Stefan Kalb started a food brand at age 23, and that’s when he discovered 30 percent of all perishable food goes in the garbage. He teamed up with a technical co-founder Bede Jordan in 2016 and now they’re solving the problem with software.

Now with product market fit, and signed expanding contracts with four of the top 10 U.S. national grocers, they’re on track to solve the $160 billion annual U.S. food waste problem and build the next billion dollar startup in the process. Read on for a breakdown of our conversation and click below to watch our interview.

Garry: Stefan, thank you so much for coming on my channel. It’s really a pleasure to talk to you about your journey with Shelf Engine. It’s a really cool story so I can’t wait to get started.

Stefan: Hey, likewise, Garry really appreciate having me on. So this is exciting.

Garry: What is Shelf Engine and how did you get started?

Stefan: Well, I’ll start off with what we do because what we do is actually quite unique and then I’ll step backwards a little bit and explain how we got here. But at a very high level, Shelf Engine does two things. Kind of the more obvious thing and maybe if you just read on our website, you’d probably see this, we do demand forecasting for highly perishables in the grocery section. So walk the perimeter of the store, things like deli, bakery, produce, those kinds of things. Actually the majority of the sales in the store, we do demand forecasting for that. The more unique part of what we do is we actually guarantee sales for groceries. We submit the orders to the vendors and we only charge the grocers for what sells. And this is quite a unique business model in terms of our offering. We’re not the traditional SaaS company that you would think of. We take that risk on ourselves and manage that inventory. So your next natural questions probably like, “Okay, how did we even get here? Like how did that come about?”

Garry: I mean, you ran basically a food brand yourself.

Stefan: Yeah, when I was 23 years old, I decided to do the crazy thing of starting a food company. Grew that company for about a decade and got to learn a lot about what it’s like to order [food]. If you’re a grocery buyer, you have a really, really difficult job. And my company, we had grown to over 400 locations. I knew that pain in a major way, to such a point, I state this publicly often, we had 28 percent waste. When I went out to fix that problem, I realized that that was actually pretty normal. For a lot of the highly perishable categories out there, waste is roughly in the 30 percentile range. I thought that’s just crazy.

Garry: 1 in 3 apples, sandwiches, everything basically goes in the garbage and is never eaten, it’s just rotten.

Stefan: Generally speaking, yes. Walk the perimeter of a grocery store, generally speaking 1 in 3 of those items will just be thrown away without the opportunity to actually be consumed in a home. And what’s crazy about that, Garry, and since we’re on the subject, which is really important, is that most stores and most of the industry under reports this number because they don’t actually have the access to the data. The first thing we do whenever we start with a new store is we give them their true number. And we have seen some astronomical numbers out there. The opportunity in the field, and this is actually a great lesson for entrepreneurship, the opportunity was much larger than we originally thought. Usually when we go into a store and they have 28%, that’s usually a good case. That’s usually a good scenario.

Garry: They’re doing well in that case.

Stefan: They’re doing well, in that case. Which is wild, right?

Garry: So that means even for some people, half of the food that enters through purchased inventory never gets sold and then it gets thrown out, sort of a commodity business. One that has actually relatively low margins. So it seems like an actually really, really large possible market.

Stefan: You said the magic word right there, which is a large commodity market. You’re absolutely right. We’ve had several customers where we’ve entered and their spoilage rates were over 50%. How do you enter a situation where you have such a massive market in the industry? You have something that’s fairly commoditized, where you can buy these products across a bunch of different brands and the margins are quite low. So how does this happen and how do you address it? And this was a part of the thing that was really exciting for us, which was whatever change we make here is going to make a monumental change on the environment, but also in the industry, because it is so commoditized and there are so many grocery stores and the products are so similar.

Garry: My favorite thing about your creation story is that you sort of took an observation directly out of your direct experience. You had secret knowledge just off of that because if you just told someone off the street that that was the case, that 1 in 3, any food item on the shelf just goes in the garbage, it’s so high that you wouldn’t even believe it. But once you saw it, you actually started thinking about how do I solve that with software? And I think that was when you brought in your co-founder Bede. I think you guys were all sort of social friends at that point. I mean, that’s when I got to know you back in, was it 2015 or 2016?

Stefan: Actually, I remember our first time meeting pretty well, which is a good story in of itself. But yeah, what happened was Bede and I were good friends and he had been an engineer at Microsoft for about 10 years.

I would share with Bede some of these crazy stories in the food industry and he would classically roll his eyes and be like, “That just can’t possibly be the case.” And I would tell him like, “Hey listen, most of the ordering in the grocery store is somebody walking an aisle and making a really good guess. And these are the best tools they’ve been given. Like some spreadsheet, maybe some sort of archaic ordering tool.”

And so we had some good laughs about it until one day we were like, “We could really do something here.” What was awesome about that situation was we started moonlighting on Shelf well before we launched. The first version of Shelf, we actually got to test at my company and see the impact that we could have.

And that was kind of the lead up into the first time that you and I got to meet. I got to walk in and I said, “Hey, Garry, we’ve built something where I’ve been able to take my food waste in my company and drop it significantly to such a point that I’ve been able to make way more money in my company just because we built this product.” And I think that’s a great lead in for, “Hey, there’s a massive market opportunity. We would like to go and build this company. We’d like to do this.”

Garry: Yeah, I remember that. That was a really powerful moment because obviously people look at very early stage investing and it’s sort of a black box, but funding you guys that early, I think we were among the first money in.

Stefan: Oh yeah, I’ll credit you with the first money in for sure.

Garry: We got to know each other socially through our mutual friends. I think it was Bo Lu, who was a part of my dim sum crew, back when I worked at Microsoft back in, I guess, ’03, ’05. We just kept in touch and he ended up coming to do Y Combinator and then you ended up doing Y Combinator. So it’s funny how starting companies, it’s a little bit contagious. It sort of travels through groups of friends. It starts off with not having any intention. It’s just hanging out with people and then seeing very smart friends of yours go on to do startups. It gets you sort of thinking about it yourself. And that’s one of the cool things that I’ve seen.

Stefan: To this day I’m so grateful for the guidance that Bo has provided. And then of course, you watch your friend be very successful. So that’s pretty cool.

Garry: He has the most successful roboadvisor startup out of all of them.

Stefan: Which is cool to witness and to be able to see that. Bo comes along, he is so humble and he’s like, “Oh, you can do it too. Of course you could do it!” And then he gets you all sorts of inspired and you’re like, “I just have to go do this.” And so I feel really grateful because Bo is really a great mentor and a great guide in this entire process. And for us to be able to connect and for you guys to eventually invest also for the entire journey. It’s all been great.

Garry: I have always been impressed by this sort of first principles thinking. A lot of people watching this really want to start companies and are maybe earlier in their careers, or sometimes later in their careers, trying to figure it out. I think the coolest thing that you’ve been able to do is take a very direct experience from something that by default isn’t technical in nature, but then you started looking for technical and software-based solutions that clearly can and has solved the problem, and in sort of grand fashion. So first principles plus a really big mission caused you to build something that’s now very, very scalable. It’s so crazy to see, but there are things like this sort of lying in plain sight, just all around [us].

Stefan: I didn’t quite see [the amazing opportunity] right then and there in the beginning, like you might see it as an investor, which is, “Oh, hey, there’s a huge TAM. It’s an antiquated industry, but we all need to eat, so it’s a major opportunity, and it’s commoditized, and it’s probably going to win or take all market.” Those things in the beginning, I didn’t get to see that. What I saw was, “Hey, there’s a lot of food going in the garbage.” In fact, in sales pitches today, I start off with some of the first slides by saying, “Hey, I went in your back room and I took pictures of your food waste.” And you see these executives at these grocery stores being like, “Oh my God, you got to be kidding me.” You look at it in two ways. One, what’s the dollar figure associated with that food waste? And two, what’s the environmental impact? And you get to see like, “Oh, okay, well, hey, there’s a bunch of turkey. That’s a bunch of essentially dead animals that were never consumed. Hey, there’s a bunch of packaging. It’s a bunch of plastic that was produced. Oh and hey, how’d this all get here?” It was shipped here, and that’s all wasted. And that just seems ridiculous. Being able to see those two pieces and be like, “Oh, they’re actually very well aligned.” I feel also very fortunate that they’re very well aligned because every time that we onboard a new customer, every time that we have a new category and you skew a new grocer that we have on board, we get to see the progress, not just on their P&L, but on the environmental impact that we get to see. That’s really rewarding, right? That’s a very fulfilling experience.

Garry: Yeah, it’s not enough to just have the mission. You also need to work through capitalism and work through the systems that we have in place that allow you to get it to the scale that it needs to have that impact. Like aligning all of these different interests in a way that put us in a world that is less food waste, that’s just categorically better.

Stefan: Totally, and to bring it down to a very day-to-day tactical kind of situation is whenever you’re doing enterprise sales, you need to be essentially, the number one priority for the customer that you’re going after. How do you make that happen? And it tends to be, what’s the number one impact going to be on the P&L? And if it’s going to be a really important impact on the P&L, that’s how you get that meeting. That’s how you actually set up the first launch. That’s how you scale. For that to be like, “Hey, potentially we are the number one priority you should have as a customer because we’re going to make that massive impact on it.” You’re right, that’s aligning mission and capitalism together. And seeing that on a tactical level is really rewarding and really cool to be able to witness.

Garry: Yeah, capitalism can’t solve all the problems, but it can solve a few. It’s really cool when it works like that. Going back to what you were saying about enterprise sales, it’s been a number of years since the first version when you guys both quit your jobs initially. The first version was actually a lot more traditional in terms of selling as a software as a service, trying to get monthly fees from grocers and from packaged food companies and actually harder, wasn’t it? It’s not all roses. The path to product market fit is often fraught. And that was also true for you. How did you navigate that?

Stefan: That was definitely a difficult time. And in many ways, I give you and Initialized a lot of credit for that because you guys remained believers, even though things didn’t look great on paper. We still knew that there was a big opportunity. So for context, we launched as a SaaS company and we said, “Hey, use our software to predict orders.” And what we realized was that there are a lot of breakdowns in there. It didn’t matter how smart the AI was. If you want people to use the product in store and add onto their workload of doing more things, things tend to break down. We said, “Hey, we just saved you a tremendous amount of money, but your team doesn’t really seem to be engaging with the product the same way that it should be.” There were challenges on multiple levels in terms of what needs to happen for [customers] to use the product in day-to-day. We came up with this wild idea of saying, “Well, what if we just did it for you? What if we just guaranteed the product for you? Then you just don’t have to worry about it.” I’m really grateful to have had that crisis because that enabled us to have this business model that has helped us scale so fast and have so many more impacts. And I think you took it really well. I’m thinking, “I have to call Garry and let him know that things aren’t working out.” And for you, it’s just kind of like, “Well, try something different, evolve, see where it goes.” Yeah, I really appreciated our interaction at that time. Instead of just trying to force something through that probably could have been a company today, but not something as meaningful as we are at today.

Garry: Well, it’s like Bruce Lee says, “You’ve got to be like water.” And with the best founders, that’s exactly what you did. I remember we talked about it and it was really hard to get people to pay thousands, if not tens of thousands of dollars per month, for something that actually required a bunch of onboarding. And it required a bunch of data cleanup. And it required true buy-in. And sometimes there are just bars that are so high that even with the highest possible touch interaction, it’s not possible to get a company, especially a company that tends not to be that technical. It’s just hard to get them all the way over the line. The brilliant thing was for you to say, “We have data, we believe this works. How do we make a package that is a no brainer for the customer? And we can take the cut.” I credit you for finding that path, because that is exactly the kind of, “Be like water,” type of thinking that great founders have.

Stefan: As a true Seattleite, I am often inspired by Bruce Lee. But yeah, you’re absolutely right. Sometimes people say, “You should start a SaaS company and you should do these following things.” Many times there’s an incredible opportunity sitting there, but it’s not clearly defined in other ways. And even in the beginning . . . this was the funny part of the conversation, “Wow, Garry, we’ve tried this new model and things are really taking off.” And everybody’s like, “Well, what are you exactly? Are you a marketplace? You’re kind of taking this risk, are you SaaS? What are you exactly?” This was our next challenge, which was a much happier challenge to take on, taking something that was new and defining it.

Garry: Catch us up to today. Obviously for me, it’s been really cool to see your journey from two people renting a space in Capital Hill and visiting you up there, seeing you at that stage, to now–how many people are you? And you just raised a Series A at the beginning of the year from our friends at GGV and Hans Tung.

Stefan: We’re nearing, or almost exactly 50 people now.

Garry: 50, 5–0?

Stefan: Yeah, 5–0.

Garry: That’s a lot. It’s an impressive team then.

Stefan: It is, but funny enough, part of the lesson in entrepreneurship, I think, the rate that we’re scaling, I actually wish that we would have grown the team a little bit more ahead of time. So we’re definitely feeling a certain amount of that pressure.

Garry: That’s what product market fit looks like. You always wish you hired a little bit more because when the world needs it, they really inflect into it. And then at that point, you need to sort of hold on. You’re in the, caught lightning in a bottle phase. It’s a blur, honestly. It’s also very exciting because this is sort of the march to billion dollar startup. I think it’s going to happen really fast for you. That’s sort of where we’re at.

Stefan: It’s the really exciting phase, right? What’s coming up next and how we’re going to get to that billion dollar phase and beyond. And honestly, what’s funny about this, and Bede and I joke about this often, which is, YC kind of leaves off at the point of like, “Hey, you’ll know, you have real product market fit when things feel crazy and you can’t keep up with your own growth.” And they’re like, “Okay, goodbye, you know, good luck.”

Garry: Good luck!

Stefan: And then here we are, We’re like, “Oh my God, what do we do?”

Garry: This is what it feels like.

Stefan: This is what it feels like. But you know, I think, and especially cause we’re recruiting so much and we’re really looking to build this dream team. This month alone we’re launching over 600 stores across the country. The team is traveling left and right. And we’re working with everyone from store manager to the store executives and people are essentially calling us and saying, “How fast can you go?” And that’s super exciting, but nonetheless is a major challenge to be able to grow at that speed. It’s incredible. It is learning how to build a team that quickly, how to build product that quickly and how to scale myself personally that quickly.

Garry: So what’s it like to work at Shelf now? I guess it must have changed quite a bit, especially even in the past six to nine months, because that was sort of the timeframe for it to really go from, “We think this is going to work,” to, “Oh, it’s working.”

Stefan: A lot of the people that we hire have not necessarily been in the food industry. What we try to do is, when you come on board, is to get you immersed in the food industry as quickly as possible. We will likely send you to the stores to do a variety of tasks. So you get to learn from beginning to end. What is it like to actually receive product in the back of the store? What is it like to stock product? What is it like to inventory? And we also have field team members that go and audit all of our producers and audit a lot of the stores.

So you get to spend an overnight shift at a production warehouse and see what it’s like. You get to count through the process and see what that’s like. Immersing people in the industry and really getting to learn it. Every team has these really incredible leaders. So even if you get to work for, Bede is incredible on the engineering team, you get to learn from somebody like that, all the way to people, our operations team, our customer success. You get to be really deep in that discipline and understand it. Getting to learn the industry all the way to that discipline is fantastic. And then we also do have a few grocery executives and people who’ve been in the grocery industry for a long time who are part of the team and getting to be alongside them as we’re scaling here. To be completely honest, it’s a little wild day-to-day as we’re scaling so quickly. And you get to be one of the most incredible teams out there, which I think is incredibly rewarding. And honestly, it’s an honor to be able to work with these kinds of folks who care this much and who are this inspired and this skilled.

Garry: And you’re just getting started, which is part of the craziest thing. You’ve picked off a part that is growing extremely fast and then you’re playing in a space that is one of the largest as a part of GDP. I mean, everyone eats, like you said earlier. I think one of the more remarkable things is how little technology drives a lot of the food supply chain. You might have this part, but then there’s so many other parts that have the same problem. How do you order your next order? Well, a guy with a clipboard walks up and says, “Hmm, maybe this many.” And then you have 1/3 to 50% food waste because of it, multiplied out across every decision that is made in every part of the food chain. And it’s extra bad in food because these things actually go bad.

Stefan: GDP is a pie, and you essentially say, “Hey, I’m going to scoop out the food industry.” You have a legit piece of pie right there, right. So that’s a really meaningful number. Today out of some of the top 10 grocers in America, four of them are our customers.

Garry: That’s incredible.

Stefan: So we have Kroger, we have Target, we have Whole Foods and we’re about to launch with Walmart. So that’s really meaningful. But the reality is for us, we’re not just trying to build a good business. We’re trying to transform the industry. What do we need to do to get to such a point that we’re reducing food waste to such a dramatic level that you can start seeing the environmental impact? I would like one day to start seeing government reports showing, “Hey, this is how much of an impact there is out there because of the work that Shelf Engine has done.” And then on top of that, being able to say, “Hey, the grocery industry has moved forward so far because Shelf Engine’s been able to generate so much cash for these grocers that they can reinvest into the future of grocery.” And that’s what you get to be part of. That’s super cool, I just love that. That gets to be my day-to-day.

Garry: One of my favorite pattern matches around startups and startup ideas is when you hear a pitch and you’re kind of shocked that it’s not how it’s done already. And this is definitely one of those. Just the sheer fact that there’s that much food waste and it’s not something people regularly talk about. And then the carbon footprint impact is sort of, it’s pretty immense. An incredible amount of shipping and transportation and logistics that is just to support this very large part of GDP. And if you could just chop off 1/3 of that, that goes directly to carbon footprint. It’s really important.

Garry: It’s what I think inspires us and gets us excited every day to be doing what we’re doing.

Stefan: What I like to end on is what do you wish you knew, even maybe before you started Molly’s, the food brand you started when you first entered the business world? Or maybe even before you went to college. What were the lessons or things that you wish you knew that you had to learn the hard way? [Something] that you would pass on to the next generation?

Stefan: I think that’s such a fantastic question. At this point I’ve gotten through quite a few conversations in my career of people who’ve wanted to or are interested in founding a company and they ask something similar, in this vein. I think at the end of the day, a lot of us doubt ourselves. If we were just really quick to action to go and figure these things out, I think we would move a lot faster and a lot of these mysteries and a lot of the things that you think maybe not possible are actually totally possible. You just need to go and do them. And I wish that in many ways, even before I started Molly’s, before I started Shelf, that I would have just been quicker to action. Quicker to making a move.

Garry: That’s super helpful. So Shelf Engine is post-product market fit, hiring extremely quickly and in Seattle, is that right?

Stefan: That is correct, yep.

Garry: And then every role, so software, growth team, product, data science, just you name it, the place to go. And you can find out more at shelfengine.com.

Stefan: If you listen to this and you regularly listen to Garry and you’re interested in a role at Shelf Engine, just email me directly. It’s stefan@shelfengine.com. I’m really excited about the opportunity to have you join the team, so don’t hesitate to reach out.

Garry: Thank you so much for doing this. This is awesome.

Stefan: Likewise Garry, thanks a lot for having me.

Solving the $160 billion food waste problem was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Tournaments are everywhere in life. And the sooner you can identify them, the better you can compete.

College admissions, getting into grad school, getting your first job, raising money, hiring a team, making partner at a law firm, getting promoted to executive, getting YouTube subscribers, getting tenure as a professor, you name it. All the things that people want are on the other side of a competitive process. The first part of the game is showing up.

My early tournament loss: Stanford’s Mayfield Fellows Program

In my career, I’ve won a few tournaments and I’ve lost a few. When I was at Stanford, there was a prestigious program called the Mayfield Fellows Program. People like Kevin Systrom from Instagram and Justin Rosenstein from Asana were selectees during their times at Stanford. I applied, but I was not selected.

For a moment, it was crushing to get rejected. Here were gatekeepers to my future and they said I did not pass. I was at Stanford and these professors, I thought, knew something I didn’t. In the moment I thought, “Shoot, what if I’m not cut out for being a startup founder?”

I’m glad I soldiered on though. It was just another tournament that I entered, but I didn’t win. Today in my career I know not to believe that the tournament gatekeepers have some special clairvoyant knowledge. They’re doing their best with incomplete information. And also the heuristic people apply may not be verifiably accurate over the long-term. When I got rejected from Mayfield in 2001, the program had only existed for about six years. It was probably too soon to know if the criteria they were using for the program was predictive or relevant.

Two really big lessons here.

1. Don’t get mad at the gatekeepers. They are doing typically their best with imperfect information.
2. Don’t get discouraged if you don’t get in. I knew I was a good engineer and I could ship any kind of user experience, and I love to do design. I knew my strengths. There were definitely people in that program who did get in, who had better resumes than me at that time, but they couldn’t have bought the skills that I had.

So, What Are the Rules?

These tournaments show up everywhere. They happen anytime there’s a finite resource: College admissions, grad school, job applications, incubators and accelerators, fellowships, academia, getting press for your business, raising money. These are all tournaments.

For all of them here are some generalizable rules that I think you should keep in mind, no matter where you are in the world and what stage of career you’re in.

1. Know You’re In One: Be aware of the tournament and lookout for competition. If you don’t know something is up for grabs, how can you even win? In high school, I was oblivious to the competition that was going on and luckily it didn’t hurt me too much since I was into computers, which was very fringe. Competitions are everywhere. At your job, like it or not, you and your peers are probably competing for the same bonus pool and/or who will be promoted. That’s just how it works. Be aware of the competition. Don’t be a dick about it, but know it’s happening.
2. Learn the Criteria Early: People who are great at tournaments find out what the criteria is to win upfront. Get specifics. For instance, for college admissions, every college is looking for different things. Every incubator, too, every workforce, every boss. But you need to know the specifics. I realized getting into Stanford as an undergrad in 1999 was a function of being obsessive with consuming information from the Princeton Review online forums. My parents didn’t have money and my public school guidance counselors knew nothing about how to apply to the best universities. I went direct to the internet when lots of people didn’t have that advantage. I realized through that forum that I could learn how wealthy kids in prep schools got in to elite universities. And I learned by osmosis, through that forum. High SATs, check; extracurriculars, check; great essays, check. I improved my SAT score by over 400 points by studying the prep books and I learned this through the forum. The same internet advantage can be yours in whatever tournament you are entering. Every tournament has criteria. If you find out early, sometimes years in advance of the outcome, you will get a massive leg up.
3. Up Your Odds: If there’s a tournament, know that there is randomness. Remember that nobody is clairvoyant. The selection committees are operating on limited information. So, in the face of randomness, increase the odds of you winning. If you had a 5% chance of getting into any given school or any given tournament, odds would dictate that you should apply to 20 schools or 20 such programs to stand a good shot of an accept. This goes for raising money, getting a job, or really any tournament in life. It’s usually a mistake to get too obsessed with one particular school, workplace, or investor. That being said, don’t run around saying that. It’s always a two-way street. Gatekeepers often use, “how much do you want us” specifically as a top criteria. This is just human nature. Remember that Princeton Review forum I was telling you about? That was one thing that forum taught me: Don’t get “oneitis”. This goes for many tournaments.
4. Gather Advice: Tournaments have a repeating nature and that’s great because there are lots of people who have come before who can give you tips on that tournament. Whatever you are going through, preparing for that tournament will rarely be the first time, so find people who have done what you want to do and seek them out. People helped them along the way, so you will be surprised how often people will take time out of their day to help a stranger. I got a lot out of talking with YC alums when I was applying to YC. Even today, I try to help future YC alums. People want to help, all you have to do is ask. (Check out my “Nail Your YC application” video; likewise, my “Nail Your YC Interview” video here).
5. Try the Window: When you receive a no, be thoughtful. I’m not saying never quit, but there are some tournaments you can’t win and that’s okay. It’s important to find the tournament’s where you can win, but also don’t let “no” turn into a no forever. It’s almost always a no for now. And then there are people who, when the door is locked, they find a window. I always think about the time I sent Instacart’s Apoorva Mehta an email saying, “No, it would be almost impossible to get you in [to YC] right now.” YC was over halfway done at that point. It was only a 10 week program and five weeks had passed. He took that know as a maybe. And he sent me a six-pack of beer with his new service that he had just brought online. We accepted him at Y Combinator the next day and Instacart’s now worth more than $17 billion. If you find the door is locked, always check the window.

Win Enough Tournaments and Build Better Ones

Okay, can we talk about one thing that has been bugging me? Some people have decided to opt out of all tournaments. They say the game is rigged. They’re not completely wrong. The system isn’t fair, hasn’t been fair, and sadly, probably won’t be fair anytime soon. And in the face of that you can still decide to play.

You’re not going to win every tournament, and not every tournament is worth playing. In fact a shocking few actually are, but that doesn’t have to define you. One thing I am thankful for about these tournaments is that they are the times for us as individuals to become our best.

The unhealthy way to look at tournaments is that there’s zero sum, when someone else wins, I have to lose, but there is a better way. The Latin root for competition is actually competere, which means strive together. That’s a powerful concept, and I think that underscores how these tournaments help us become the best we can be.

Here’s the coolest part. If you win enough, someday you will design a tournament for others. And trust me, that’s the real game. And when you do, you will be so excited that you got to be the one to push it in the right direction. But remember even when you’re the one creating it, it won’t be completely fair, but you can do your best. I know I’m trying.

Thanks for reading! To watch my full episodes that go into detail about these ideas — and more — head over to my YouTube channel.

5 Steps to Winning Career Tournaments was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Should you work on a startup idea that already exists? Well, Snapchat wasn’t the first messaging app, Facebook wasn’t the first social network and Discord wasn’t the first chat app.

You don’t have to be first, but you do need to be different.

Being better, faster and cheaper matters. In fact, it matters a lot. It matters so much that if you don’t have that, you can’t succeed, your startup will die and neither you or I want that to happen.

First Isn’t Best

When we started my startup Posterous back in 2008, it was definitely not the first blog or social network. However, it was better in one specific way: We supported post by email, and in a way, that was really easy to remember. If you knew how to send an email, well, you could post something online. And that was enough.

That’s the thing, you don’t have to be the first. WordPress today runs some crazy percentage of the world’s websites, but it was first released in 2003.

Posterous was late by five years, but we still grew fast and had as good a shot as anyone to build something great. It’s often a disadvantage to be first.

Before Instacart, there was the flaming disaster that was Webvan. Before Facebook, there was Friendster and Six Degrees. If being first is sometimes a disadvantage, why do people still look for things that are so new?

Blue or Red Ocean?

Here’s the thing, investors do love novel approaches. If you are trying to start something, it’s an important bias to be aware of, and it’s going to be hard to fight against it, so don’t even try. You just have to take it into account that people who get a lot of startup pitches will use this as a filter right out of the gate. Is it fair? Not always.

There’s a reason brand new business models are usually driven by just a few things: New technologies, new online behaviors, new needs, changes in society’s demographics, new capabilities and new regulation. But not everyone will be lucky enough to find one of these brand new blue ocean spaces.

Sometimes you have to wade into a red ocean–a space with lots of competitors. And if that is you, then there’s one thing I need you to have clear in your head. Is it better, faster or cheaper than alternatives?

Better

Here’s some great examples of top startups that dominated just by being that–better.

Google was just clearly better than AltaVista and all the other search engines. PageRank was an incredible advantage as it gave you better results. It was clear they had better engineering talent and thus that talent could build a better product that could give a better experience. They got there through technical excellence.

Dropbox, when it first came out, was just clearly better than a USB drive. Again, technical excellence. It was a breakthrough experience that just worked.

Discord, when it first launched, focused on gamers. They had low CPU requirements, which meant their initial users wouldn’t get bogged down, and they could still play their high-frame rate games. That was enough to get Discord their first users and put them on the map.

Airbnb started with an audience that had no alternatives. They were focused on conference goers when there were no hotels available. What else could you do? Actually, nothing. You basically wouldn’t go to the conference. Having a place to stay was just clearly better. That was a great first set of customers.

I was one of the first investors in Coinbase, and for me, it was because it was clearly better than Mt. Gox, one of the first places you could buy Bitcoin. You had to wire money using Western Union to an overseas bank, and it somehow appeared on this kind of sketchy looking website that sold Bitcoin, which was originally built to trade Magic The Gathering trading cards. That’s the entire reason it was even called Mt. Gox. Today, Coinbase is worth over $8 billion because they focused on the fringe, new crowd of early cryptocurrency believers. Remember, this was 2013. So being better is pretty obviously great.

To sum up, you can get to better through pure technical excellence, like Google or Dropbox. Or you could pick a particular customer or situation that’s underserved like gaming for Discord, conference goers for Airbnb, or fringe groups like crypto in 2013 for Coinbase.

Faster

Speed matters a lot, especially for consumer scenarios. There’s a whole internet of other things to occupy someone’s time, and if a particular website is slow, it matters.

At Initialized, I funded Flexport, which speeds freight up by as much as two to three days, compared to other methods of shipping cargo. Because they replaced traditional methods with software, their freight insurance can actually be 6x faster to resolve a claim. Those are both things that shippers care a lot about. It’s just clearly faster for them.

Uber, when it came out, was just significantly faster to find a car. They focused on matching supply and demand, and built teams to increase supply very quickly, city by city.

And finally, Facebook was just significantly faster than Friendster. Friendster early on was sort of notorious for using Java Server Pages and unoptimized MySQL. It was often impossible to even log in, and Facebook in contrast, remained fast throughout.

How do you make your product faster for customers?

1. If you’re using software, you’re beating paper and pencil, and that, by default, makes things a lot faster. That is Flexport story to be sure. It’s easy to be faster than your competitors, when your competitors are literally using paper and pencil.
2. Delivering more supply liquidity like Uber. They managed to use software to scale one of the world’s largest mobile workforces. More drivers meant faster response times. There you go, faster.
3. Finally, technical excellence yet again comes out when you’re looking at what Facebook managed to do, to scale their website, especially as the hockey stick graph went up into the right.

Faster is a great way to go.

Cheaper

If you can get the same or better product or service, for much less money, would you not? Customers are smart, they’re rational, and they will vote with their feet.

Shopify is a great example of this early on. They were significantly cheaper than running your own Magento Server, and all you had to do was pay a flat fee of $29 a month. Shopify enabled a new generation of brand and store that just couldn’t have existed without them previously.

Lyft is another great example of being much cheaper. They were the first citizen-based ride sharing. Uber was new, but at the time only black cars. Lyft was originally called Zimride and they were already doing car sharing over much longer distances. When they saw Uber, they said, “Why don’t we, we try to do that, but instead of using taxis or black cars, why don’t we use the community we already built for Zimride?” And that resulted in a service that was far cheaper. Uber, in fact, fast-followed pretty quickly because they realized UberX needed to exist to compete with Lyft.

Instacart was grocery delivery, but asset light. People had tried to do traditional grocery delivery before, but they had to buy warehouses and huge fleets of cars. Being able to do this almost entirely in software, with a workforce that was deployed by mobile phone, meant that the cost to deploy the service came down a lot. And as a result, Instacart is now available to more than 85% of people in the United States. That’s crazy.

Amazon of course is famous for saying “their margin is our opportunity”, Retailers have 10–100% margin, but that margin is needed to cover physical stores. Amazon said we don’t have that, so why don’t we pass it on to our consumers? And that’s a powerful way to get customers.

Robinhood did something very similar when they brought trading fees to zero. And they decided to make money in a different way by selling data about retail investors to hedge funds.

Making your product or service cheaper matters a lot. You could take advantage of major shifts in technology cost curves like what was enabled by cloud computing and SaaS businesses like Shopify, or you could look for emergent new behavior, like applying the business model of Uber’s early black car service, powered by a mobile workforce, deployed by software to your own space, whether it is grocery delivery with Instacart or the first citizen ride sharing with Lyft.

Finally, you can just lower prices in a way that cuts the margin for the whole business, but gives you massive market share, the way Amazon and Robinhood did it.

When It Works, It Works

At the end of the day, great startups clearly solve a need. It might be a brand new need that people didn’t know they had, like Google or a replacement for an old and antiquated industry that should have run in technology years ago, like Uber or Flexport. You have to be better, faster or cheaper than the alternatives–no matter how old or new those alternatives are. And if you aren’t, then you should find a way to become that. Or find a new idea. I want to see you succeed as a startup. Better, faster, cheaper. You can do this.

Thanks for reading! To watch my full episodes that go into detail about these ideas — and more — head over to my YouTube channel.

Better, Faster, Cheaper was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Autonomous car with no safety driver for $50M, not $10B

You’ve heard of Waymo and Cruise (Initialized was actually an early seed investor in Cruise, too). Each of those teams has spent more than $10 billion to deliver something that can drive normal roads without a safety driver. But there’s another way, and I’m excited to share that with you today. It’s by a scrappy but brilliant startup called Voyage. They’re announcing their third gen car that will operate with no safety driver at all, but having only raised $50M instead. How did this founder and his team do it? Let’s find out.

Meet Oliver Cameron, founder of Voyage

Garry: Oliver, thank you so much for joining us today. You’ve built world-class autonomous car company and you’ve done it for only $52 million.

Oliver: We recently announced our third generation robotaxi. We call it the G3 and this will be a first vehicle that is operating without the need for a safety driver in the front seat. And for us, this is a very big deal because this is the culmination of four years of work and a collaboration with Fiat Chrysler. So what you see here is one of our robotaxis driving by itself through one of our communities. This is a retirement community in San Jose and here we serve senior citizens. We move them from their doorstep to any other address within this particular community. And here we serve a whole bunch of different applications: We enable seniors to go visit friends, enable them to go to the park, enable them to go to many of the points of interest in this particular community–eight community centers, swimming pools, gyms, stables, all of these very different things. And what you see right here is our technology in action.

There are three components in play here. There is what we call Commander, Shield and Teleassist. Commander really is the brain of our robotaxi. It’s responsible for perceiving the world, predicting the world and ultimately planning a safe path through the world. And then we have Teleassist. And Teleassist is a very unique take on remote assistance. What we very much believe is that robotaxis today . . . it’s an impossible task to have a robotaxi perform to the same level of intelligence that a human has for certain edge cases. Think about wild animals roaming around your vehicle. We’ve had numerous times where wild turkeys have jumped out in front of our vehicle, our vehicle comes to a stop and then they just don’t move. Now a robotaxi has no idea how to deal with that right? It doesn’t have human intelligence. What do we do as humans? Well, we honk the horn, we kind of nudge and drive a little bit towards them, and then they flee right? And what we’ve built with Teleassist is a very safe way for a remote human, one of our what we call Teleassistants to directly and remotely control the vehicle and do so very safely. And that enables us effectively to handle any and all edge cases that the world could throw at us without having to devote years and years to research and development and to experience all these edge cases.

And then we have Shield, which is a reliable backup system. You can think of Shield as an extra set of eyes to hit the brakes if it believes the vehicle needs to come to a stop. Our whole self-driving technology is designed with redundancy in mind. We assume that everything is going to fail and we design software and hardware to mitigate the impacts of those failures so we can handle it very safely and Shield is a very crucial part of that.

Power and Commander are a number of state-of-the-art algorithms in a variety of different areas. State-of-the-art algorithms in areas like 3D object detection, semantic segmentation, stereo vision, stateful decision-making. And all of these algorithms have been finely tuned and hardened so that we have a very reliable vehicle that can take people from point A to point B. And this is the technology we’ve been building now for nearly four years.

Garry: Really awesome stuff. And it’s all actually happening live in vehicles every single day in your first communities.

Oliver: That’s exactly right. This vehicle has been on the road now for four years. And in these places, we’re serving a number of different customer requests, moving people from their doorsteps to wherever they want to go.

Garry: As they say, the future is already here, it’s just not evenly distributed.

Oliver: Exactly. Your grandma is going to ride in a self-driving car before many of us around the world. I think that’s very apt in a startup sort of sense, right? It’s that you typically don’t want to build a product for someone who already has a pretty good solution. And if you look at humans driving cars today, non seniors driving cars today, we’re relatively okay and pretty good at it. When you look at the senior category, again, there’s so many things that just stand out as clear improvements to the experience and to the safety of the current mode of transportation. The fact that a senior is 17x more likely to suffer a fatality is just mind boggling, right? We can make a dent in that number by providing a vehicle that is ultra safe, has superhuman vision, can see in 360 degrees day or night, that’s going to make a big difference in the life of that customer, but perhaps not in the life of a customer today who is able to drive their own car.

Garry: I mean, I love this simply because it fits my fundamental view that startups that become billion dollar startups actually have a very simple premise that ends up being better, faster, cheaper for their customers. And in this case faster by a lot, especially once you get to a point where you don’t need a safety driver, you can have a fleet at the ready with really great support for the demand of a given community. Better in that it’s way safer clearly. And then cheaper because that’s sort of long-term where a lot of this goes. How have you been able to outperform a lot of those companies?

Oliver: There is another way. And the way we’ve always approached this problem is to think like a startup, right? To really embrace constraints and embrace that we cannot build everything. We can build the things that we think we can be really really, really good at. And for us that looks like the core self-driving technology. It’s perception of the world, it’s the prediction of the world, it’s the planning of the world. And we believe we can do a really good job with that resulting in a great product for the customers that we look to serve. But what is absolutely crucial is that from day one you don’t reinvent the wheel, you don’t try and build everything, you don’t build your own sensors, you don’t build the things that the ecosystem can provide you. And because of that approach, we’ve made really fast progress toward delivering a robotaxi for a customer that really needs it.

Garry: One of the things that’s clear from us working with so many startups is that necessity is the mother of invention. And then from certainly lots of other places in the startup ecosystem whether it’s WeWork as a cautionary tale or things like Magic Leap, you know you can get kind of lost with that much capital. What’s happening there?

Oliver: My general theory here is that the autonomous vehicle industry did not begin like most industries. The very first startup to build an autonomous vehicle was Google, right? And Google was not a startup at the time. It was in fact a very big company that had a ton of money that they could throw at what seemed to be a massive problem. And then what eventually occurred is that everyone looked at how Google was doing it and said, well, we want a piece of that pie too. Let’s go take that same approach with a few deviations on the ideas, but let’s take that same approach, the same need for capital, the same talent and let’s just go effectively replicate that. And that approach has led to companies building their own lidars, their own radars, their own cameras, in some cases designing their own chips, their own cars, their own simulation infrastructure, their own mapping infrastructure. The list is quite endless. (We at Voyage embrace cloud compute). There’s been companies I know that have built their own training infrastructure internally to improve their perception models and they have engineers dedicated to those problems. When you try and take on all those very big challenges, suddenly the self-driving software piece is no longer 100% of the problem–it’s maybe 50% of the problem. And all of these additions that have also very complex problems tend to take away from the time of many of your top people.

Garry: I guess none of them has tried to reinvent the GPU yet though. It sounds like maybe that’s a bridge too far that illustrates the conundrum when you’re trying to build something brand new. You might end up spending your own most expensive capital, which is your equity in reinventing things, when frankly, billions of dollars have already gone into other solutions. In the autonomous car ecosystem, I feel like Voyage has been able to benefit greatly from that ecosystem by not succumbing to not-invented-here syndrome, which is quite dangerous for people.

Oliver: The caveat that I should add is that companies like Waymo and Cruise, I think they’re building this like they should, right? They’re building it the way they are because they have some unique strengths. They have lots of capital, and in Cruise’s case, they have a car company standing behind them. Those are very powerful assets. The question then becomes, for a company like Voyage that doesn’t have those unique assets of a Google search engine or a car company, how should you go and do it? Embracing the fact that we cannot and should not solve every problem and that we also can’t solve every technical or customer problem. Robotaxis should be a consumer product and not necessarily a kind of science project. Intentionally from day one, we’ve also tried to limit the set of customer problems we solve. We’re focused today on senior citizens because they have these tremendous transportation pain points. Instead of going very broad and saying, we’re going to replace Uber for everyone, where there’s such a diversity of different challenges. If you raise a bundle of money to go and invest across as many different areas as you can, that’s difficult. It’s quite hard to put money to work in many different ways. If you hire people and if you have an excess of capital, and you go hire more people, they come up with more things to build internally.

A revolutionary idea for autonomy: Make money and be a great business

Garry: This business is not different than any other business, which is if you can make more money than you spend in a month or quarter or a year, suddenly your default alive is actually profitable. We’re not there yet, obviously, but it’s a pretty wild concept for some of these technology companies. But it’s absolutely something that is a part of your plan.

Oliver: 100%. And we do this a few ways. Although we do partner on the peripheral elements of the industry–again, mapping, simulation, sensors, the vehicle, we partner with Fiat Chrysler for example, on the underlying vehicle platform. We decided from day one to build the self-driving technology and to build three technologies [mentioned above]: Commander, Shield and Teleassist.

You can think of Commander as the brain of our robotaxi. Shield’s a reliable backup system, and Teleassist is our solution for edge cases allowing a human to aid the vehicle in certain contexts. And we built those technologies all in-house because:

1. We have the talent to go do so. It was in our DNA and that has been very valuable
2. We want to actually deliver a product that is cost competitive. Ultimately, this is a people moving business, right? And we want to be cost competitive with the primary modes of transportation, which obviously looks like driving a car.

What was really interesting about seniors–and I’d be the first to admit that this was not a part of the master plan–is that not only do they have tremendous pain points when it comes to transportation, but they also pay significantly more to drive and own their own vehicles. A senior pays about 80% more per mile to drive their own vehicle. And that, for us, is pretty magical because instead of competing with the very optimized cost of owning a typical car, a senior pays a lot more. We can undercut that cost far quicker than the others can undercut the cost of normal car ownership. We hope and think that will be this kind of product market fit moment for us. Not only do we solve the driving challenge, but we also solve the cost challenge of owning a car.

Garry: I think that’s one of my favorite things about Voyage . . . You’ve approached this from an extreme engineering standpoint, which is “what are our constraints? How do we optimize against those constraints?” Autonomous cars — there was this idea that eventually there would be level five over any road no matter what, regardless of whether the car has seen it or not. And certainly while I believe that will still eventually happen, you’ve picked a use case that is much more constrained, way more realistic and actually viable right now.

Oliver: The founding DNA is that we didn’t believe we could add much to level five and the kind of science project discussion. We just didn’t feel that we were uniquely suited to add to that discussion. But we were uniquely suited to deliver a product in the short-term that could be very, very valuable to a certain customer and to drive revenue from that product. And then take that revenue and all the momentum we built and expand, expand, expand until one day our company doesn’t look much different than a Waymo or a Cruise. But our beginning just has to be dramatically different than those folks because of all the dynamics we’ve talked about.

Garry: And I think that’s how you ended up making one of the defining autonomous car companies a little bit more like Ford and a little bit less like NASA.

That is a great analogy. Ford started very humbly in a literal garage building, what today is one of the most capital intensive businesses and there wasn’t billions of dollars invested in Henry Ford from day one, right? It was very humble. Again, the NASA approach, if you’ve got the capital then yeah, it’s a worthy attempt right? It’s something that is where certain companies are uniquely suited to doing so. But for us, we’re far closer to Ford than we are to the Apollo missions.

What did Oliver wish he knew when he first entered tech?

Garry: Oliver this is fantastic. You’ve started multiple companies, taught hundreds of thousands of people how to start their own autonomous driving sort of programs [where you were before]. You’ve become a stalwart in tech today. What are some lessons you wish you knew when you started that you could you impart to the next generation?

Oliver: You’re too kind, but lots of lessons learned, very hard lessons. I remember my very first pitch. In fact, I saw this on one of your videos, Garry, about the pitching Benchmark. My very first pitch was with Roelof Botha from Sequoia back in 2011 and legendary. I think Alfred Lin was in the room as well. I didn’t have a deck, I didn’t know what to do. And it was just a total bomb of a pitch. It was embarrassing, frankly.

Ever since, I’ve been very lucky to learn from a bunch of great people in Silicon Valley about how this should be done. My favorite quote is from one of our board members at Voyage, a gentleman called Sven Strohband. He’s a general partner at Khosla Ventures. Sven basically said, “sometimes you need to survive long enough to be successful because I think all too often everyone’s looking to be instantly successful as if that just magically happens.” There’s a lot of talk in Silicon Valley about overnight successes that in fact take 10 years, right? And it’s absolutely true. And sometimes it’s just about perseverance.

The best companies go through points where I’m sure their founders thought they would die the next day. You just got to keep going and chugging along and surviving. Revenue helps with that, profit helps with that. And the mentality helps with that as well. The best tactical advice I ever got was that you need to answer the question succinctly. You know all too often in fundraising there’s this feeling that you have to prove yourself and you’ve got this chip on your shoulder. And then someone asks you a question and you want to look like the smartest person in the room, right? Like, you know something they don’t. When in reality, put yourself in a VC shoes . . . you’re going through meeting after meeting after meeting and you’re just legitimately asking a question, right? You just want to know the answer. Much of the time in my early time fundraising, just after time in Y Combinator back in 2011, I wasn’t answering the question. Or if I was, it was at the very end of the pitch or the end ramble. You just have to be very to the point on the answer. And if people want more detail, they’ll ask for it.

Garry: Yeah, everything I ever needed to know in tech, I learned in high school newspaper. The inverted pyramid answer is actually extremely useful.

Well, thank you for walking us through this world-changing tech that you’ve built over the past four years. It’s a testament to the team. What you’ve been able to build is something that many other people spent [millions more to do]. I love that because it shows to me that necessity is the mother of invention. Constraints are really one of the big gifts when it comes to creating anything. You’ve done so much with what you have and that bodes very well for the future of Voyage.

Oliver: Fingers crossed, I think it will. And it’s down to the tremendous team we have of nearly 70 folks in Palo Alto, California–coming in every single day and working for our customers and working to build a better way for those folks to move.

Garry: If people want to find out more about Voyage, where can they go? And you are also hiring.

Oliver: The best way to learn more about Voyage is to head to voyage.auto. You’ll learn all about what we’re building, our customers, our technology, and of course, yes, we’re hiring. You can see all those open roles and we’d love to talk to you. We don’t put emphasis on degrees and having established backgrounds. We’re very open to folks who are trying to get into this industry in a different way, so please apply. Lastly, I am a relatively prolific tweeter. It’s a little boring, but come check it out, @OliverCameron, and we’ll see you there.

Garry: It’s one of the best resources for anyone who’s interested in computer vision autonomous vehicles. So thank you for tweeting and thank you for appearing here.

Oliver: Thank you for having me, it’s been fun.

To watch this interview, head here.

The future of practical robotaxis is here was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Picture this… it’s 2010, and me and my co-founder are pitching on Sand Hill Road. We’re sitting in the offices of Andreessen Horowitz, pitching Marc Andreessen and Ben Horowitz.

We thought it was going fun, just like the others. Ben turns to us and asks, “Who’s the CEO?” I looked at my co-founder Sachin, he looked at me, we said both. Guess what? It was the wrong answer. The meeting might as well have ended at that moment.

You’re Not Google

The most legendary duo that can and did pull off saying “both” to the co-CEO question is Larry Page and Sergei Brin, the founders of Google. You could say that we thought we could be just like that dynamic duo. What was good enough for Google surely could be good enough for us, right?

Whoa, Whoa, no. Look, we had a good hockey stick graph. We had software we had built that we were proud of. But most people are not Google at their series A. I know we weren’t. Ben Horowitz actually wrote a long form article about this in 2013. He said:

“Shared command always seems really attractive to the people at the top of the organization, like the CEO and the board. ‘We have two world-class people. This gives us the best of both worlds. We shouldn’t get caught up in the conventions of years past. We’re all adults, we can get along.’ It looks much less attractive to those who do all the work in the organization. To them it looks like frustration, chaos, and delay.”

That’s the real reason why co-CEO doesn’t work. It’s bad for founders and bad for everyone else.

Everything takes longer. So you have a hard decision to make. You have two co-CEOs. You have to wait for the co-CEOs to agree. That makes every decision you have to make much longer. It becomes life or death at that point. You slow down so much, that your startup will die.

Back to sitting in that Andreessen Horowitz conference room. It was 2010. How did I find myself in this position? We didn’t know who the CEO was yet, and yet we were here talking to venture capitalists about raising millions of dollars.

Discuss and Decide

I didn’t think being CEO mattered. And later I discussed it with my co-founder after our series A and he became the CEO. And if I’m being honest with you, I regret that. You may not be interested in authority, but authority is interested in you.

When you’re talking about who’s CEO or trying to divide the pie, there are moments when you and your co-founders are aligned, and there are moments when you aren’t. Moments where you have to divide the pie are the latter. And the best you can do is make sure that you self-advocate. Try to think through what you need.

I’m absolutely glad I worked on Posterous and I’m glad I did it with my co-founder at that time. But, it took me too long in my career to realize that I needed to be CEO. And I needed to be CEO for the same reason I wanted to be a founder. If it was broken, I needed to be able to fix it.

If things are broken, are you okay with someone else being in charge of fixing it? If you’re going to be incredibly frustrated that you don’t have the authority and can’t fix it, then maybe you do need to be CEO. And that’s the thing I wish I could have told myself at that moment.

I didn’t know myself well enough. And it took 20 years of my career to realize it. Don’t make my mistake here. It doesn’t have to be an ego thing. It’s just something that you need in your life. It’s okay to need that. It’s okay to need agency. And that was one of the big things I made a mistake on.

Your (un)Comfort(able) Zone

I actually really wanted to keep coding. I had to decide whether I wanted to be CEO or if I could keep designing and writing code and shipping product. Writing code and shipping product, those felt really good to me. In the moment, I chose sticking with the things that made me feel good.

One of the things that did give me pause that you should consider if you’re thinking about becoming CEO is that it’s very different from being an individual contributor or director manager of a particular part of the product.

It becomes extremely important, right after product market fit. Early on, it’s all hands on deck, get a product or service off the ground. Later there are a few things that only the CEO can do. And you’ve got to ask yourself, are you willing to drop everything else just to do this?

Can you convince people to follow you? Can you hire, can you manage, can you fundraise and manage investors? Can you drive the vision of the company? Most importantly, can you be the magic that brings all of those things together, to build a great product or service?

Being CEO is a very specific skillset. And unless you are signing up to do those things, and do them to the best of your ability, don’t. Being CEO is not for everyone. But if you want to be CEO, those are the things you need to do. The other jobs are incredibly important, too, but this role is a singular one.

In Closing

Every situation is very different. For some of you, you may never want to be CEO, and that’s fine. For others, you may love doing another thing, but you may need to become CEO to steer the ship. And others still, you knew the day you quit your job that you absolutely have to get that authority. Only you can decide for yourself.

Don’t make my mistakes, don’t delude yourself about whether or not you should be CEO. If you know, you know. Then, it’s on you to acquire the skills, and manifest it. I know you can do it.

Thanks for reading! To watch my full episodes that go into detail about these ideas — and more — head over to my YouTube channel.

Should you be the CEO? was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Drip Capital started as two people with an idea in 2015. Today, they have over 138 employees, have raised more than $45M, and will do more than $1 billion in trade volume since inception by the end of 2020. They have over 2,000 importers and exporters on the platform and have built an enduring fintech startup. They’re on track to be as impactful as the World Bank in terms of helping businesses worldwide get access to credit. They had to search the space to find one that could grow quickly with high LTV and low CAC. But now that they are here, they’re ready to scale their underwriting models to every cross border trading route in the world.

What is Drip Capital?

Garry: Thank you so much for hanging out with me today, it’s always a real pleasure to sit down with founders that we’ve worked with for (laughs) a really long time. So tell us about what is Drip, and how did you get started?

Neil: Drip is a cross border trade finance company. We finance trade between exporters and importers in different countries. We focus on small and midsize businesses in emerging markets that typically don’t have access to working capital. I think back across the journey and, you know, Garry you were obviously our group partner at Y Combinator. I think that one of the most memorable moments you know, kind of early on was when we got the call from you at YC telling us that we’d gotten in. That was very special for us because as first time entrepreneurs, both my co-founder Pushkar and I. It was really kind of the first time that someone had decided to back us, and subsequently we ended up raising almost $50 million from Wing VC and Accel and Sequoia. And that was really important for us to build our company, that first bet on us was one that was really memorable.

Garry: It’s always really really fun to actually be the first money. I remember you guys came with a really simple idea that really resonated with me, that really just fit what we were seeing broadly in the marketplace, which is, there’s so much money all seeking yield. The classic ways to get that yield were still using big books, tables and simple actuarial tables, or things that you had to do maybe 20 or 50 years ago before the advent of modern computing. You guys had the background coming from finance, seeing that sort of firsthand.

How did Drip get started?

Garry: Can you walk me through like what actually drove the two of you to work together? And how did you decide on this particular idea? Because the interesting and unusual thing actually is, you’ve been working on basically the same idea this whole time, and then you found trade finance as the go-to-market later.

Neil: Yes, so just to think back across our journey, my background was both on the CS side and also on the finance side. So I started off after Stanford being an engineer, software engineer at BlackRock, actually building analytics for investing. And I went on to invest on their behalf as a fixed income investor. And one of the biggest challenges we had, and this was back as over 10 years ago, was just getting access to some sort of yield. My co-founder Pushkar and I met during our MBA at Wharton and we sort of went about getting jobs after that. And we sort of kept collaborating around different ideas. One of the challenges that family had growing up, actually I grew up in Hong Kong was that my father in the 80s and 90s, he set up an export business or he manufactured leather jackets and other apparel in China, and sold them to the US, to European retailers. And one of the big challenges was getting enough capital, working capital to grow.

And that’s how you could even find out that this was a problem, right?

Yeah, and it’s been a problem. I mean, for 30 years, as far as I remember, and it still is very much a problem. I mean, things haven’t changed a lot. What we did was we said, well, let’s start looking at customers in the US, and this was the first iteration of the idea. And we said, well, if you’re a small business and you get that first big break from a large retailer, like a Whole Foods or a Walmart or a Target, you’ve got first big order. Well, then you need the money to your raw material, to produce the goods, to ship them and then wait to get paid. It was the first time, so we had read and were told that it’s really important to talk to a lot of prospective customers, ideally in person and, you know, for the B to B companies there’s of course no storefront. And so we found them at trade shows. and so we walked kind of booth by booth to some of these large cross, a lot of these trade shows like the textile trade show, Magic in Vegas and the food, Fancy Food Show in San Francisco. I think we met about 3000 businesses in-person, and we even got kicked out of some of the trade shows, ’cause we have to pretend we were buyers when we were actually soliciting, some awkwardness there.

You just got to hustle sometimes, you know, when you’re trying to get your first customers you might get thrown out of a few trade shows (laughs) I guess, that’s actually a normal experience. There’s nothing quite like meeting your potential customers very, very directly, no one said it was going to be easy, I guess.

We had to really the smallest businesses at the trade shows because it was important, we could talk to the decision maker. So often one person or two person business, like those are the ones that we could get ahold of. Some people got frustrated and they would tell the folks that were organizing the show, and then things got a little awkward. After all that, interestingly, we only signed up five really tiny businesses, small customers, people talk about this today in 2020 but even back in 2015, when we were doing this, this was just way too much money and way too much liquidity, being thrown at businesses, and then there was way too much competition.

And Peter Thiel talks about this a lot. Competition is great for the consumer, but it’s terrible for the business owner.

The interesting thing though is we had at an insight through this first phase, and that was that most of these businesses needed the money to pay their overseas suppliers, their overseas exporters, either to procure them raw material, or because all of their manufacturing was happening overseas and they would just get the finished goods. And so that was a very important insight, because then we didn’t pivot the concept. We pivoted the go to market really, and focused on India, US trade corridor, that’s Indian exporters selling to US buyers or US importers, so my co founder moved back to India where his parents live and started to target some of these exporters, Indian exporters. And interestingly, kind of the first interest we got and the next porters we could serve were suppliers of Indian grocery stores based in the US, that was a pretty narrow niche, I mean, you’re talking about 30 or $40 million of annual trade, but it worked well for us because we could talk to suppliers and the buyers, many of the grocery stores were local here in the Bay Area, and the invoices weren’t too big. They were pretty small, so we had enough money to finance, to finance the trade.

Lending is changing fundamentally: Software eating money

That’s kind of the key thing about lending businesses period, is avoiding fraud means just being able to do your diligence, being able to match what’s going what people say is going on to what is actually going on. And I think that was a really interesting insight, really started off with, that there’s all this data that you can now track, that you can now programmatically have access to, like that used to be totally unstructured, that now you have access to in a purely structured fashion that you can pull from APIs or government reports or accounting statements that were unstructured and now structured. Like they used to be literally paper and pencil or fax, and now they are to a T, properly digitized and in a schema that is actually accessible to software. How could lending not change literally?

No, it was quite an aha moment for us, because what we learned as we were going through this process, and we started to figure out, as you said, like, how do you manage risk? I mean that is sort of priority number one for lending model, and if you can figure out how to manage risk and do it at scale, then the market is massive. We found interestingly with cross border trade, government customs wanted to track what was going out of the country at a very granular level. Central governments wanted to know what money was coming into the country, because they wanted to attract money laundering, digital footprint that we discovered that had really come up over the last, over the prior three to four years, really from 2011 to 2015, where all of this data had been digitized. So that was sort of a huge, aha moment for us when we felt that we were onto something really interesting. And then the second piece on the risk management, we thought, well, we’re sending money to these emerging markets, India, Mexico, and now other countries as well. What if we can also intermediate the payment flow and have the importer or the buyer in the US or the UK and the developed market pay us directly? We can also, we know we’re subject to the US credit or the European credit and the European or the US legal system, and really get the best of both worlds, provide money where it’s needed into the emerging market but get paid back by the developed market buyer. And so that was kind of like the second aha moment we had. And that’s when we thought that we were really onto something.

It’s a really interesting moment to realize, oh, most of the world’s trade still basically happens on like net 30 or net 60 terms. And what that is is actually businesses basically giving credit to other businesses on balance sheet. Why is that still happening when interest rates in real terms when you borrow it from the government is basically nothing or in some parts of Europe negative?

That’s right, I mean we have $18 trillion of trade that happens every year across border trade. I mean, it’s all, most of that, the vast majority of that is financed on the balance sheet of either the buyer or the supplier.

And these medium sized businesses actually have some decent scale, but and the banks should lend to them, but those banks are mainly focused on compliance perhaps or, and definitely not innovation. So (laughs) they just don’t do it, and as a result, these businesses don’t have access to capital. And that actually is a real constraint on the global economy, and certainly for manufacturers, like, I love that not only do you give them credit but it’s actually working capital that is non-dilutive to them that lets them grow their businesses significantly, which is this crazy win-win. Like my favorite thing about investing is finding founders like you who go out and find these places where no one else is operating and then you just unlock, it’s like win-win. This is like net win, everyone gets something from, you have investors who want yield, and this is very, very pure, low risk yield. And then on the flip side, like these businesses are actually what, doubling tripling their businesses sometimes because you exist

Interesting point, so around the bank side, when we looked just at the Indian market, it exports $300 billion a year and half of that, interestingly, half of that, 150 billion comes from SMBs, which is surprising, it surprised us. Similar trend across many emerging markets, but the banks, so 95% of bank of the bank volume or the bank loan books in India go to large companies, only 5% go to SMBs. This divide, where it’s just not a level playing field, small and midsize customers. And the reason is, these banks are used to focusing on large customers, they’re old school. I mean, it took us two months to open a bank account both in India, just a bank, a checking account in India, and in Mexico, you know, these banks have to travel to the business, they have to look at their ledger, they have to assess the value of their property and their land. We realized that we had to build a highly, like automated lending operation. We also realized that there was an opportunity and also a challenge to build sort of the first cross border underwriting model for small SMB trade. And so we sort of set out in 2016, build that first dataset by lending. And the mission we set out on was really that, you know, we want it to be able to raise capital in places where it is abundant in the US and in the Europe where there’s a lot of liquidity, and really funneled that capital to really strong businesses in emerging markets where capital is the largest constraint to their growth.

It sounds like it’s going really, really well. Like from starting out years ago, now it’s on track for a billion dollars this year, is that right?

Yeah, that’s right. It’s from just a about three and a half years ago when we started off financing that at first invoice. We financed a hundred million dollars to date, we’ll be at a billion dollars by the end of the year. We’ve worked with over 2000 exporters and importers, 50 different trade routes, seller, buyer country combinations, 30 product categories. We sell in 10 different languages. We have offices now in India, Palo Alto and in Mexico City as well.

It’s possible for a small startup to have a big impact just by applying first principles: Using data big banks can’t or won’t

I mean, this is the thing that we saw at Y Combinator all of the time, right? It’s the incumbents should be doing this, but the reality is, the incumbents actually can’t hire product and engineering people like you and the people on your team.

Perhaps I would say that, when we think our of ourselves as like a full stack lender, there are sales, marketing and onboarding, and that has to happen in the local geography in the local language, then you need to build the automated risk management piece. that’s building out that model and it takes years to build it out. And to have data that you have to build out a track record where you feel that you can with statistical significance actually manage trade, manage the risk around trade. And then the third piece is the capital syndication where we automatically syndicated those receivables to about 60 different investors. And so there’s these three pieces that are built across tutographies or multiple geographies with automation, and it’s just, I think it was important for us to really kind of build this from the ground up.

I think it’s really interesting to see how India was sort of the first market. And then now all of the lessons that you learned building that successful operation and showing low loss rate and yield, it’s actually totally transferable to another geography and potentially every possible geography in the world.

Yeah, this was an interesting insight that we had. I mean, as we built the risk model, now we’ve had about a half a billion dollars of repayments, you know, losses have remained in the low basis points. And I think we’ve been tested, I think we’ve seen during COVID, probably the biggest most impactful recession to small businesses in the last hundred years. And our performance has held up, it really hasn’t changed much. And so when we think about expansion and now that we have sort of this tried and tried risk model. Another thing that we learned through this process and that is that, really trade, cross border trade, whether you are an Indian selling chairs to the UK or you’re a Mexican export or selling to the US. The way trade works, the processes, the documentation, the communication is very very standardized. And so what we did when we expanded to our second country, Mexico, is we really built sort of a very extended extensible model where we’re add new regions with new languages without minimal changes to our platform. And so now really the plan is really to go global, to scale across many more countries and country combinations across Asia and Latin America, as well as going much deeper into the countries that we’re already in.

Do you ever sit there and look at what you’re doing, and you’re just like, wow! This is, in the end, Drip Capital may well have way more of an impact than a lot of the banking, most famous banks in the world, like may not have as much of an impact for global trade as what you end up doing, which is kind of massively crazy to think about.

Yeah, that’d be really cool. I mean, that is our hope and there’s lot of room for us to grow, but I think we have sort of the foundation now in place.

Was it surprising, along the way over the years, done a lot of office hours, and I’ve just been always amazed at your story because at every turn, it always felt like there was sort of a surprise. It’s like, it’s kind of surprising, but we found out that banks don’t actually use this data, and it’s just been sitting there, or, oh we found out that the kind of financing in the United States that people take for granted for small and medium sized businesses, just totally unavailable for actually billions of dollars worth of transactions just lying in plain sight, you just had to sort of connect the dots. That’s been one of the more interesting things from all the years of working with you.

What advice does Neil have for founders just starting out? Progress is incremental

And some of the advice I try to give first time entrepreneurs is that progress is incremental, and you sort of don’t know what’s next around the corner. And as a result, you really just can’t have everything mapped out on day one, take one step at a time, it’s like a kid building a house with blocks. I mean, you have to put one block in place at a time and build a foundation and slowly built from there. And, you know, for us, it was very incremental. I mean, first there was the idea, then the pivot on the go to market, based on the insight we had, when he got a few early customers, we actually tried to raise debt funding and debt investors didn’t want to invest in us because we didn’t have a track record and we didn’t have any money at all, and so that’s when we pivoted and raised equity funding.

Everything is very incremental. So after that we raised the initial debt, and then as we got beyond, you know, 30 to 40 customers, and I didn’t talk about the scaling part, we kind of skipped over it, But then we had to build very robust systems and processes to scale the business, because if we didn’t do that at the right time, we could lose our share. And we had to show investors that we’d put compliance and certain risk mitigation and AML and all of these other things earlier in our journey than, you know, typically a lot of startups would have in place. And so it was really sort of this incremental step by step, sometimes taking a couple of steps back and forward, and I think the one thing that I realized is that for us it was really about focusing on that one thing, that next step that could move our business forward, and then focusing on how we could figure out the blockers that were there. The bottlenecks figured that out then it was kind of onto the next step and the next, and figuring out how we could get around the next bottleneck. And so

Yep, on to the next.

It’s been very incremental over these years.

Yeah, it’s always something. That’s the, have you had any epiphanies about sort of each year of the journey? It does feel like the second you get good at something you have to hand it off and then figure out the next thing that might kill you.

Yeah. That that’s right. It sort of works like that. And once you figure that out, you want to pass it on to someone who can take that responsibility on and take it out to the next level and then work on the next bottleneck. That’s right. And so it started off with product market fit, now it’s organization building, and it evolves.

Building the org is always the toughest challenge. There’s always sort of that the first step is catching lightning in a bottle, which you actually caught, I think the moment you discovered this unmet need in India, and then since then it’s, the only thing harder than catching lightening in a bottle from my experience is holding onto it. You’ve been riding the lightning for a good number of years. The crazy thing is in terms of the need, it does feel nearly limitless. I mean, you’re just talking about literally the limit is how much global trade happens, period.

That’s right.

This has been really awesome. In terms of things you wish you knew, progress is definitely incremental and a lot more incremental than I think most founders are willing to admit or realize, really. What you want is an an epiphany moment where suddenly everything happens. The actual reality is the 10 year overnight success of getting punched in the face every single day for a while, even continuously. And it’s just different things. Once you overcome something, there’s another thing, there’s another boss around the corner.

No, that’s right.

On taking startup advice

I think when we read the media, it looks like a success in a snapshot, and there’s a long time before that and a lot of things that happen and are happening. It is a journey. I think the other piece of advice that I felt it would have been good if someone had told me early on was really in the beginning, figuring out whose advice to not take to heart. And that’s really hard.

There’s so much advice. in the beginning because my network was folks that I had worked with in large companies and VCs I was pitching. And folks at large companies would say, “Hey, well, one of you two needs to know how to do digital marketing, ’cause like, isn’t that how you’re going to acquire customers? And it was sort of like, “Well, later, but we can learn the basics of that.” And I remember a VC said, well, you guys need a data scientist on your team. You know, we were thinking, well, there’s no data right now to analyze. And so sometimes really taking advice from the right folks and not the wrong folks is I think important as well.

That makes sense. And equals one over extrapolated advice is often wrong in the end. I actually think like from my time at Y Combinator, it was always super interesting to see, like when I was an alum, when I was going through the program and doing office hours with Paul Graham, I think that was a very interesting experience because most people give advice that is sort of near a means. People tend not to give terrible advice, but they also tend not to give advice that is particularly two standard deviations helpful, more helpful than other people. I don’t know, I’ll be embarrassed if PG ever watches this. But PG is very interesting because he will give things that are a little bit “never do that.” then he will also give advice that is “blow your mind, how useful and valuable it is.” And the interesting thing was we would see, and I remember this is 2008, so YC was still very new, we would see teams that had total hero worship of Paul Graham and just do everything that he said, and those companies would always fail. The companies that did well could actually have those discussions, like absorb what was being said, and then all the awesome stuff, they would do that, and the things that were like, “Hmm, maybe that would blow us up”, they just wouldn’t do it at all. There is a discernment. What’s funny is if you’re going to take advice, it’s probably better to get people who are going to give you the extreme advice that could possibly really change your business, also have the discernment of a founder to be able to make up your own mind, and then that way you get all of the benefits and none of the downsides.

Yeah, I think having the conviction to go with one thing and not another is also challenging in the beginning, to have that conviction. And I think it starts to come, that self assurance with time.

It’s been really cool to see you get product market fit and continue to take down one of the world’s largest markets, really, I mean, literally the world market.

Drip Capital is hiring, and you can get yield on your savings, too

I guess in terms of what you’re looking for, like, you’re obviously scaling your team and hiring, where can people find you and what kind of people are you looking for right now?

I think really, sort of, for us it’s three sets of people. I think one is on the customer side, just continuing to gauge with lots and lots of small businesses, partners, larger enterprise partners that work with lots of small businesses. We see a huge opportunity to provide our product through brands and enterprises to small businesses as a channel. The second thing aside from hiring I think is on the debt side, I think what we have developed now is a really attractive, short term liquidity product. We can provide yields of 5, 6, 7, 8% for three months through six month paper. And when you look across the board at banks that are providing basically 0%, to money market funds that are 30 to 50 basis points, and so forth, I think there are very few assets that can provide investors with that sort of yield, and I think the best way to find us is on our…

So they can go to dripcapital.com and do that?

Yes.

As an investor, actually. If you’re looking for yield, it’s actually a really good place as well than, yeah, it’s basically 0% in your savings account right now, and people are dumping it in the overheated stock market, whereas that is one of the most fascinating ways that I think people are probably underexposed to, especially younger people.

I think so, and when you see the volatility of the stock market, it can unnerve people, and I think getting sort of this high yield alternative to a bank checking account is, we’ve seen a lot of interest in the product, particularly over the last few months since COVID has hit.

That’s awesome. Neil, thank you so much for hanging out, man. I always enjoy hanging with you and I feel like I learned so much about how the world actually, the global financial markets end up working. You’re on the ground meeting the people, helping their businesses grow through access to capital, And that’s really, really powerful.

Thanks, Garry. Yeah, thanks for backing us and investing in us back five or six, five years ago when we were just two people. We’re really excited to keep moving forward.

Hey man, just remember me when you ring the bell and when you go IPO, okay. That’s all I ask, a small ask.

We’ll try.

Check out dripcapital.com, great place to put money and get a really amazing yield, and then also an amazing place to work, if you’re a software engineer, designer, product person, I mean, they’re really making something that people really want.

How Drip Capital Went from Zero to $1B was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Picture this… we were raising our Series A for my startup Posterous. My co-founders and I were at Benchmark Capital on Sand Hill Road, meeting with Peter Fenton, legendary investor in Twitter and Yelp. We think it’s going fine until Peter asks this question. So, are you a platform or a network? The three of us looked at each other and we said both. And the meeting might as well have ended at that moment, in Peter’s mind at least.

Sometimes the worst thing you can do as a founder is say “both”.

The Periodic Table

Investors are interesting because they get to see so many different things all the time. At Initialized, I feel like we learned new things that are basically secrets about how the world works and it’s the founders that teach us by telling us what they’re excited about and what they’re focusing their entire life’s work on.

Each startup is a vector. It’s a direction with a certain momentum, and once you see enough vectors, you kind of see the matrix. At least done right, that’s how it is.

I was always kind of skeptical of this, but one thing was clear after working with 1000s of companies at Y Combinator. Paul Graham used to talk about this a lot…

Every future great startup, something like an Airbnb or an Instacart, is like a new element on the Periodic Table. If you’re an engineer, designer or product person overall, you’re like the physicist. You understand how the atom works. So you of all people in society have the clearest idea as to what the next spot on the Periodic Table will be.

Platform vs Network

So that’s why Peter’s question, “Are you a platform or a network?”, was so important for us to nail. It was THE question to answer at that moment in 2010. All of the companies in social media from that time were either a network or a platform.

Twitter was clearly a network. It was free and the value came out of the network being as large as possible. The users themselves were the product. Once you own the network, then you can charge rent through ads.

In contrast, a platform looks more like Squarespace Inc. or our friends at Weebly. The customers paid for it, the value was a direct transfer from the company to the customer. As software builders, you are working for your customer and because you charge, you have money to go and acquire new users. As long as long-term value is higher than customer acquisition cost, you have a viable business. If your long-term value is way above your customer acquisition cost, well, that’s a money machine.

“BOTH” is Wrong — You Have to Choose

Why didn’t we get this right? It’s a simple question, but what I realize now is that when we are asked that question, we didn’t understand the question to begin with.

Investors have seen a lot of startups so they’re trying to ask you questions based on their lived experience. Often, it’s because they’ve already lost money on something similar. So, when you hear a question you don’t understand in a pitch meeting, you should stop and ask, what do you mean by that and why? It’s okay not to know the answer to things sometimes, especially when you’re quite early.

So What Happened?

Well, obviously Benchmark didn’t fund us. Peter Fenton remains one of the best investors out there and I learned a lot from him about what it means to be a good investor from that one pitch meeting.

Posterous did end up selling to Twitter for about $20 million as basically a talent acquisition. They ended up shutting down the platform. Meanwhile, our friends at Weebly kept charging their users. They became a world class platform and not a network and it’s still in operation today. Squarespace has become one of the most profitable platforms on the web.

What I realized is we actually had a chance at being a network. The network that ended up winning the mobile social media battle was Instagram. And when Instagram launched, Posterous was one of the checkmark destinations on the network’s post page. It was us, Twitter, Facebook, and Foursquare on that page.

Hindsight 2020

I realize now that the moment Instagram launched was the moment that Posterous stopped growing. There was a better alternative to posting by email.

When we couldn’t be a network, it was clear we needed to become a platform. We needed to choose to become a platform. Saying “both” was the wrong option.

I think that’s one of the bigger regrets I have in my life. Before we changed ideas, before we chose to pivot, we didn’t try to become a platform. We tried instead to become a private sharing network for families that could neither grow virally nor be a service that people paid for.

We were maybe 15 people at the time with a burn of under $200,000 a month. We had 20 million uniques and about 2 million active bloggers. Even if 5% converted to paid at $5 a month, that would’ve been more than $500,000 a month in revenue. We clearly could’ve been a platform and maybe we would’ve been a different company in the end.

So Are You a Platform or a Network?

The hard part is, this question may not be relevant to you at all, but when you’re pitching, pay attention to the questions investors ask. If you don’t understand something, don’t pretend that you know the answer.

The other thing I’ve learned the hard way–the answer is probably not both.

Good luck to you as founders and future founders. I hope you’ve learned this lesson from me so you don’t have to learn the hard way.

Thanks for reading! To watch my full episodes that go into detail about these ideas — and more — head over to my YouTube channel.

I Said the Wrong Thing and Killed My Investor Pitch was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

How long do you think it takes to win a championship? Did you know that it takes a pro-level basketball team an average of 4.5 years to maximize their odds of winning a championship? Today we’re talking about teams and how teams win championships together. But not just any team, very, very long lived teams.

Long-lived Teams Succeed

Humans stay in good relationships and they get out of bad ones. This is one of the most important things that you need to think about as a founder as you put together that team. Don’t just get whomever you can get. You actually have to build for the long haul. Team risk is a real thing. If people don’t know each other well or haven’t worked on things together, then you don’t actually know if that team is good at the fundamental things needed to do great work.

All great teams share these traits:

1. Positive and supportive communication.
2. Alignment of goals (meaning everyone wants the same things).
3. Quick resolution.
4. Strong support of one another and very little blame.
5. Group first.

Those five things together result in people putting the interests of the group way ahead of the individual, much like the Warriors did in 2017–2018. When you’re part of a team like that, it’s amazing, it’s really life-changing. And this is why Mark Suster talks a lot about investing in lines, not dots:

“When you start out, an investor sees you as a single reference point, there’s no prior observation, so there’s no way to tell what your trajectory is, but over time clearly you can see a line. You can see a trajectory on where teams are going.”

One of the first things we asked about teams of co-founders at Y Combinator was, “Have you know each other for a long time? Have you worked together before? What kind of projects have you worked on together?” If things go bad at a startup–and they always do–it’s important that founders have something other than just the startup keeping people together. Otherwise the first hiccup will almost always be the last.

The Best Litmus Test

Do you feel like you know your co-founder(s) the way you would on a really long backpacking trip? One where things go wrong… you might be stuck on a mountain, it’s raining, it’s cold. How are you going to treat each other in that moment? Because that’s what it’s going to feel like when your startup hits the skids. Are you going to blame each other? Are you going to get mad at each other? Are you going to break apart? Or are you going to look at the situation around you and say, “Well, here’s what we can do, and let’s split up the tasks like this, and let’s get to a better situation together.”

All you have is the people around you in that situation. That’s a really good example of what it’s going to feel like when you actually work on a startup together with those people. Can you get through fire together? That’s a really important question.

Charlie Munger says:

“The right culture, the highest and best culture, is a seamless web of deserved trust. Not much procedure, just totally reliable people correctly trusting one another.”

Now you might ask, “How do we get a culture of trust?” Well, the universe is one where like attracts like. The best way to find trustworthy people is to be trustworthy yourself. Ali Rowghani over at YC Continuity says this:

“Integrity means standing for something meaningful beyond oneself rather than being motivated by narrow personal interests. It means being able to admit when you have made a mistake, rather than acting like you are always right, and having the humility to receive critical feedback openly and work to improve. It means avoiding behavior like favoritism, conflicts of interest, inappropriate language, inappropriate work relationships, things like that that erode trust.”

Don’t Be a Sociopath

This is a tough trap for some managers and leaders frankly. I suspect you know the type of manager and leader I’m talking about (read: sociopath). There are some people you run across in your career who scrap, fight and claw their way to the top, however they can, sometimes without regard to the methods used. They might lie, cheat or play dirty to get ahead. They manage up and tend to funnel crap down. These people may get the max contract or manage to win a scoring title or two, but they rarely win championships. And that’s because in order to win championships, you’ve got to manage and cultivate teams for years and years. And in sharp contrast over long periods of time, if you are a giver instead of a taker, you’ll find you’ll succeed. Adam Grant summarizes this:

“If you’re willing to maintain high standards and you’re good at attracting people who are talented and also share your tendency toward giving, then those same people are going to come back, they’re going to work with you over and over. And over time, you’re going to get better and better at collaboration. And that should increase your odds of doing really great work over the course of a career.”

So if you’re a giver, know that there’s hope for you yet. In fact, it’s almost the only way you can win a championship.

Final Thought

I’ll leave you with this final quote from “Five Dysfunctions of a Team.”

If you could get all the people in an organization rowing in the same direction, you could dominate any industry in any market against any competition at any time.

This is the best news for any startup founder out there. The majority of organizations are not rowing in the same direction. They’re fighting each other, full of managers and would-be leaders who are trying to wage war against each other. There’s not the alignment needed to succeed. And often these things start at the top and are top-down. Earlier in my career, I would be surprised at how ineffective organizations were. Why were there so many people and yet so little good outcome working at a given place? But it became clear that that’s the average. People are not aligned, and you, yes, you can do better. And if you do, you can dominate any industry, any market against any competition at any time.

Thanks for reading! To watch my full episodes that go into detail about these ideas — and more — head over to my YouTube channel.

What do all successful billion dollar startups have in common? was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

There’s an episode in Star Trek: The Next Generation where Captain Jean-Luc Picard never makes it past Lieutenant junior grade— a low level astrophysics engineer. He was “thorough, dedicated . . . steady, reliable, punctual.” He had lofty goals, but never was willing to do what was necessary to attain them.

This is what can happen to you if you never take risks.

Today we’re going to talk about career risk for great software engineers, designers, and builders. Nothing ventured, nothing gained.

If you know how to code, if you know how to design, if you know how to make products that people use, you’re someone who can go anywhere in the world and work in any sector and find some way to create value. I think we are in the very early innings of this really crazy one-time shift. Software eating the world? It’s just getting started, really.

Real risk for builders: Not taking risk at all

I wish someone came along to me earlier and said, “Garry, because you can make any kind of software, you should really think about increasing the amount of risk you can take because the only risk for you is not taking risk at all.” It’s counterintuitive and fundamentally true.

If you want more risk, here are three ways to get it.

1. Intrapreneurship: It’s the most incremental way to get more risk in your career. Every business has three phases: the commandos, the army, and the police. Commandos, like startup founders or early employees, parachute in and establish a beachhead. Then the army comes in and secures it. And finally the police hold it down after the fact. If you’re at a big company, you’re probably police, but there are parts of that organization that probably have either new things to work on, new products or new frontiers. And those things might actually be the future of the business overall. You can always move from a police stage to an army stage. And if you’re lucky, there are parts of a company that you already work at that are tackling brand new problems. Maybe you can even go full commando.

2. Working at a startup. There are lots of ways to find startups to work at, but my favorite kind is to look into your own life and see what you find interesting. If you find a job that you actually really like, it’s like finding five extra days to every week. Software is becoming an absolutely key part of everything in the world. Almost anything that you could be interested in could be a startup that might need your skills. Do you like music? Find the best music startups making something that’s interesting or valuable. Camping, food, double entry accounting. There’s a startup for every interest, no matter how obscure or niche. Go out there, Google, find some things that are really interesting to you. And the good thing is, if you’re really into it, you’re probably one of the best people to evaluate whether that startup will work or not. If you are genuinely interested, a cold e-mail will work wonders.

3. Starting a startup. Now this is the hardest form of ratcheting up the risk cycle. And it’s not for everyone. This is like trying to run a marathon on your first try. Some people are naturals, but it helps to have been training for a while before you start your attempt. And this is the hardest type of risk that you could possibly take. You’ve got to start from scratch. You’re hiring the initial set of people to work on it. You’re raising money, you’re building a first version. None of these things are easy. When you do it right, you’ll find that taking more risk will result in a lot more reward. And I guess you could argue that’s how it should be.

How to decide between your different choices

All right, well, now that you’ve got choices, how do you decide? Well, here’s my framework. Every place you could possibly work gives you two different axes to think about: Learning and earning.

Learning:

Learning is very important. There are a bunch of kinds of things that are absolutely worth learning when taking on a position with more risk. For instance:

• Learning to build something from scratch. That was my experience working for Palantir.
• Shipping to lots of users. Or you might find a place that allows you to ship software to a lot of people. There’s nothing like seeing that software work for tens, if not hundreds of millions of people. That’s powerful.
• Making hard product decisions. There are some roles that are specifically geared towards this. These companies actually put those decisions in your hands. That’s really priceless.
• Getting users from scratch. Other places might require you to go out and get users for them from scratch. You might have to communicate with the outside world, press, social media, the users themselves. You’ll learn a ton.
• Building and managing a team. Now sooner or later, managing and scaling a team or organization is going to be valuable because the first part is always building something other people want. The second part is actually building the team that can take advantage of that product need and bring a solution to the masses. Once you catch lightning in a bottle, it takes a team to hold onto it.

Earning: How to understand your equity options

Next is earning, and this is purely monetary. I really recommend creating a spreadsheet, really with two columns. One is salary. The other is equity. Salary is pretty self-explanatory. The more salary, the less risk. Equity is actually quite a bit more complicated. But here are the three things that you need to get from every offer (and this allows you to compare offers, apples to apples).

First, you care about your percentage ownership. Now this might be the percentage ownership of a company from an option grant at the company you’re at right now, compared to a stock option grant that might come from an offer from a startup. Percentage ownership you can always calculate. If you have the number of shares that they’re going to give you, you can divide it by the number of shares that are outstanding.

Next, you need the valuation of that company at that round. It’s usually whatever the last fundraising round was.

And then finally, what’s the vesting schedule on it? Standard is one-year cliff with a four-year overall vest. If it’s four years, then that gives you really simple math to play with. Say, you have a 2% offer from a company worth $20 million. Well, that is $400,000 total. With a four-year vest, that’s $100,000 a year. Say you have another offer for 0.2% of the company from a company that’s worth $200 million. Well, that’s also $400,000 total. And with a four-year vest, that’s also $100,000 a year. Finally, say you have a third offer for 0.05% from a company worth $2 billion, which is actually $1 million total or $250,000 over a four-year vest. You can already see that these offers are not the same.

This is where risk tolerance really comes into play. There’s no one right answer. There are just the specifics and you’ll need to think through what each might mean for you. The first company might be so early that it’s maybe too likely to fail. And the second company, once it reaches Series B, may actually have a form of product-market fit. Strangely, for some companies, this is actually the best time to join. There’s still a 10x or 100x left in the company. Some people in the Valley actually make a career just jumping from fast-growing companies at this stage to the next. Now the third company is kind of interesting and on its face, it might actually look like a much bigger offer. You might also find that that company has raised more than a billion dollars, meaning that company actually has a preference stack of more than a billion. Unless the company exits for that much or more, you’re getting nothing. And these are things that you have to think through.

Learning versus Earning

For me, earlier in my career, I wish I spent a lot more time learning. Learning mode gives you the skills and network you need for that next phase. Earning mode is about how you get paid. And there’s not really one way to do it either. The best opportunities broadly let you do both. They let you learn and they let you earn.

Jeff Bezos’ Regret Minimization Framework

How do you actually make the choice? This is where I like Bezos’ regret minimization framework. And this is actually what he used to decide whether or not to leave his very cushy, perfect job at D.E. Shaw to start Amazon.

This is what Jeff Bezos says about regret minimization:

“I went to my boss and said to him, you know, I’m going to go do this crazy thing. And I’m going to start this company selling books online. So it really was a decision that I had to make for myself and the framework I found, which made the decision incredibly easy was what I called, which only a nerd would call, a regret minimization framework.

So I wanted to project myself forward to age 80. And so, okay, now I’m looking back on my life. I want to have minimized the number of regrets I have. And, you know, I knew that when I was 80, I was not going to regret having tried this. I was not going to regret having wanted, trying to participate in this thing called the internet that I thought was going to be a really big deal. I knew that if I failed, I wouldn’t regret that, but I knew the one thing I might regret is not ever having tried. And I knew that that would haunt me every day.

So when I thought about it that way, it was an incredibly easy decision. And I think that’s a very good — if you can project yourself out to age 80 and sort of think, what will I think at that time? It gets you away from some of the daily pieces of confusion. I left this Wall Street firm in the middle of the year. When you do that, you walk away from your annual bonus and that’s the kind of thing, then the short term can confuse you. But if you think about the long term, then you can really make good life decisions that you won’t regret later.”

Regret minimization? I use that technique all the time. How am I going to feel when I’m 80? Will I regret not taking the chance? Or will I regret more my opportunity costs?

This is a very personal decision and I can’t make that choice for you. You’ve got to make it for yourself.

If you can make any kind of software, if you’re a builder, if you’re a designer, if you’re an engineer, if you’re a product manager, who can make anything, the world is still your oyster.

So again, as far as I’m concerned, I’ve learned over and over that the only true risk that you can take, if you’re in that position, is not taking any risk at all.

Thanks for reading! To watch my full episodes that go into detail about these ideas — and more — head over to my YouTube channel.

Should you Quit and Join That Risky Tech Startup? was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Even Steve Jobs couldn’t contain his rage when his team failed— but you can choose to do better.

When I do a bad job, I feel shame. I feel worthless and it makes me feel worthy of only being abandoned. And if this is you, hey, you’re not alone.

And yet shame is a part of a functioning society. University of Texas, Austin, psychology researcher, Daniel Sznycer says, “The function of pain is to prevent us from damaging our own tissue. Likewise, the function of shame is to prevent us from damaging our social relationships or to motivate us to repair them.”

Today, let’s talk about shame and what place it has, if any, in building products and services that are awesome.

Steve Jobs and MobileMe’s Failure

In 2008, Steve Jobs had a moment of shame when MobileMe got released and it was a disaster. They were trying to launch iPhone 3G, a new version of iOS and the App Store, all alongside it, all simultaneously. After launch, MobileMe was widely panned, full of embarrassing bugs. Jobs gathered employees in an Apple auditorium and asked them, “Can anyone tell me what MobileMe is supposed to do?” And when his team started to answer, Job snapped, saying, “Why the F doesn’t it do that?” He spent the next hour berating the group, saying they had tarnished Apple’s reputation and that they should all hate each other for having let each other down. He then fired the head of the team and replaced him on the spot. Steve wasn’t happy at all. He clearly felt very deep shame and took it out on his team.

A MobileMe PM’s Response: It Was Steve’s Fault

Now, there was a response in 2013. Erin Caton was an engineering project manager on the MobileMe product and she wrote about it on Medium. She said that the line-level engineers had voiced concerns about the launch and they were overruled. This is what she wrote: “Regardless of whether no one in the inner sanctum of dudes that Steve listened to at the time told him all of the things we told our bosses, this was the system that Steve created. He made himself so fearful and so terrible that an entire group of amazing, talented, hardworking people ended up getting screamed at wrongfully. It was his fault that the MobileMe launch went so poorly, not ours.” That’s a really different story.

Lessons About Shame and Blame

So, what can we learn from this? Apple has never been the strongest when it comes to software and it still shows, but Steve’s response was clearly driven by shame. He felt deep shame that they had let their users down and he wanted this moment to be a lesson to his team. But based on Erin’s blog post, it was clear that this kind of thing was preventable. She identified the core issue. The top-down push for a spectacular launch was not linked to what was possible in reality, and the lines of communication were clearly broken.

There are really two fixes here.

1. Leaders need to be extremely careful about top-down communication. There was a wrong call at some point to do a single launch of MobileMe. If you’ve hired well, your organization is good enough and smart enough to know when goals cannot be met, so listen closely.
2. Deep shame must be acknowledged and then controlled. As an outsider to Apple, it’s hard to know for sure, but I’ve always speculated that the incredible focus on quality and experience came from that deep ownership mentality. Owners feel shame when things go wrong. But the thing is, it’s a mistake to engrave that shame on your team, shame that you can never shake. That’s the kind of thing that cuts you deep. You should never tell your team that that mistake was endemic to them, a native part of that human beings character. It just isn’t. Rather than channel that shame directly to your team, you’ve got to redirect it to process.

Instead of blaming the person you’ve got to say, “What went wrong and how do we fix it?” Let’s change the way we work together. Let’s change the way we talk to each other. And that’s how we fix this. That’s the only thing that could actually stop you from making the mistake in the first place.

“The function of shame is to prevent us from damaging our social relationships or to motivate us to repair them.”

That’s not to say shame in and of itself is bad. There’s actually some evidence that shame is a very key part of our evolved society. That’s the idea that researchers Daniel Sznycer, John Tooby and Leda Cosmides had in their research paper: “Shame closely tracks the threat of devaluation by others, even across cultures.”

One of their key findings is that the function of shame is to prevent us from damaging our social relationships or to motivate us to repair them.

In proto-civilization, it was important for people doing things, both good and bad, to know when they were either helping or hurting that community. The researchers have a theory that the shame system is actually designed to give others some vote in what behavior you end up choosing. And in this day of social media, there may well be some truth to it.

Shame is an important simulator for us to model what we think other people need and want.

And that’s why the feeling of shame is so important for good builders. Don’t get rid of it. Don’t hide it. Don’t ignore it, pay attention to it.

When great builders and founders pay attention, the things they’ve created fall short of their mark and they notice it, it affects them. They take it seriously, and then they take action. It’s no mistake that the true North star of building is the classic mantra I learned from Paul Graham and Jessica Livingston: Make something people want.

Shame is just a part of what you’ll feel if you miss the mark and that’s okay.

Things go wrong. This is a fact of life. No matter what you try and do in life, you’re going to have your face punched in, and it doesn’t matter at some level whose fault it is. It does matter how it happened, though, and what changes you can put in place to prevent it from happening again in the future. This is something I struggle with deeply. Can we be more self-aware? Can we take ownership of our product? Accept the shame you feel, but then direct it in the right way.

“No matter what you try and do in life, you’re going to have your face punched in, and it doesn’t matter at some level whose fault it is.”

I still feel that shame all the time. When something goes wrong, I can spot it a mile away, but now I notice it, and in that moment, I can choose to either funnel that shame to others and have that be a part of their experience–leading to a culture of fear and blame–or I can make it a more enlightened choice. I can drive it to the question that really matters. What went wrong and how do we use process to prevent it from happening again? Always remember people, this is a choice. You’re going to get things wrong, you’re going to feel shame, but what you do with that shame is up to you. You’ve got this, we’ve all got this.

Watch me talk about shame on my YouTube channel here.

How founders must channel shame was originally published in Initialized Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.