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.
Welcome back to the episode of the startup therapy podcast. com joined as always by Wil Schroter, my friend, the founder and CEO of startups. com. Wil, you know, as I think back through all the episodes we've done, there's one population that we've given a fair amount of shit to, and I don't know that that's entirely fair, right?
You have investors always gotten a fair rap. You know, we, we've been kind of hard on them. So I was thinking there might be a way where that didn't have to happen anymore. What if we were just to imagine a world where investors didn't exist at all? We wouldn't have to talk shit about them anymore.
Wil Schroter: That is Shangri La and I think it's about to happen.
I, I think, I, I'm, I'm calling it here and, and I know this is one of those things where I, I, personally, I think it's easy to say like what might happen versus what does happen. Um, and no lack of people in the world do it, but I'm calling it. I think we are on day one of an evolution where investors will go the way of dinosaurs and be completely obsolete.
And that's what, that's what we need to [00:01:00] talk about. If you're
Rya. R: wrong in ten years, I, I know the guy who has the keys to our, our podcast hosting software, so I'll just go in and delete it, this never happened. So, you'll either be right, Where it never happened.
Wil Schroter: But think about, I mean, we're used to being in the startup business where things turn over all the time.
Right. And, and obsolescence is actually part of our plan. It's part of our evolution. It's how we do things. Right. The one. Part of this whole equation that seems to have stayed just as it is, if not gotten bigger, has been investors. In particularly, when we talk about this today, I don't want to talk about all investors necessarily, as much as VC investors specifically.
Mainly because they are investing extraordinary amounts of cash. They're the ones raising multi billion dollar funds. In the days of needing multi billions of dollars to deploy into startups, I believe will be coming to an end. And I think that's,
Rya. R: it's going to be a great discussion. Let's go backwards a little bit and provide some context for [00:02:00] why we're seeing all this is happening.
What, what are we seeing in the market right now? And it's pretty, pretty obvious. I think if you knew the, the data. date stamp on this, uh, that we're early July of 2024, uh, you can probably guess what the thing that we're talking about here is, but we'll, I don't, we enlighten our listeners.
Wil Schroter: Yeah. Yeah. So it's AI.
I mean, simply in, in AI is wildly hyped right now. It's wildly hyped. Um, but I think for good reason, I, I, again, you, you and I took plenty of shots at crypto. We thought that was complete bullshit. The last one and we were right. Okay. Okay. So if we're going to this next one, it's AI. It's real. Uh, you know, again, I think anybody that's even 50 percent denying it doesn't understand it.
Like, doesn't actually understand what's happening or how far along this thing is. Um, even in its current state in really, I don't want this episode in its infancy. Yeah, exactly. Exactly. I don't want this episode to be about hyping AI cause that's not really what it's about, but it sure is a catalyst to why this thing's happening.
Rya. R: Yeah. I mean, interesting, right? Like [00:03:00] amazing things we're seeing right now. Uh, for, for decades now, we've seen the cost playing the startup game. Just go up and up and up. Yeah, certain things got cheaper, right? Computing power got cheaper, but then we just needed that much more of it. The scale was that much bigger.
The cost to produce a, a better and better and better version of what already exists, and that's part of it, right? This is the first time where we've seen an evolution in the market that actually fights back against that exact thing that we've been fighting against, which is that as we have to create more and more evolved solutions to problems, they get more expensive.
We, we, right? If we're, you know, Mike Tyson's punch out, I don't know what that cost to produce, um, but it certainly didn't cost what like World of Warcraft did, or I don't know, now will I don't play games anymore. Ha!
Wil Schroter: You got lost in that analogy. Yeah. No, but here's the thing though. Um, we are a, a, such a pivotal time where all of the things are all burning in [00:04:00] churning in compressing at a geometric rate, at a geometric rate.
That's, that's the difference. And so one way to think about this, if we step back and say, okay, why are investors at risk? It's because the cost of starting a company is at risk. It actually has nothing to do with something the investors are doing wrong. It has to do with the fact that all of the stuff we raise money for to begin with.
He's starting to erode and what will become five years from now in a way we can't even fathom it. So, so let's, let's, let's set it up though. Right? Um, if we look at the funding slide of a pitch deck, right, where it says how much we're going to raise, what stage we're going to raise and what we're going to spend it on use of funds.
Let's let's envision for, you know, for our listeners, um, what the, what that pie chart looks like. It generally covers three things. More than, more than everything. It covers stats. And that's the one thing in the last few generations we weren't able to make a dent in, [00:05:00] and that's the one that's going to change the most.
Rya. R: In fact it's scaled, arguably it's scaled, right? What used to take one engineer, now you have to have a front end person, a back end person, a database person, an integrations person, right? Yeah. So those, those costs have scaled, um, and now we're just seeing a trend in the exact opposite direction.
Wil Schroter: You bet.
The, the, the second line item, again, the biggest for most people is marketing. Marketing is about to go over under a massive, massive change.
Rya. R: Oh yeah. Partially for the same reasons. Right, for some of the same reasons, because now we can start to do a lot more with a lot less people.
Wil Schroter: You bet. The third one, which people don't think about when, when they talk about operating expenses, back office, uh, et cetera, all of those little pieces, parts of back office, legal, accounting, EA, everything, right?
All of a sudden starts to get real cheap. So I think it's, it's worth a fly by to, to talk about maybe these three categories. And just some, some quick, you know, moments in time right now where each of those categories are [00:06:00] starting to get completely changed, you know, so, so let's talk about staff. Most folks raising money for the first half of their, their budget, probably 75%, it's going to go to people.
So why are we about to need exponentially less
Rya. R: people? Because we can get exponentially more done with one person, right? I mean, with, I remember the first time I saw this, I'm going to struggle to remember who it was. Um, may have been the CTO over at, at HubSpot. It was a relatively large company, and they came out and they just said like, look, we, we started to deploy AI within our, our dev teams in particular, and we're now seeing, um, a five x increase in output.
Right. Amazing. So if you've got a team of of 10, they're now doing the work of 50 said differently. If you were about to go raise funds for a team of five. You can do it with one now, right? At least in theory. I know, I know there's, yeah, there's some skill set issues and things. You may need some more diversity in the team, whatever.
But there's still, like, I remember the first time I read that, and they were like, just [00:07:00] consistent, we're getting 5x or greater the output on an individual basis. Just mind blowing.
Wil Schroter: Right. Every time there's a step function in, um, taking the, the guardianship away from knowledge or capability, everything changes.
I give you an example. Like you, you remember this cause we both came from the web design world, right? There was a half of a second where if you knew HTML code, you had some level of like proficiency or guardianship. And then like front page came out and front page like never really like changed like much, but it started to make people realize that there were software that could do what humans were to do.
Right? And that evolution continued. Now to your point earlier, within software and engineering specifically, it actually got substantially more complex. You and I always joke about where you, like either of us kind of left off in our engineering paths in life. You know, when, for me, it was when server side includes were introduced, that was my last thing in JavaScript was starting to get invented and I was like, Oh, I'm out.
Yeah. [00:08:00] I don't know math. And so, um, but now all of a sudden things have come full circle. I've been writing more code in the last three months than I've ever written in my life. The difference is, I don't know how to write code. I'm writing batch files, I'm writing JavaScript, I'm writing API calls, I'm writing everything.
And I don't even know what it is! Right? But I have full code, thanks to GPT.
Rya. R: I haven't, I haven't written a batch file since I needed to update, uh, IRQ settings to make my sound card work to play, uh, Wing Commander. And I could write one tomorrow if I needed to.
Wil Schroter: Yeah, no, I get it. I get it. And so, all of a sudden, all of this knowledge that was hidden behind all of these people, now all of a sudden becomes available to everyone.
It's almost like back in the day. Uh, before a calculator, right? We were like, well, no, I have to go to a mathematician to do this. You know, I, I have to talk to somebody with all this experience. And now you got the calculator, like, no, I don't. And it's like, punch it in,
Rya. R: and there it is. Have you ever walked [00:09:00] into any type of a service engagement with an expert beside you and just had that feeling of like, ever walked into a dealership with somebody who actually knows something about cars standing next to you?
Ever walked into a, a doctor's office where you've already been given a consult by a family member or something like that, where you just. You've been given that 80, 90 percent knowledge about what's about to happen, and you're armed and you're now dangerous. What scenario doesn't exist like that now, simply by having something as, as uncomplicated as GBT in your pocket?
Wil Schroter: Think about the exponentiality of this, right? So right now. 80 percent of the startup legal questions that I would typically ask, I can ask an AI, right? When people think AI, they realize GPT is one and people say, Oh, but GPT makes mistakes. Yeah, so do people, but that's, that's here or there. A specialized, a trained startup GPT and LLM that is specifically focused on startup issues.
We'll learn exponentially quickly and make you [00:10:00] asking an attorney and vis a vis paying for that huge startup costs. Absolutely. It just, it just doesn't make sense if it can be
Rya. R: done. Right? Right. If you go in asking the question of what should I do versus here's my plan and you have them react to it, you're, you're talking at least a geometric, if not an exponential decrease in the cost of that call.
Wil Schroter: Yep. I'm 10 most common mistakes or decisions that I need to make and how do most people make them? Now, you may run that into an AI right now. Again, we are in Beta 1. 0. For video game nerds out there, this is the Atari 2600 Evolution stage of what AI is right now. Except, if we were to really look at what that means Um, the Atari 2600 looks more like an Xbox, right?
As far as what we went from Pong to Xbox, right? So, so even step one is bananas. But right now, if we're like, ah, well, I tried that and it didn't work and yeah, today it didn't work, right? Give it a week, give it a month, give it a year. [00:11:00] What you're going to see in that timeline makes what we're doing today seem hilarious.
So you start to apply that. And again, let's go back to knowledge gatekeepers, right? Which is the fundamentals of employment. I am a knowledge gatekeeper of accounting. So I get hired as a accountant. I am a knowledge gatekeeper of engineering. So I get hired for engineering. Right? Design, you name it.
There's a point at which my ability to gatekeep that knowledge, attorneys are a perfect example of this, right, is no longer the value. It's not at all the value anymore, right? Or it's quickly eroding at least. As you know, I'm an obsessive carpenter, right? And you've worked in my workshop with me, so you can appreciate this.
I would look at doing a project, uh, like, right now I'm finishing a kitchen. I would look at, like, building every cabinet by hand, um, as a project, as this, like, massive thing that no one could ever do, and I have to hire these Amish wizards to, like, to figure this out, right? And, all of a sudden, I dig into it, I just kind of get [00:12:00] the knowledge that that person is no longer a gatekeeper.
And you and I are in my workshop banging out cabins, right? Like, like
Rya. R: it's our job, right? Yeah, well, it's always, you know, knowledge is, is, is relative always. And you know, when you're, you don't have, right, it seems like this, this massive mountain of information that must exist that, that separates, um, the expert from, from the layman.
And in some cases there, there are. Typically not a mountain for what you need, right? I think that's the thing where we get this wrong all the time. It's like, well, yeah, you will. Yeah, you really do like to become a lawyer and to have the same level of legal understanding expertise that a lawyer has takes years.
But I need an answer to like, uh, one line item. In an operating agreement that doesn't take years to understand if it did, we wouldn't have lawyers at all. So
Wil Schroter: what's happening is all of these gatekeeper functions, which translate to a massive amount of cost for us as founders are being chipped away at a geometric rate.
Uh, I'll give you another example. And let's go to like, you know, we were talking about the different [00:13:00] buckets, like marketing and, and, and staff and, um, and, and back office, et cetera. Like you look at right now, The future of a call center business, humans, answering a phone, answering chat, answering email, answering the same questions over and over and over, um, those days are gone, right?
That is a very small amount of institutional knowledge. Put in the hands of people who generally don't want to be doing that job in a way that's really complex. For example, you call and you get put on hold. You're only put on hold because there isn't a person available. You ever been put on hold going to a website?
No, because it's always available. Within a few years, call centers will be obsolete. Well, there was a point with health.
Rya. R: gov, right? You remember when they, they, you had to stand in line to get on. Yeah. You can
Wil Schroter: make it
Rya. R: happen. Only the government could figure out a way to make a line on a website. Well done,
Wil Schroter: government.
Um, but, but, uh, in this case, think of how like scaling a customer support function, et cetera, works, right? Even if your customer support people only become [00:14:00] the last line of defense, you know, kind of like, like back in the day when they did IVRs. Read colon, press one, press two, press three, and if you could kind of navigate that gauntlet, eventually you could force yourself to talk to a human, except they didn't work.
That's why it sucked. Yeah, that was the thing. Like, even if you knew the right buttons to push, didn't work. And so, all of a sudden, and I want to get back to investors, all of a sudden, all of the cost basis things, That we were paying money to, to incorporate, we were paying money to set up our operating group.
We were paying money to an accountant to set up things like all of this stuff can be wildly automated and frankly should be.
Rya. R: Right. Again, because the, that's the, the value isn't in the, in the doing of the thing. In a lot of cases, the value is the having of the thing, right? If there's a value in doing the thing, then cool.
But if the value is in having the thing, right? If there were not, if we're not thinking through a new process, this is something that doesn't need to be solved. It just needs to be done. The value is in having the outcome, right? The value is in. Having the operating agreement, the, the value wasn't in, let's go do an operating agreement.
That'll be a great team building exercise [00:15:00] said no one ever, right? It's just a cost. It's just a time suck. It's a thing that we need and it's an important document to be sure, but it's an important document, right? Once it's done, it's done and we have it and it's done right. We're, we're good.
Wil Schroter: And there's not to say a lawyer couldn't be involved.
But not for 80 percent of it. Like 80 percent of the same person does the same thing every single time. People come to startups. com and they say, Hey, I need to build a pitch deck. We'd say the same thing to them every time. Cool. Understand that what we're going to walk you through has been done thousands of times before you.
While your pitch deck is going to be unique, the process of building it is just not right. So you're basically taking the same process that a million people before you use and inserting your version of it. However, if you didn't have our guardrails to walk you through it. If you did something like, oh, I'm gonna download, um, a, the Airbnb pitch deck and somehow try to turn that into my pitch deck, you'd be screwed, because you wouldn't have the knowledge to go along with it.
You wouldn't have the process. Exactly, exactly. And so, what's going to start to happen at a [00:16:00] very, very increasing rate is the things that we spend a lot of money and time on, time's another big factor, We'll start to go away. Well, they'll, they'll just simply start to go away. We'll, we'll stop thinking about them.
The types of things that held
Rya. R: us up. Remember when you used to have to factor in time, Will, to watch a movie because you had to drive to blockbuster and then see if they had it and then drive home and put it in, right? Like you're going to see these things all over the place, right? There's going to be all of these time and cost settings that just start to stack up in ways that we probably can't even imagine yet, like things that was still seem out of reach right now.
Just won't be in, in very short periods of time. I think you, you alluded to it earlier, but like the rate at which these tools are improving, the rate at which this technology is improving, um, is unlike anything we've ever seen before, right? Like when we talk about like the way the speed of which computing moved, um, this outstrips that by, by, by quantum numbers at this point.
Wil Schroter: I'll go back to my carpentry example because I think this is such an easy way for people to understand. [00:17:00] Right now, building businesses up until now. Has been the equivalent of you, if you and I were carpenters and we were building a house in the 1800s, we had to go saw the logs, we had to like, like manually like, like hammer in, you know, each of the spikes, etc.
It would take us like two years at minimum to build a cabin, right? Because of how much effort was involved. Now, there are a whole bunch of challenges that come when it's that hard to just build a cabin. Number one, most people don't have homes, because it's so hard to build a home, right? Fast forward years later, some idiot shows up with power tools, and is like, Hey!
You know, it would take you like three days, like, uh, to cut this tree down. I can do in like eight minutes with a chainsaw. And all of a sudden, not only can we make this house faster and cheaper, but also more people can have houses. An example of that, um, was my daughter building her like umteenth business the other day.
She's already got her tech stack, you know, because it's like her third or fourth company, right? She's got her tech stock. She's 12 years old. Um, as to [00:18:00] how she's doing her website, how she's doing her incorporation, how she's doing marketing, how she's doing everything. And again, she's 12, right? But it costs her 0 and she'll do it in a Saturday.
Compare that to what it would have taken you or I 20 years ago. It would have taken us a year and a half in a full round of VC funding to get to the same place she can get on a Saturday. That's what I'm talking about.
Rya. R: The same place and yeah, it's, it's wild, right? Like, and it's funny because some of these things we've even already started to take for granted, right?
Like it's, it's fine. But in the same way we, we take for granted, like having a cell phone in our pocket, right? That wasn't a reality for me until I was 21 years old and I don't remember not having it. Right. But the fact that we can now spin up a website overnight, the fact that we can add payment processing to that in five minutes, right?
All of these things that just took all of this effort and knowledge. And, and trial and error and just figuring shit out. There's so little to figure out, other than the unique value you want to provide, which is really what we want founders thinking about and doing in the [00:19:00] first place, right?
Wil Schroter: In the past 20 years, sorry Ryan, in the past 20 years, we have mitigated a lot of costs like building your website, et cetera.
And then as, as you mentioned, but replace them with plenty more costs, right? And that still needs to be factored. What we didn't do at scale all at once, damn near overnight. Was replaced people in time. So now for most startups. Whereas maybe server costs or like T1 lines back in the day, you know, would have been part of your internet, um, uh, cost lines that all got replaced with people at the end of the day.
And what was so hard about making it all people is they take forever to staff. They're prohibitively expensive. They require a shit ton of management and in replacing them, if you need to is a massive overhead, it's, it's fraught with so many issues, right? When you take just, and that's just one part of the pie here.
When you take that off the table. Dude, all that's automated, right? You don't need to pay for it. You don't need to staff it. You don't need to staff managers to manage it. You [00:20:00] can just go just focus on building what you're trying to build. All of a sudden the efficiency, um, certainly with capital, but with time, with effort, et cetera, change dramatically.
So let's talk about where does that leave. Investors in all of this, in this whole thing.
Rya. R: But yeah, cause I can hear somebody out there right now going, but, but what about smart money? But what about all the things that, what about the network? What about their, their advice? What about all these things that they bring beyond money?
Cause there's a lot of that stuff, right? There's tons of things that they bring to the table. Others in that check, right? No. Not really. No.
Ryan Rutan: That's what they always tell me, man. They're like, don't
Rya. R: you get like all this other stuff with investors? Like, look, here's the thing you can count on. You can count the number of zeros in the check, right?
And that's kind of it, right? That's, that's all you should be expecting from them unless it's somehow otherwise implicitly agreed or explicitly agreed rather, and it just usually isn't. All those other intangibles that just tend not to happen, yeah, don't count on this. Those aren't happening.
Wil Schroter: Let's call it what it is, because most people have never been through this process.
They don't really know a [00:21:00] lot of investors, or have worked with a lot of investors. I don't have a bone to pick with investors, but I'm calling bullshit. Yes, like 10 percent of them at the top, top firms do offer an incredible level of connectivity. Like, if you're funded by Sequoia
Rya. R: Sometimes. Right. Even then, like, I don't know that it's, it's not, it's not even consistent amongst the, the, the top five or 10.
It's not like, oh, well then all that means is I just need to make sure that I work with Sequoia. It's going to depend on whether they have a network, right. By nature of what we're building with startup companies, oftentimes there just isn't a network that's going to be applicable as that we're building something brand new.
Right. And again, like just, you can't count on any of that, even at that top level. And I will, I agree completely. That's where you're more likely to see it. But even there, it's not a given. They don't want to work in addition to giving you money. They want to give you money and then have you do the work.
That's how they make their money. This is the game. You
Wil Schroter: know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has [00:22:00] 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 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. Well, part of the pitch, um, is we're more than just money.
Cause they kind of have to say that. Cause at the end of the day, they're all writing a check, right? Um, so it's a commodity business until they say we're offering this next thing. And some of it's true. And frankly, most of it's well intended. So, so I'm not even trying to like vilify the investor. What I'm saying is it's just not that true, right?
It's just not that true. When you take on money from investors, right? Again, unless you somehow got within the top of the quartile of investors, which you probably did not, um, statistically, then the person that's giving you advice, the [00:23:00] only reason that they can give you advice. Oh, two reasons. Number one, because you're doing this for the first time and they just happen to have done this many times.
Doesn't mean they're right. I've played basketball many times and I suck at it. Okay, so remember, no one gets to grade them on how good their advice was, right? And the second thing is, anybody with a check all of a sudden has an opinion. You know why? Because people have to listen to you. And I know more than a few investors get off on this fact, right?
They get off on the fact that they get to sit there with their fingers tented, spewing their opinions as if they're facts. Right? The golden rule. Because the poor bastard being the founders on the other side of that table has to listen. Right? Because they want that money.
Rya. R: Beyond capital gains. Which is hysterical, right?
So when you think about it that way, right? Like number one, would you just take that person's advice if they weren't giving you the money? The answer is generally no. Yeah, you know who I'd go to? A founder who actually does this for a living. A founder, right? [00:24:00] Somebody who's actually done this, who's out there doing it every day.
Number two, let's just say you did take their advice and you liked their advice. Would you be like, holy gee whiz and thanks mister. Here's 25 percent of my
Wil Schroter: company in return. No, it's like, there's so much wrong with that sales pitch, right? Yeah. Oh, it's insane. Like again, I hear this from founders going into it and I felt this way myself the first couple of times that I raised for previous companies.
I was like, oh man, it's gonna be so great to have all these smart people around me. There's a big part you're missing in that. When they're saying, we're going to guide you and give you advice, they're not really talking about suggestions. What they're saying is we're going to tell you what to do. And we're going to be pissed if you don't do it.
Right. That's not the same as giving advice. Did your parents give you advice or they just tell you what the F to do? Right. In most of these relationships are in like, I'm killing it. So, so much, um, please give me even more sage like advice. [00:25:00] Most of it is I'm totally effed. I'm running out of money. Right.
And now they're telling me what an idiot I am, right? It's
Rya. R: very different. That's when the advice starts, right? Yeah, it's basically like, when you start to screw up, we will tell you what we think you should be doing differently at this point. It's not like, hey, let's sit down and talk every morning. Let's do a stand up, um, where we go through your daily numbers and your goals.
It's not happening, right? They don't want to. All right. And ultimately. Kat, at your point, they're probably not qualified to do it within your business anyways. Right? They have money, not knowledge to operate your specific business.
Wil Schroter: I've sat in a partner meeting with nearly every major VC, right, at some point in my career, okay?
And generally, again, I don't have a bone to pick with VCs. I just want to be clear. I also just don't, like, by default believe they're bullshit, right? Because I've actually built a company, right? You're, you're the one who has not built a company trying to tell me how to operate one, right? Um, in the same way, I'm not going to tell you how to invest, uh, money.
Hell if I know. I've never had any success doing that. No idea. Not what I'm trying to do. Right. Don't tell me how to run my business. But [00:26:00] my favorite part is I, I get into a meeting and I'm five minutes into my pitch and some partner on the other side from a venture firm is telling me how my business is going to run.
And I'm thinking to myself, uh, hey, just like, has anybody mentioned this to you? You've literally never run one of these companies before. The fact that you read a TechCrunch article.
Rya. R: Right, and I'm looking around, I'm not seeing the crystal ball either. So, given those two things, you're full of shit.
Wil Schroter: Like, what the hell?
Like, and so again, this may be sounding bitter, I'm not bitter. I'm just, I'm aware. Aware of what bullshit it is.
Rya. R: You're aware. And you know what's funny, man? Like again, let's go back to take money out of that equation because as founders, we get this kind of feedback. We get this. Well, here's what's going to happen with your business.
Here's what you get. Some of this bullshit. Sometimes the funny thing is if there isn't money attached to it, we immediately write it off as bullshit. We're like, I wonder if that guy on the bus knew what he was talking about. Like maybe, right? Somehow we just assume that because there's money [00:27:00] attached to it, that there's also validity attached to it.
Those two things don't come as a package deal, right? But it's so funny that we see through it most of the time, we ignore it. We're like, yeah, they probably don't know what they're talking about. The minute you're sitting in a partner meeting at Sequoia, you're like, hey, no, they know, they see my
Wil Schroter: future. Oh, dude.
Like Bob Cagle from Benchmark, who did eBay and stuff back in the day. Bob Cagle, I think when he was giving me advice, was floating, levitating in the air, telling me like how old, how old my kids were going to be, uh, by the time they graduated, my unborn children. Like that guy was, was, Genius, right? There are definitely folks in that industry that, that, that are worth, you know, they're, they're weight in gold.
And again, I'm not knocking all of them. I'm saying most of them. Okay. If they're sitting there saying our value is our advice, our guidance, our network. Sure. For 1 percent of my company, maybe it's called an advisor. The days of taking 30 percent of capital or of company, rather, because you are the gatekeeper of capital goes away.
When companies don't need the capital. [00:28:00] Right? See, that's the part here that I think is getting really interesting because we're sitting here saying, wait a minute, if, if this goes to zero and this goes to zero and this goes to zero, all these seminal costs, why do we need capital again? And I'm not saying all investors are gone, not saying all investors are gone, but look, we've got funds, you know, you got like Andreessen raising like 6 billion funds.
Now where does that money actually go? I want to be clear about that, right? The reason they need to deploy 6 billion is because companies need that much money. Where does that money actually go? It goes to hire people. Generally anymore, it now goes to NVIDIA. But prior to that, it would go to hire people, right?
And what I'm trying to get at is these costs, these massive costs that were almost always mapped back to people are going away.
Rya. R: Not tomorrow. It takes away their main value, right? We can argue about whether how much more value there is to these other things that they do, but let's all agree [00:29:00] that the main value that they provide was money.
That's why they're called people. Investors, not advisors who also sometimes give you money. No, they're investors, right? They're investors. They're trying to put, they're trying to deploy capital. Yeah. I mean, I think that the way we're laying this out, they're, they're the Ahab, um, around the time that petrol fuels, uh, become a thing and all of a sudden we don't need whale oil anymore.
Right? So they're just, they, we just, we're not going to need the one thing that they, that they provide or the, the main thing that they provide. And, and as that continues, like they're just going to become less and less relevant in, in the ways that we're used to. Will they recreate themselves? I don't know.
I'm not going to pretend I know their business better than they do. That would be hypocritical. Ha ha.
Wil Schroter: Well, but here's what's happened. Over the years, over the last couple decades, when, when, when VC and really startup investing has really grown into its own maturity, because it really wasn't that much of a thing, even in the early 90s.
I mean, it really, the dot com boom is what really made venture capital what it is today. Um, and certainly everything since then. Again, most of that capital is [00:30:00] being raised and deployed toward hiring giant legions of people. Now, all of a sudden, if you need fewer people, you'll also start getting graded as a founder on how efficient you are.
When you say, oh yeah, and we're gonna snap up and add 5, 000 people in a call center, you're like, wait, what? Or the classic, we're going to hire a team of 600 engineers to solve this problem. You would look like a moron, right? Like, are you not paying attention to what's going on? All of a sudden, the things that you got rewarded with mountains of capital for become a giant red flag.
Like, Whoa, what are you doing?
Rya. R: Well, and the irony there is right, that, you know, in order to be intelligent about how they're investing their money, which they wanna do, right? They don't wanna pay for a bunch of overhead that's unnecessary. They're buying into the exact concept that's adding to and, and creating their, their, their very obsolescence.
Right?
Wil Schroter: This is the point , this is the point in the matrix where, uh, where, uh, Morpheus [00:31:00] right is sitting across from Neo and he's explaining, he's gonna kind of do the backstory of the matrix explaining like how this whole thing happened, right? And he was like. All of this effort came down to he's holding a Duracell battery to turn us into one of these.
And he said, fate, it seems is not without a sense of irony.
Rya. R: Oh, that's hysterical. That's right, man.
Wil Schroter: In this case, VCs pouring gobs of cash into AI, which will remove the reasons they needed capital to begin with, is basically Morpheus holding that battery being like, Dammit dude, we funded the very thing that prevented us from needing more capital.
There's going to be a whole other argument and it's, it's, it's fun to have. Which is, yes, people won't be as big of a cost, but now again, I mentioned, alluded to a second ago, NVIDIA, uh, you're going to need more AI processing, and so the money's just going to go there. And what about marketing? Marketing is going to get more complex.
There's going to be Far [00:32:00] more channels. And then the cost to acquire people is going to go up. I don't believe that actually, I believe it'll go down, but you could make an argument as more technology gets introduced, more costs get introduced, right? Almost everything on our Amex bull at startups. com are companies that didn't exist even 10 years ago.
And so, so you could easily make the argument. And I would believe that that cost will go to other places. And I would say, yes, except they will be like significantly. Smaller. And specifically they won't be people.
Rya. R: Right. Their costs are going to scale down as well. And, and so like, this, this, this isn't something, I guess one of the most interesting things about this particular technology is that it's showing ubiquitous and universal capability for application, right?
Whereas certain types of technology will only apply in certain sectors and that will reduce those costs, but other costs will change. This has the ability to reduce the costs across the board, meaning that yes, you might start paying for more things, but you're going to pay less for all of those more things.[00:33:00]
Um, I just don't see a version where we, we see the same kind of. Cost scale due to AI that we saw with the, like the things we talked about earlier, like the cost of, of the complexity of engineering going up. So we started to build more and more complicated shit that required more and more complicated engineering that drove costs.
I just don't see that happening here. Like we're, we're already starting to see like the tools that we've, that have just been born are already getting cheaper by the day.
Wil Schroter: It's pretty incredible and I'm watching. Um, my processes, right, you know, as a, um, as what I consider myself a composer. I compose all of these things, um, to create, you know, this, this, this art that I want.
And, uh, the things that I do daily, like I'm our CFO as well, so I, I do accounting, right? Well, I mean, yes, I'm still doing it, but now most of the stuff that was taking me a long time, I'm running through a process, I'm prompting it in GPT and saying, Hey, do this for me in five seconds.
Rya. R: Oh man. I did something in literally in like 30 seconds this morning that would have taken me at least half an hour.
Right. At least half an hour to [00:34:00] go through and manually tag. And, and write some queries this morning, 30 seconds, right? I had to think about the prompt for 30 seconds, and then maybe GBT took 15 to process it. That was it. And again, and this is the shit version of GBT. Yeah, that's it, right? This is the Atari 2600, right?
We're playing Pole Position right now.
Wil Schroter: Exactly. We're gonna laugh at, at, like, but right now it's blowing our minds in the same way that Pole Position or Space Invaders blew our minds, because it, We didn't have it yet. We didn't have anything else to compare it to. Yeah. I can already tell how quickly we're going to look back on this and say, Hey, do you remember when he had this like goofy prompt that we had to like try to type things into and make the system do it and it had no intuition?
Yeah. Yeah. Right. But if I'm an investor right now, let's flip it for a second. Let's say that Ryan, you and I want to become investors. Let's put on an entrepreneurial hat. What would we have to do? In order to be more valuable, be more relevant, be more, you know, um, compelling to this
Rya. R: market. I don't, I don't know, man.
I mean, like, I feel like things like that have been attempted, right? Like the [00:35:00] traditional accelerator model, right? It basically said, Hey, don't, we're, we're not just money. We literally built out a system where like, unlike an investor where they, we talk about these intangibles that come with them.
Something like an accelerator is literally predicated on these other services and, and, and things that are provided within that. And like, when you look at the outcomes and the efficacy of those things, it's just not there. So I, I'm, I'm honestly not sure where, where else that goes because we do sort of know a couple of things right now.
Look, not all investors haven't run a business, right? But most of them, by the time they've had a career in investment, haven't run one for a while, right? By virtue of having been an investor professionally for some period of time. And so I just, I really struggle, like, what are your thoughts? Cause like I'm, I'm coming up short on this.
Wil Schroter: Here's what I've been kicking around and, and I, I geek out about this stuff so much, right? What if, uh, and this is, this can be a silly example, but I want to use it cause it's silly. Um, what if there was an investor that was using AI to make the investments? For example, [00:36:00] when my 12 year old daughter, right, is getting her, her Wix site set up and she's getting like, you know, her e commerce site set up, right?
What if there was an ability to be able to say I want to give that person X amount of capital. It could be 782. It kind of doesn't matter because you're not actually paying attention to it. I want to give that person 782 it comes with a special contract for these types of things And I'm going to get paid back in a rev share or, you know, some, some piece of a future sale, but because so many of the economics of distributing that money and in, in getting my return fairly automated, instead of having to make these big, single, wildly risky bets, what if I could make hundreds of thousands of small bets across the board on all kinds of people in the same way that you do with stocks, where you take a portfolio strategy, some places where you see this now it's a little wonky, but it's actually interesting.
You see it within things like, um, Cabbage, [00:37:00] you know, the, the, uh, the merchant cash advance company where they're like, Hey, we can look at your Stripe data and we can see how much revenue you're bringing in and we can apply risk toward that. We know that that much revenue is coming in. We can always take some off the top if we have to.
They're using an algorithm to make an investment essentially. Yeah. I guess
Rya. R: the, the, the pushback against that one is that, yes, I think you can see that I, to me, that feels like a transitional step. That happens on their way out, right? On their way to extinction or obsolescence. Because at some point, to your point, like, will your daughter need that 700H?
I think it's the, the fact that the need is erased, is the part that I'm, I'm focused in on, right? That when, if we eliminate the need for money, then it doesn't matter how clever you get about how you deploy it, if the need isn't there, right? It's like, it's like saying like, hey, we found a much better way to, uh, to deliver the, um, I don't know, the, uh, uh, uh, Cure for a disease that doesn't exist anymore.
Right? Doesn't matter. We don't have it.
Wil Schroter: Well, here's what I'm saying. I don't think it'll go to zero. I think there will always be some sort of cash that needs to get paid for [00:38:00] marketing or something else. What I'm saying is, right now the deployment model is gonna feel real antiquated. The deployment model was someone comes to us with an idea, pitch deck, we make a massive singular push, giant check on one idea, essentially to hire people and, and, and float this thing for a while.
Let me put it this way. If there were no such thing as companies that were more than 12 people anymore Right? Where would that money even go? Let's look at this from a slightly different
Rya. R: angle, right? So you're right, there will always be some costs need to be covered. As no one is an investor, does that make everyone an investor, right?
To your point around being able to look at risk in a really different way, think about some of the ways that we, that we use risk, uh, because at the end of the day, you don't need money, right? You still don't really need money. You need what money buys. If you need advertising, what if the ads platform can be the one who's making that micro investment in you?
Because the risk is explained and understood, if Facebook can understand, yeah, the likelihood of return on this particular product based on the category they're going after, based on the words they're using, based on their pricing, based on, based on, based on all this data that [00:39:00] we have, we can reasonably make an investment and then we can let them run the ads for free and just get paid in the back end, right?
Cutting out that, that the middleman, right? Same thing with things like deferred comp, right? How many people do we know? They go to work for a startup without a real ability to understand what they're actually putting at risk or without being able to defray that risk. What if, what if just hypothetically we're, we're, we're spitballing here.
We're getting big brain thinking. What if instead of an individual doing deferred comp in a single company, there's a deferred comp pool where a whole bunch of people take a shared risk across a. thousand companies and everybody that was going to get paid gets paid, right? Or everybody could get paid to get paid something, right?
So that we, we don't have to take singular and massive risk. Exactly the analogy I was going to use, right?
Wil Schroter: It's the opposite version, right? Where instead of, uh, um, we all pay into it with the hopes that, that will, you know, one person will get covered if they have to, right? This goes the opposite. Uh, we all contribute toward it in, in the idea that, I'll get paid because one person will have a hit.
Rya. R: Right. Exactly. Yeah, the [00:40:00] one person who wasn't going to get paid is now going to
Wil Schroter: get paid. Exactly. And I don't know if it's going to be me or not, which is exactly how health insurance works, right? I get health insurance because I might be the one who needs it, right? So I pay into it. Um, this would be like, I might be the one that doesn't make it.
So I want to make sure that I'm covered again, like, like insurance in case someone else does. Exactly.
Rya. R: So I think there's all sorts of interesting ways that as we break down the current structure of what investing means, because again, like you and I talk about this a lot, we did a full episode on this, which is like, you don't really need money, you need all the things that it buys you.
Um, so if we can just turn, if we can take money out of the equation and allow people to just invest the resource that you actually need more directly. I think it's pretty interesting, right? Without having to give up big chunks of the company, we're giving them up to people who actually made the inputs, not just cash.
Wil Schroter: And again, we're going to look back on this time period, right? And of course, we're going to have revisionist history about how great it was, right? And you're like, um, yeah, venture capital was a phenomenal industry. If you were a middle aged white male, like if you [00:41:00] were anyone else, I didn't have quite the same feeling about how that was going, right?
So, so the democratization of it, right, where more people get more access is, is great across the board, right? Not to mention, if you have like a good idea, but it's just not a venture capital good idea, you are not going to get funded. Not in the current model. Right. Exactly. Right. When I was writing the, um, uh, the article for this, uh, uh, yesterday, um, I was, I, I, I was in GBT because it's open at all times.
And I, I said, Hey, GBT, What percentage of new businesses in the U. S. get venture funded every year? Point seventeen percent. Right? And I thought that number was high.
Rya. R: Point one seven percent. That, I, yeah, I'd actually, I'd, I'd, I'd want some fact checking on that one. Like a fraction of one percent. Yeah, it's a fraction of one percent, but that still feels high based on what you and I know.
Wil Schroter: I agree. I agree. And again, uh, uh, I'd have to dig into what that means, but, um, just for folks that don't know this, and again, not that VC is the end all, but just because it comes up so often in our world. Um, on average, and this has been the way for a long time, [00:42:00] investors, VC investors, not angel investors, VCs are further up the chain, VC investors write on average and have for quite a long time, a thousand new checks per year.
Total across the entire category, across the entire category, right? Those that call themselves VCs in the amounts that they deploy. Like now we have people that call themselves VCs and write 25, 000 checks, right? I'm kind of not counting them. I'm talking about people writing 5 million checks or bigger, right?
You know, the traditional VCs, and it's been that way for a long time. They write another 3, 000 checks as follow on investments, series B, C, D, etc. For the, for the new ones, going into new companies. Not very many people. My point is, we have an asset class that has kind of become synonymous with startups.
That basically funds very few of them and leaves 99 percent of people with nothing to show for it, right? So, anything that happens on a go forward basis to make, not just them obsolete, I'm fine with them, right? Like, I'm not looking to, like, um, [00:43:00] You know, in their, in their careers. No, we're not saying they
Rya. R: need to go away.
We're not saying they need to go away. We're, we're just looking at what everything that's happening right now in tech and saying, seems likely that they do.
Wil Schroter: Seems likely. And it's good for everyone because all of those people that would have never had access to the cash they needed to, to your point, buy the stuff that they needed.
Don't need that cash, right? They can just go do what they wanted to do. It's my daughter on a Saturday starting her fourth company. Right? With no money, in three hours, and she's just up and running. Right? That's the world we want to be moving toward. Right? If we go back, and I love when people can't see the future, which is fine, but like, if you go back 20 years, and you're like, hey, the internet's gonna come, and anybody can start a business, whatever.
Well they're gonna make, yeah, well what about the attorneys? They're, they're gonna get pushed out. What about the people who got paid, like you and I basically, to build websites? They're gonna get pushed out, right? What happens to all those jobs? And it's like, you don't really understand how this [00:44:00] stuff works, do you?
For every job that gets displaced, it creates 10 new jobs, right? And in this case, probably exponentially more. And now all of a sudden, people that didn't have access to starting a company because they couldn't afford to pay us at Blue Diesel 100, 000 to build your website, Right? On a Saturday can just do it.
People that didn't have, have 50 grand to pay an attorney, this is bananas that this was even the case back then, to form an LLC and, and write up a, an, an operating agreement, right? Can do it for 99 bucks online or less, right? That's sort of the point. The, the point isn't that, that person's gonna lose their job or livelihood, they'll find something else to do.
The point is, 10x more people will need that service. Now that it's cheaper and more affordable. I think that's the part that gets left out, you know what I mean? Yeah, I think it does.
Rya. R: Uh, and, and I, I think to your point, like, this just creates opportunities to go on and do new things. Alright, another, another, just let's reimagine another use for venture capital.
They go build hard things, like hardware, right? Like we [00:45:00] send more rockets to space. We'll finally have time to go colonize the moon now because we won't be building software. that a machine can build for us, right? So yeah, the capital will get deployed. Progress will happen. Things will, things will change, hopefully improve.
Um, and you know, things keep getting better and better, but they, nothing has stayed the same for a long time. I think part of what's scary about this is it's the first time where the rate of change is as fast as it is. And I think the, the level of understanding, right? You know, we went from, you know, A horse to a car.
It still kind of did the same thing, right? Move us from point A to point B. This is a bit of a shift for people. I think that's where a lot of the trouble is coming from and the resistance around it. But again, we're not talking about AI, but
Wil Schroter: yeah, and look in the anxiety and the anxiety is well placed. I get it.
This is replacing humans. All the other things in the past, right? The last time we did this was the Industrial Revolution. You could say, like, the computer slash information revolution, where we said, okay, we don't have people, um, necessarily keying things in into a computer, like, you know, or typing things, rather, we can put it into a computer.
But you [00:46:00] still had people, like, it just created new jobs for those things. These are things where entire industries are turning obsolete damn near overnight. Because a machine can already do them geometrically faster. And I think, of course, that makes people anxious. What I want to remind people is that whenever we have one of these pivotal moments, what it also does is create a massive new industry with tons of new opportunities that most people never had access to before.
Right? And so I think what we need to focus on isn't so much investors being obsolete. And I know that's kind of an engaging title. This isn't about investors being obsolete. This is about Getting an opportunity to build a startup without the investor being the catalyst for allowing them to start to begin with.
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. Connect with bootstrap founders and the advisors helping them win in the [00:47:00] startups. com community. Check out the startups. com community at www.
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