The irony is, of course, it actually makes you more vulnerable because now you're giving up chunks of your company that will impact future decisions, lots of other stuff. But in the moment, man, it did, it felt really good. Made me
Wil Schroter: feel safe.
That's the most hilarious part about this. And I have folks that are listening. That if you're in year one, year two. You're somewhere in the middle of making these decisions, or you're further along and you have made the decisions. This is going to resonate with everybody, because 100 percent of founders deal with this.
And what's interesting about it is [00:05:00] how excited we are, how thankful we are to make these horrible decisions, right? They're not always horrible decisions, but they're usually horrible decisions, right? And we pay way too much for way too little without even realizing what that cost should have been.
So I'll give you an example. Here's what I see most often. Early on I see people say, Hey, I've got this idea started. I've got a co founder that I think might want to come on board. And as soon as I hear that, just having done this for over 30 years, I'm like, oh, here we go. Here we go. Let me tell you about what a horrible decision you're about to make.
And people are shocked when they hear this. Their first reaction is, wait, I don't understand. I just told you somebody's willing to join me as a co founder. And I'm like, you and I have done like whole episodes on this, on the co founder fallacy. And this isn't being anti co founder.
This is being anti bad decision, which may involve a co founder.
Ryan Rutan: May involve co founder. Yeah, I just let my inner voice [00:06:00] speak aloud last week once on accident. A founder came and was telling me, the story about how they'd found somebody they thought would be a really good co founder.
And that they had, they'd figured out how much equity to give and all this stuff. And I'm listening. And then they get to the end and they're like ah, but then they took a job with somebody else. And I accidentally said, Oh, good, because based on what I had just heard, I'm like, I didn't want them to have taken that deal.
It was too early. The person was an unknown quantity. The thing that they were grabbing them for would be far easier just paid in cash. And so the answer was, Oh, good. I don't usually let the inner voice come out quite that clearly. And I slipped and then I saw the expression on his face and he was What do you mean?
Oh, good. And I was like, Oh, I just mean that maybe it wasn't the right time. Yeah, because I could see it was just coming from that place of vulnerability, and they were about to way overpay for something they weren't even sure they needed yet. Bear in
Wil Schroter: mind, in those first couple years, most of the things that these founders will be paying for are things that they won't even need later.
Here's the most classic example. I just found a technical co founder who's willing to build my app. [00:07:00] And so I'm going to give that person 40 percent of the company, I'm just making up a number, right? But that's usually where it winds up. And I'm like whoa, hold on. Do you know what the market rate for building an app is?
It's not that high, right? Yeah, but he'll build it for free. And I'm like, okay let's quantify this. He is one person probably working part time. If we were to fast forward. And you had a million dollars in the bank. And we'll get back to that in a second. You got a million dollars in the bank.
Would you pay him the full million dollars to part time work on your app that he'll release in three months? You'd be like, no no, I could hire somebody to do that for 60, 000. Exactly. Exactly. Boom. That's what you just did. In fact, it was way more than a million dollars. And when you put it in context of what that should otherwise cost, then people start to go, Oh, okay.
Wait a minute. This is really just a person. That is a production unit. And I'm not trying to dehumanize people. I'm just saying, if you look at contributed costs now, when it comes to co founders, early [00:08:00] employees, whatever, there's two camps, there's one camp of people who actually have some Elon Musk level capabilities that can create magic, move mountains, do Steve Wozniak's jet awesome.
And you probably didn't find them.
Ryan Rutan: The other 99. 99999 percent of people, by the way, are the ones you're likely to be talking to about being a co founder right now.
Wil Schroter: Everyone else just does work, right? The fact that they're willing to work on spec doesn't make them better, right? Doesn't make them this special person.
In fact, you may wonder, it's almost what is that, Gradshow Marks? Yeah, I don't want to be part of any club that would
Ryan Rutan: have me as a member. Exactly. I've often asked that, I was like, why is this person so willing to do this? Why are they, is this enthusiasm or desperation, right?
What is the what's the reality here? And it's so funny because sometimes they'll just, the founder will just be like, Oof hadn't thought about that yet. Actually they haven't worked in two years. They haven't okay, then I guess we've got some, we've got some [00:09:00] digging to do.
I'm not going to say that's a definitive answer, but let's at least explore that a bit before we make our decision.
Wil Schroter: If I'm saying I'm looking for my future wife and I'm saying, I think I found her cause it's closing time and she's the last person at the bar. There might be a filter that says, do you want to know why?
Ryan Rutan: Yeah. Yeah. Yep. Yep.
Wil Schroter: I don't know why I'm the last person at the bar. I don't know why she's there. Point is, when we're making this massive decision, it doesn't have to just be a co founder. This also applies to, early employees, what have you. There's a small subset that may go on to do exponential things.
So those people absolutely exist. And there's amazing entrepreneurial tales, of the PayPal mafia with Elon Musk and Peter Thiel, max legend, like amazing groups of people read Offman, like insane, like amalgamation of talent. And then there's pretty much 99 percent of everybody else.
Statistically, you've likely found what would otherwise just be an employee that will never contribute more. [00:10:00] Then just an employee, but you're going to pay them like they're Elon Musk.
Ryan Rutan: Look, I suppose there's a bit of a case to be made there too that says, look, this is like a bit like any investing, right?
We're going to, we're going to pay people with some equity. We're basically hedging our bets. They're saying like, I'm going to invest this equity instead of cash. And knowing that a lot of the bets we make let's talk early employees instead of co founders, right? Just early employees. We're trying to create some sense of ownership.
We're trying to create some additional motivation beyond what cash comp would. I agree with this. You agree with this, right? Like we both agree that this is a good thing to do. And so I, I think that part of the justification for that is looking at it in that way and saying we're making investments.
Not all these bets are going to work. Just like angel investing, just like VC. The vast majority of these are going to become just employees, but we're doing what we can to create some incentive, to create some spark for those few bright stars that will end up going on and doing something exponentially more than just an employee.
But we have to recognize that's exactly what we're doing. We're making bets.
Wil Schroter: And look, it's, the problem is it's too easy to make the bet. It's too easy to take. You remember we talked about this startup weekend, right? The [00:11:00] classic startup weekend for folks that are familiar, awesome program, startup weekend takes about a hundred people.
They get together on a Friday, a bunch of them pitch their idea, their startup ideas to the room. They self form ideas. And by Sunday they pitch, Shark Tank style, their company. And often then there's this Monday hangover where they get together and think that they're actually going to start a company and realize that they're just a bunch of strangers that got together at some random event.
But what I'm saying is when the people are in front of you, when it feels like someone's willing to commit, you feel compelled to make a horrible decision. And part of you says this, right? All of us, right? I said but I need that resource. Cool. Are you sure you have to pay 50 percent of the company to get it?
No. I just I, the only way to get them as a co founder is to give them half. Oh my God. No!
Ryan Rutan: Don't worry. I didn't give them half. I kept 51 percent for myself. I'm still in control here. No, you're not. You're clearly decision making is out of control. It's [00:12:00] funny.
I had this conversation in the inverse a few weeks ago where I was talking to a friend of mine who decided to leave a company that she'd been with for some time. Take a job at another company and was really excited about how much equity they were going to give her.
And again, my inner voice spoke aloud, but it probably shouldn't have immediately. And they were like, they're going to give me X percent of the company, and my, I just went, why? Because it didn't make any sense, right? For the role they're hiring for. Hey, look, she's incredible. She's going to do amazing things with the company.
But it didn't make sense and that to me it was a red flag that says, look you're betting this is an early stage company. You're betting on the decision making power of this co founding team is dealing with a pair of co founders, maybe three. And I'm like, look I'd be calling into question, what kind of decisions they're making.
If they're about to throw that much at you, what else are they going to, what else are they going to miss spend? Again, not nothing against her capabilities or what she's about to go do, but it just didn't make any sense. You look at it and you go like it would, I, we've acquired companies for less than that.
What are they doing? Why are they [00:13:00] giving so much of the cap table for what is like employee seven? Doesn't make any sense. You've got
Wil Schroter: two factors here. The first factor is you're assuming this is the right person. And the second factor is you're assuming that's what you should pay them. So if I hire essentially a co founder bring on a co founder of essentially the wrong person at a massive price.
I just paid filet mignon prices for a McRib sandwich. And the problem is I didn't give myself any amount of time to figure out which one just got served to me. So what do you do? Lift the lid on the dish first, then pay the bill. Yeah, exactly. What do you do? You take your time. You don't start with a co founder at 50 percent or 30%.
You start with an agreement that says, okay, if we start working together, here are some milestones. Here are some deliverables. Here's a timeline that if you're still around, which by the way, most people won't even be around. If you're still around, here are the things that I'll commit to you. Here's how I'll reward you for that.
If you stick around, if you do [00:14:00] your part, in most cases, it's I'll just give you everything up front and hope that you do your job. Here's what that means. In a dollar equivalent. That is the equivalent of saying, I'm gonna pay you, new employee that just came here from college, ten years worth of salary, I'm gonna wire it into your bank account right now and hope you show up at work on Monday.
That's literally what you just did.
Ryan Rutan: That's it. That's it. And I think that this is where the confusion comes in. Because we're looking at, we're getting this completely backwards in most cases. We are paying a hundred percent. We're using 100 percent of the future value of the company to pay for something now.
And so it feels like that's okay. I'm going to get value now for something that may not be worth anything later. We also don't yet know that they're worth anything now. I don't mean that in a very negative sense, but we don't know that they're going to have the skills. Startups are tough.
They're hard for so many reasons. And so we're giving up. We're pretending that it's not worth anything, so it doesn't matter what I pay for now. But we're also saying, but this is going to be the person that carries us to get us that 150 million or whatever that future valuation that we're all [00:15:00] excited about is.
And I think we have to sober up a little bit on that math and say, we're spending 100 percent of the future value of the company. We don't know what that future value will be, but we know what that, that's a fixed percentage. If it's 10 percent of the company, if it's 20 percent of the company, if it's 50 percent of the company, that doesn't change.
That's fixed. So if it only becomes a million dollar company, sure. We only gave up 500, 000. It becomes a hundred million dollar company. We gave up 50 million, right? We don't know thing. We really don't know is what the value of that person is going to be today. And whether or not that value from today.
Is even going to be valid some years down the line, and this is something that you really do a nice job of explaining, which is we also outgrow these folks in a lot of cases whatever you think they might be worth now, and even, let's assume you're right, let's assume you get the math right today, we pick the right person for today, are they also the right person for 6 months, 9 months, 12 months, 5 years, 10 years IPO?
Probably not, maybe.
Wil Schroter: Unlikely almost every circumstance. Here's a perfect way to think about it. [00:16:00] You're essentially saying, you're marrying your high school sweetheart. You apparently know everything you need to know about how life works. And when you go through the different phases of life, like college, like your twenties getting, getting married when all your friends are getting married having kids, career and everything else like that, you're making all those decisions about how things are going to go at the most vulnerable time in your life.
When you know the least, you're making the biggest single bet. By the way, how could you possibly get that right? That's the real question. You should be like, damn, now that you put it that way, I know less now than I'll ever know. Why would I be making such a lifelong bet in a person who in many cases I've never worked with to this extent, there's an argument that says, Oh people do co founders all the time.
Yeah. Doesn't mean they do it right. People get married all the time. 95 percent of startups
Ryan Rutan: fail, right? Maybe there's a correlation there too. Let's play with all the data, not just some of the data. But let's talk a little [00:17:00] bit
Wil Schroter: about. This concept of where you are the most vulnerable, because I think this really permeates all of this, and it's a really interesting kind of premise that I think folks need to understand.
And Ryan, I'll set it up like this, I'll set it up with a bit of a spectrum. On a scale of 1 to 10, of vulnerability, I'm gonna call it the scale of vulnerability, on a scale of 1 to 10, with 1 being you are invincible, no one can tell you what to do, you have every option available to you. Oh
Ryan Rutan: man, this is like golf, the low number's good, the high number's bad.
Yeah,
Wil Schroter: exactly. This is the one time you do not want to hire a score. At 10, you are fully vulnerable, you're a babe in the woods, you have no idea what you're doing. You can't spell entrepreneurship, okay? Actually, I probably can't. So I'm not sure I can. I'm a 10. I knew it. When you're just starting out, you're at a 10.
Every bit of traction that you get, you develop the product a little bit you find your first customer, you do literally anything you start to bring [00:18:00] that vulnerability down. Problem, what we don't understand, especially first time founders, is that when we're making a lot of these decisions, taking on investors, taking on co founders early employees, We're doing it when our vulnerability is at its max, which means the cost of everything we do will never be higher than it is now.
We're stuffed and this is the kicker. For stuff we probably didn't need to pay for with equity to begin with. That's the kicker. 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 a thousand times before you, which means the answer already exists.
You may just not know it, but that's okay. That's 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. startups. 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.
Ryan Rutan: I think that's an [00:19:00] important piece, right? We're making decisions at a time where we're the most vulnerable. That doesn't mean it's a better decision because it was what was available to us now. We can't look at it that way. We have to look at it and go right. We have to say okay.
You're now five years down the line. You've now raised some money. You have product market fit. You have cash. Let's say you're profitable, right? You're making money. Would you still give up 25 percent of the company at that point to hire a CTO, a CMO, a co founder, a whoever? And the answer would invariably be no, because I don't have to now.
Hello friend, you didn't have to either then, you chose to. And I think that's where we have to be super careful.
Wil Schroter: Here's what it comes down to, like, when we're thinking about taking on investment, one of the things we have to be cognizant of is the earlier we take on money, The more it costs us, it would almost be like in life.
If the earlier you got a home loan, the higher interest rate was, which almost has a little bit of corollary [00:20:00] with with credit, it'd be like saying, I want a house when I'm 30. Cool. That's going to be a 30 percent interest rate. Your mortgage is going to have a 30 percent interest rate, right?
But if you wait till you're 40, you'll have a 12 percent interest rate. And if you wait till you're 50, I'm just making up numbers, right? You'll have a 6 percent interest rate. There's something very specific. About the longer you wait, the more, the less vulnerability you have, and the more leverage you have.
But when people rush out in the very formative stages, and they start racing against their idea without traction, without team, without all these things, all I think to myself is, you are setting yourself up to get rushed. And you
Ryan Rutan: don't get this moment back. I think that's one. This is with so many of these decisions we see made, all right, there are a lot of things we can walk back we can walk back a bad product decision, we can walk back a bad hire, we can walk back, pricing mistakes, we could, there's a lot of things that we can correct for.
Not that you can't correct for equity but is there a harder thing to do in startup land [00:21:00] other than just succeed, right? It's really difficult. I rarely do we see it work out. We see people unwind bad equity deals and it's as messy as you could imagine. You bet.
Wil Schroter: And so we have this theory that yes, it's expensive right now.
But, without doing this, without making this decision, we won't be able to get to where we need to go. Ryan, let's get in our time machine of the Startups. com time machine. The pre sunk cost fallacy. Yeah, exactly. Right? Let's go back. How do we know? 10 years. That's a shout out to the fact that we just had our 13th anniversary.
Ah, man. And, or 12th anniversary. We are our 13th. But, let's go back and let's talk about the timeline of decisions that we did not make. That didn't make a lick difference, right? Did not make a, in other words, there are things where at the time
Ryan Rutan: seemed so important.
Wil Schroter: Absolutely. We could have said, oh man this will be a game changer.
Here's a good one. Not taking on investors. [00:22:00] We could have made this incredible argument that said, man, if we didn't have that guy's 20, 000, when we first started, we'd never be here.
Ryan Rutan: Never have made it, yep.
Wil Schroter: Didn't take anybody's 20, 000, and miraculously we are here. But if we had taken it, we could have easily made that, that correlation, right?
Truth is, most of the money you take in the early stages, most of the people that get involved in the early stages, were just a moment in time. They were your first, girlfriend, boyfriend, whatever. They were a part of your story, but they weren't the reason you are where you are. They just happen to be in the
Ryan Rutan: story during that time.
I think back to, I think back to some of the early cash that I took on and I here's the benefit I got from it. Did I use it? Yeah, of course I did. Was it absolutely necessary? No, it wasn't. What were the benefits of having it at the end? I think the only real intangible benefit I got from it, which is, it's a, it is a helpful thing.
It was a little bit of a confidence boost. I think it's somehow legitimized, we talked about it, like it's, you feel like somebody gives you some validity, there's validation there. It gave me some legitimacy [00:23:00] and I think that was it. It was look, somebody else believes I can do this.
They gave me money. And of course there was some motivation there too, which is now I got to go prove them right because if not, I'm the fool. So I think that was really it at the early stage because we're talking about such small amounts of money and I know like it can seem like a big deal.
Like when you don't have 20, 000, you need 20, 000, it's all the money in the world. And yet it just in the grand scheme of things, it's not. And it really isn't going to completely change the game, right? Which you think it will at the time. You're like, we've got 20, 000. It's going to be game changing, months changing.
Wil Schroter: It always reminds me of what it would have been like as a, as just a kid. And you could buy future things, our current things with your future earnings. You know how much of my paycheck right now would be going toward paying somebody for the snake eyes, GI Joe guy that I wanted in 1984. At the time it was so important.
Ryan Rutan: Man, yeah, but how much fun would we have had with the aircraft carrier? My god.
Wil Schroter: Oh my god, dude. I would, by the time I [00:24:00] was nine, I would have sold 90 percent of my future value. I would have a few sweet toys, but the point is I would go on life and look back and be like, what the hell was I thinking?
Now, none of us are clairvoyant. We don't necessarily know that those are bad decisions. All we're saying is bear in mind that just numerically based on where we are. In this, in the growth of our company in year one, in year two, this is the most expensive money we'll make. So when we go to pay somebody in frigging equity to develop a logo, right?
What are you thinking? Again, you just paid part of your future earnings to get a GI Joe guy, right? Like in the grand scheme of what you're building, it's absurd. If you think, oh that's really an investment toward the future. It is that work that the brand building, right? Is an investment toward your future.
That's not the same as, and I should pay for it for the rest of my life. So let's talk about what all this maps back to. It all maps back to [00:25:00] the value of waiting. The value of waiting. Ryan, if we've done one thing credibly well at startups. com, we made plenty of our share mistakes. We've been insanely patient, not by choice.
We are like, like naturally impatient, but when push came to shove, we made enough of the right long term bets. That we could basically prevent ourselves from getting in front of ourselves, right? There were things where we were like, hey, we just don't have the cash for that. Yes, we could raise money. Yes, we could cut some sort of deal.
But we actually don't have the cash, so we're gonna have to, we're gonna have to wait.
Ryan Rutan: As a startup we lived below our means, right? And it's allowed us to be here. And again, we talk about this a lot on the podcast, but through the various competitors that we've had and the various arenas that we've played, and crowdfunding being a great example they didn't, and they're not, right?
They're not still here in most cases, and that's because we took the long view and look we made some investments in it with [00:26:00] our equity, but we mostly made them in ourselves, right? We kept the equity within the company. I think this is something. Really important. We think about investing anything.
We want that investment to grow over time, right? When we buy shit with equity, the cost of it, if we do everything right, grows with time instead. So that GI Joe goes from being a 3 bet today to a 300, 000 toy tomorrow. That's where we have to really careful. It's one of those few things we look at as an investment.
We're investing now we're using our equity to buy things that we need right now, but it's not an investment. Every bit of equity that you give away is a divestment, which of course it is, right? And I think we understand that technically, but when we're doing it, that's not what we're looking at.
We're like, I'm going to put some poker chips down here and I'm going to hope I get more poker chips back at the end. That doesn't really work with equity in any case, because the more successful you are with that bet, the more that bet costs you. It grows in direct proportion to your success. Doesn't sound as sweet now,
Wil Schroter: does it?
So look at it this way that co founder developer comes on and he's going to help build a mobile [00:27:00] app that he's going to push in three months or six months. And we give him 25 percent of the company, which at the time feels reasonable. Please play that out. Our first thought is we'd never have the mobile app if not for his contribution.
And that could be true. It may not be, but it could be true. Let's assume it is true. Okay, but we basically just said we've paid 25 percent of our future earnings for life for a three month project. In what world could that possibly pay back? And by the way, we're gonna rebuild that friggin app 28 times anyway.
So no matter what that guy pushed, it wasn't like we were gonna monetize it for the rest of our lives, like it was some perennial asset. At best, we paid him for what, by definition, is the crappiest version we'll ever have of our product in a learning exercise to figure out what product we should have built.
We have to think in terms of how expensive these early decisions are, and like we said, you can't get them back. But even more what are those returns? [00:28:00] If we're paying somebody to do our legal work,
Ryan Rutan: again, the better we do, the worse it gets. From that respect. In that regard.
If we do 10x better then, that 10, 000 equity investment becomes 100, 000 cost. If we do 100x better, it becomes a million dollar cost. And so these are the things we're setting out to do. We're trying, exactly. And it's this is where we have to be really careful in just the mindset.
I'm like I'm going to invest my equity to do this. Please don't think of it that way. It's not an investment. It is a cost. And it's a cost, again, where all done right gets bigger and bigger, right? Sorry, but that's
Wil Schroter: how math works. In almost every case, the answer is wait, right? In almost every case in the pushback courses if I wait, the app won't get built.
Am I not capable by that person, right? That doesn't mean no one else will do it. I can't begin to tell you the course of my 30 plus years, how many people have come through in my life, right? I've employed and worked with thousands of people over the span of my career. And I can tell you, there's probably a good 50, [00:29:00] that were some version of game changing, right?
Where had that person not made that contribution at that time I don't know. I would not have been able to get that level up, but here's what's missing. That's just one piece, right? So that's the developer that came in and built an app, right? Cool. But they didn't do any marketing.
Cool. But they didn't do any sales. Cool. But they didn't there's 20 other things we need to do. The fallacy of thinking one person's contribution is the game changer. It's just missing the entire, in the entire thing.
Ryan Rutan: Yeah you know what I never saw? I never saw Michael Jordan play a basketball game one on five.
Even if you take the absolute best example of any discipline, their ability to change a game is still very limited. I know, of course, he changed games, right? But to your point there's a whole system at play there. And I think that this is only, we do this in hindsight just to feel good about making those decisions, right?
When we've given away 20 percent of the company and now that person is still just like mid level operator, whatever they're doing. We want to feel okay about that because we don't want to look down there and go we're worth 50 million now. I guess when we're worth 100 million, [00:30:00] Bobby over in whatever department is going to be worth, 26 million.
Sweet, right? That's not exactly the way we wanted that to play out. But, look, I think your point is correct. Waiting is very positive here. And I think for a lot of reasons. And like you said but the in the app won't get built. Maybe it can. Maybe not by that person. Or maybe it doesn't need to be built yet.
How often do you and I see people chasing money, To build stuff that they haven't fully validated yet. How many fully built products do we see fall flat when it goes to market? Because there wasn't enough validation done because there weren't enough of the other pieces in place to make sure that this is going to work right.
To your point, great. The app got built, but if we don't know how to market, where if there is a market where we don't have cash to market, we don't have people, whatever it is, it's going to keep us from doing that. What's the value of that thing now? A lot, because you give up equity to build it. But zero, because there's no way to leverage that asset against anything else.
Wil Schroter: And one of the things, I know you love this too, is when we get a chance to talk to a founder on the platform, and the founder is saying, hey, I'm going to raise 100, 000 to build an [00:31:00] MVP, etc. And we're like, what if I were to tell you, you actually don't need to do any of that. What if I tell you, you literally just lit money on fire.
Ryan Rutan: Yeah, please don't do that.
Wil Schroter: Yeah, they're like, wait, what do you mean? If there was a way you could get the same results next week with a landing page and some Google ads, right? Just to see if you should have even built this. You were just about to make a give up 10 percent of my company for the rest of my life on a decision.
You actually didn't need to spend any money on at all.
Ryan Rutan: To find out if there is a company, right? You were gonna, you were gonna bet 10 percent of a company to find out if there is a company. It doesn't make any sense, right? Like logically, we can look at that and go, yo, I wouldn't do that. And yet founders do this day in, day out.
And again, like then once you've figured out that there's that company's there and you don't need to go and do that to build your MVP, guess what? Now you've got 100, 000 to go do something far more meaningful with, right? Hire the person you were about to give a bunch of money for equity, right?
Instead. So man, it's complicated.
Wil Schroter: You touched on this before too. Almost every one of those resources that you're going to give [00:32:00] up equity for, is not a perennial payback either. In other words, if I take on a million dollars from a seed investor and I give up 25 percent of the company, once the million dollars is gone, they don't keep giving me money, but they keep having 25 percent of the company, so now I have less available equity to go be able to buy stuff.
I basically used up my free lives early. At the, what will wind up being as the dumbest times possible. And that concerns me to be fair though, just to give everybody a pass here, most people are doing this for the first time that, you know, why startups. com exists. So we can help them see around corners and see why not to do these things.
Oh, I get it. And again, the advice that we're giving folks that are listening, it's cause Ryan and I've lived through this, right? I've made
Ryan Rutan: the bad decisions, right? I have accidentally not accidentally, intentionally. Given up perpetual cost, perpetually scaling cost, right? Because the equity continues to become more valuable in theory or in hope [00:33:00] for what were ultimately one time benefits and short lived.
Done it. Hey, I don't want other people to do that. I never did it again. Once I figured out that's what I was doing and we don't want to see anybody else do that.
Wil Schroter: I'm going back to my, my, my early self, right? If I was like in high school and there was a pretty girl that I wanted to take to prom and someone could come to me.
And say, will we give a 10 percent of your future earnings? If she'll say yes, I would have absolutely said yes. Here you go. Right, right. Cause I didn't know what the rest of the life was
Ryan Rutan: going to look like yet. That's it's the thing we owe. We so overvalue the now. And I remember this isn't me getting philosophical.
I'm like, be present in the now. Yes, be present in the now. That's what I'm talking about. Yes. Now is important in that regard, but we so overvalue a little bit of progress today because it seems so meaningful. And again, like progress today is important, but think of all the different ways you can make it.
But we so overvalue the now in, in favor of the future. And I think it's so painful to watch. And again, like it's [00:34:00] hard to see high school. Will wouldn't have known that would be a Horrible and life changing for the negative decision because in that moment that would have been the best possible outcome I've got I'm now the prom king with the prom queen perfect.
This is exactly what I needed to happen now, but when it costs Exponentially into the future. We have to be able to stop in that moment and go, should I be doing this now? So I think, again, you've said it probably five times, I've said it at least twice. Wait, slow down. Just spend a little time thinking about am I getting something that is so valuable today that it's worth paying for it, potentially exponentially into the future?
And most of the time the answer's gonna be, no, take your time.
Wil Schroter: Here's what I'd say. I'd say for folks that are listening right now. And they're getting to a point where they're thinking to themselves, this is sounds way too familiar, but to make all these decisions listen we're easy. We'll help you send an email to willitstartups.
com, ryanitstartups. com. And just tell us, we'll help you. It's free advice, right? Actually it might be the freest, most [00:35:00] valuable advice you ever get, but more than anything, what we're going to tell you, whether you reach out or not, and what we are telling you is take a beat, pump the brakes.
Thanks. Every decision you're about to make right now, the gravity of that decision versus the ROI, is almost always terrible. Your best bet is always to wait. There's never going to be a version where you said, I was about to make this huge decision and I waited and it ruined me. If it's a good decision, you'll get to make it again, right?
If it's a good person to work with, they'll be available again. But if it's a bad person, you're gonna be paying for that decision for the rest of your life.
Ryan Rutan: Overthinking your startup because you're going it alone? You don't have to. And honestly, you shouldn't. Because instead, you can learn directly from peers who've been in your shoes.
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