# The 5 things that kill startups post seed rounds

**Author:** Michael Seibel
**Type:** Video
**URL:** https://www.ycombinator.com/library/8a-the-5-things-that-kill-startups-post-seed-rounds
**YouTube ID:** Dgmmje5WHWA

---

How problems finding product market fit, listening to investors, copying startups around you, slow product development,
and co-founder conflict kill startups.

## Transcript

My goal with this talk is pretty simple. Um, at YC we see a lot of companies who raise money on demo day as you can imagine. Um, but still the vast majority of them uh die and um about 70% of them do not um go on to find any form of product market fit. Um we've thought a lot about why this is

and how we can help change it. And so one of the things we try to do at YC is hint at um some of the reasons why even after raising that first million or two million um why companies die and I wanted to go over in the next 50 minutes some of the trends that we see are most common. So with that let's move to the first one. Um, I like to call this fake product market fit. Um,

it's extremely common for companies to say they have product market fit when they don't and they have nothing close to it. And I would argue this is one of the most common forms of death or uh I'll say one of the most common common symptoms of impending death um for postse um companies. So let's talk about the the causes. Why do founders believe they have product market fit when they don't? Number one, they raise money from

impressive people. They believe that um impressive people, famous seed funds, famous angels, maybe a series A fund, they believe that these people are great at choosing companies. And if these people chose their company, that means that they must have product market fit. They must be onto something. They must be building the right solution for the problem they're trying to solve. Um extremely common. Extremely common. Number two, um raising a series A pre-product market fit. Uh nowadays um

there are a significant number of companies that can raise5 to10 million when they don't actually have something yet that people love. And um what's interesting is when that happens more often than not instead of continuing to focus on users and product the founder will shift into focus on company building um which is typically a no no. Number three um something we call magical thinking. So, ignoring obvious facts in front of you that would give

you the evidence you don't have product market fit um or not even measuring them. So, for example, not understanding your churn, not understanding your payback period when you acquire a customer. Um if you don't know these numbers or you don't look at them, it's very easy to convince yourself you have product market fit when you don't. Um and then the the the the last one is is lack of strong technical talent. A lot of times people can convince themselves they have product market fit simply because they don't want to embrace the

idea that they might need better engineering. They might need to improve their product. Improving their product is too hard. So it's easier to just believe your product's good. And you know before I go too much further when we talk about product market fit um I think that unfortunately what you might think it means is different from what it actually means. I think what the common misconception is product market fe means conceptually we've built the product that our users want. Um in reality it's far more reflects um numbers. Um and so

what product typically feels like is your product is breaking um with profitable usage. So let's break this down. Your product is breaking. people are starting to come and use your product and word of mouth is spreading or your advertising channels are working and users are loving it so they're retaining and as a result parts of your product that you didn't really build to scale are starting to not work anymore. Sometimes those are software components, sometimes those are operational and

human components um but something is like starting to break because you didn't build it for scale. That's the first part. The second part is profitable usage. Those users are actually the type of users you want and they are the type of economics that you want. So you're not paying $1,000 for a user who's only going to ever give you $100 or you don't have a three-year payback period or anything crazy like that. Um and so we got to make sure that we have both of those components to have

real product market fit. So um what are some of the signs that you have you have convinced yourself that you have fake product market fit? Um, lots of hiring, lots and lots of hiring. Um, typically we see founders who think they have product market fit. Magically their team goes from 4 to 12 before you know it. Um, number two, more business people than engineers. Um, you know, a big sign is, oh, it's time to scale a sales team. You know, the numbers aren't moving, so

let's scale the sales team. Um, number three, no metrics dashboards. No one's looking at numbers. Everyone's doing things by feel and by guess. Uh number four, too many nice things. Um this is harder in the time of COVID, but it was nice offices, nice trips, nice dinners. Suddenly you start spending money on nice things. Number five is flat graphs. Uh that's pretty simple. Um you know, number six is missing your estimates,

but coming up for reasons why that's okay. So, hey, we thought we'd do this in Q1. we thought we'd do this in July. We didn't hit it, but it's still okay. And then the last one, um, which is a really popular one, is changing your KPIs. Hey, we used to measure, um, we used to measure monthly revenue, but that number is flatlining. So now we measure monthly usage. Um, if you find yourself changing your KPIs, usually you have to ask yourself, what's going on here? Why? Why did we

get our our KPI wrong in the beginning or does that mean that we're actually not um progressing our business? Um preventative measures. So once you've diagnosed the problem of fake product market fit, how do you fix it? One, pick an honest KPI and stick with it. Almost always, especially for you know SAS businesses, almost always that KPI is revenue. Um and revenue of course has two components. Revenue from new users and revenue from retained users. Um the next preventative measure is track your retention carefully. If your product is

very good, it's unacceptable that your users are churning. Um number three is to do what we call cap your burn. If you are pre-product market fit, you should determine the amount of money you're willing to spend burn um excuse me every month and stick with it. And you should basically say until we have product market fit, we're not going to burn more than this amount of money per month. So if we want to spend more than this amount of money per month, we have to spend our revenue as

opposed to spending the money that we raised. Um that's a great way to prevent yourself from going to fake product market fit or fake company building. Um the next one is somewhat subtle. Consider raising less money in your seed round. Also helps you because you get less dilution. Um, if you have less money, it's a lot harder to do magical thinking and aggressive spending. Um, you have to be a lot more careful about your metrics and your numbers and it can prevent magical the the the fake pocket market

fit problem. Next is start with strong technical co-founders. The stronger your technical co-founders are in the beginning, the fewer engineers you'll hire have to hire. Um, the next is have a threemonth essential rule when hiring. So if the person you hire three months from now, you just put that put a calendar event on your calendar for three months from now. If you don't find them essential, by essential I mean if they told you they were quitting on that day, you wouldn't even want to open your email or go to work. You'd be so

distraught. If your early employees don't give you that feeling, you probably should let them go. Um the next is force revenue generating employees to pay for themselves. If you're bringing on an early salesperson, it's unacceptable that they're not paying for themselves. And then finally, to kind of break this idea that these impressive people you raise money from mean that your company is good, learn about all the bad investments that your investors investors have made. Learn how many of their investments didn't end up working out so you understand that like maybe

your fate would be similar. All right, next one. Um, the next big issue I see is turning your investor into your boss and doing what they tell you to do. Um, this is a very very easy way to die. Um, the causes I feel like I'm a doctor. Um, causes first fear and self-doubt. Every founder has fear and self-doubt. Um, it's just part of the game. Um, if you

can process that fear and self-doubt and continue to execute, you're in a good position. If you use that fear and self-doubt to seek out someone to tell you what to do, you are typically in a position of hurting your company. Um, the next one is the false assumption that there are 100% repeatable paths to victory. My investors done it before. if I just follow what they do, I can do it, too. Um, this is honestly a very fair

feeling because in most careers, it's true. If you have a mentor who's a great lawyer, you do what they tell you to do, probably you can get into a good law school and you can get into a good firm. Um, ditto for doctors, uh, ditto for bankers. Unfortunately, in our game here, um it's very very hard to repeat success that someone else has done. The business environment just changes. Some of the roles are applicable, some are not. So, wrote repeating is very hard.

Then last one, it's a lack of talking to customers. Um, what I see happen a lot is when you stop talking to customers, you stop getting insights on what's wrong and what's right about your product. And then in the process of seeking out those insights, you might go to your investors who certainly won't be talking to your customers more than you should be. Okay, so those are the causes, the signs this are happening. Um, you're feeling pressure to spend more money than you

want to. you are hiring faster than you thought you should or that you created a plan for. Um, one big trick here is like you've decided to hire a recruiter pre-product market fit. That's a big sign here. Um, you're burning more money every month, but your primary KPI is not increasing. Um, you've locked in with one investor and closed off communication with others. and the belief that if you follow the plan the investor's given you, they will backs stop you even if you don't hit

your numbers. Those are the signs you've made the investor your boss. Repetitive measures. Continue to talk to your customers. The more you interact with your customers, the more you onboard them, the more you talk to them, the more you'll have insights, the more you'll have the insights that allow you to figure out what needs to be built. So you won't have to look for external experts to tell you what to build. Um, number two, have a real KPI, have real metrics. Um, you need to have numbers

that can give you confidence in what you're doing so that you don't seek out experts. Um, number three, track retention. Number four, keep a low burn. Um, you don't want to depend on your investors to give you more money pre-product market fit. So keep a low burn. Um the next one is do a startup in a space you have some organic insights in that you have strong opinions in so that you can trust those opinions. And

then the last one and the most important one is know that you're the one who gives investors power over your business. If you're doing what your investors told you to do, you're literally giving them power over you. um all they can do is use words. And so if you do not want your investors to have power over you, don't give it to them. They're not going to come beat you up. They're not going to, you know, kidnap your family. None of that. All right, next topic.

Number three, biggest thing that causes C companies to die is co-founder conflict. Um there's this phrase that um I think is really valuable called relationship debt. So it's this concept of how much kind of exists between you and your co-founders that you haven't cleared away. And the more and more relationship debt you get, just like technical debt, the harder and harder it is to execute. And then at some point, just like your product's going to is going to fall over if you have too much technical debt, your relationship with the co-founder falls

over if you have too much relationship debt. What are causes? Um, first, a weak previous relationship. If you barely knew your co-founder before starting your business, it's a lot easier for this to kill you. Number two, no clear roles and responsibilities. It's not clearly someone's job to do this and someone's job to do that. Uh, number three is a lack of trust. Um, not feeling like you trust your co-founder to go do the thing that they're supposed to do. And then number four is

unrealistic expectations. Almost always this comes with fundraising. It almost always takes the tune of this company that sucks raised $10 million on Techrunch. We just read it on Techrunch today. They raised $10 million from this fund. Why can't we raise $10 million? And um unfortunately because the press covers fundraising so often, it's very easy to start getting unrealistic expectations about where you are versus how much you should be raising. Also, you never know the backstory about why

that fund raise happened. So, signs of co-founder conflict and too much relationship debt, lots of fighting or no conversation at all. Those are the two very typical signs. Then, preventative measures. Um, one is um what we call a level three conversation. This is having a tough conversation with your co-founder about how you feel in a, you know, safe space. Not while something's breaking or while there's

some other drama going on, but in a safe like set aside time where you can actually talk about how you feel, talk about how expectations are or not being met. Divide up responsibilities and roles. Um, and basically pay down that relationship debt. say the things nicely that are kind of bubbling inside and making sure that communication's happening. And then number two is an explicit roles and respon and responsibilities conversation. Um I'm going to do product. I'm going to do

fundraising. I'm going to handle customer service. I'm going to handle the mobile app. You're going to handle the database. explicit roles and responsibilities so people know that what they're supposed to do and so that you can trust people to execute in their area. All right, number four. Uh the fourth biggest thing that's killing folks out there. Um this is an interesting one. Um this is one that we call are you being ordinary or are you being extraordinary?

Are you copying the people around you but expecting a massive success? Um, it turns out that in your normal life, if you are a smart person and you put yourself in a group of smart people, smart, motivated people, and you are middle of the pack. Um, the normal life, you're probably in the 95th percentile. You'll probably do fine. you'll probably get a good lawyer,

a good doctor, a good banker, uh a good employee at a tech company, probably do fine. The problem is that the failure rate at startups is so high that being average amongst smart people isn't enough. You've got to be extraordinary. You have to be many standard deviations better than the other people who are doing startups around you. So how do you reach for it? Um first right

you understand that the people around you are the floor and not the ceiling. Right? So you know as a cause you need to understand that that's the case. Um and then you know the second cause of people doing this is not believing they can be better than the people around them. Not having the confidence that they can be better than the people around them. um the signs that you're reaching for ordinary versus extraordinary. Um and you'll start noticing a lot of these signs um and and preventive measures are somewhat similar. One, no numerical goals. Measuring success by

some other way. You know, being invited to conferences, press, that kind of stuff, but not numerical goals. Number two, ignoring obvious signs of lack of progress. You're not growing month over month. Your turn's too high. Number three, a good sign, you're just happy to be alive. You're happy to be a company that's got some money in the bank. Number four, you've stopped learning. You're no longer learning new insights about what your customers need or about how your product should work. And then number five is blaming outside factors

or a lack of luck for a lack of success. Oh, our timing was wrong. Oh, they got lucky. they raised from this investor and we didn't blaming outside factors for your lack of success versus internalizing that you have to create success by being extraordinary. Um how do you prevent this? Um first I think you just have to embrace the idea that you can get better over time that like you will get better over time if you try that if you try to be

extraordinary you can become extraordinary. This isn't something that is um decided by birth. Number two, I would encourage you to think about habit formation, to read the book Atomic Habits, and to start thinking about how you can become more productive every day. Um extraordinary people get more things done. Um number three is what I call a Jedi council. Have a set of people that you get advice from who are more extraordinary than you. Um, and then number four, set measurable

goals. Um, challenge yourself to accomplish a goal in your business that you don't know how you're going to achieve. If you think you can hit this number, try to hit a number 15% higher. Um, you're not going to become extraordinary by not trying. All right, the last one before we go into Q&A, and I wanted to leave a chunk of time for Q&A. Um, the last one is slow product development. Um, basically the ability to get features, iterations,

bugs out, bug fixes out the door starts slowing and slowing and slowing and so you're taking fewer shots on goal. Um, this is the final way that I see startups post seed rounds die constantly. What are the causes of slow product development? First, you have no process for deciding what to build. No process. Second, you don't run sprints. You don't have deadlines. Um, number three, you don't write specs.

You just have conversations and then build what you talked about. You don't write anything down. Next, your engineers are not involved in product decisions. The people who are doing the work are not involved in the discussion of what should be built. The next one is no metrics. You can't tell whether a product's working or not because you're not measuring anything. Um, the next one is you stopped interacting with customers. You got too busy. I'm too busy doing these other things. I can't talk to my customers anymore. Um, the next one's bad

co-founder relationship. If the team is not motivated, product development slows down. The next one is lowquality product founders. I call these people fake Steve Jobs. They're the people who believe they know what the customer wants without ever talking to them or lowquality technical founders. Um, your technical founders are not strong enough to produce product at high enough quality quickly. Um, very typically this happens with outsourced engineering teams. The signs that you're in a slow

product development hole, one deadlines are always missed or there are no deadlines. Number two, your release schedule is quarterly or longer. You can't get anything out in less than three months. Number three is a discouraged or disengaged engineering team. An engineering team that doesn't care whether you're winning or losing. And number four is half-done features piling up. This is commonly the cause of a bad product founder. They'll have the

team running down one road to build this thing. Then some customer will say something or they'll have some new idea. they'll cut that project short, not release it, and then run down a different road. Very bad. Here are the preventive measures. Um the first is have a product development cycle. Um if you Google search Michael Cybo product development cycle, you'll see an example of one that I've used. You can have any one you want. Just have a cycle and a process for deciding what you build that's repeatable. Understand that like

one optimization you need to do is having a process where you take as many shots on goal as possible as opposed to having a process where you try to imagineer what's the perfect shot. Next, always be collecting qualitative and quantitative feedback. Um you should always be in whatever your analytics product is and you should always be doing user interviews. The next write specs. A product meeting is not done until there's a written spec um that everyone can look at. Um next one, simple use

product management software. By the way, none of these things are that crazy. It's just that people always make excuses for not doing the basic things. Um the next one is that especially when your team is small, you know, under eight people, under six people, have the product brainstorm with everyone. Even if everyone's not contributing equally, have everyone in the room when you're deciding what to make. Um, the next one is give all team members access to the customer and access to the customer data. Um, it shouldn't be just the

product person that's doing user interviews. It shouldn't be just the product person is in mix panel or amplitude looking at the stats. Um, the next one is understand that motivation is a multiplier effect on talent. More often I see the product lead or the CEO not managing the motivation of their team and the result is that they think they know what needs to be built. They think they have the right people but because they're not managing those people's motivation all progress slows. And then finally understanding that

whoever is leading product is responsible for making sure that product is released not deciding what to build. Everyone can contribute to the conversation about what to build. Your responsibility is to make sure that when we say we're going to build something, we build it. When we say we're going to build it, we have a deadline that we hit. Your responsibility is making sure the product development process is working. You're going to have some ideas that'll get built, but other people should have ideas that should be built, too. All right. Um, with that,

I'd love to take some questions. Please feel free to pile the questions into the Q&A feature here. Um, let's see what we've got. Um, well, I think I already defined product market fit. And honestly, I don't think the definition has changed since I read it. I I read it in a um Mark Andre blog post

more than 10 years ago and I I don't think the definition has changed. Um okay. Do you believe raising more money as C translates into success? More success. Um here's something counterintuitive. I actually think all things being equal, raising more money than you need translates into less success, not more. I see too many founders first not understanding that the more money they

raise in the seed, the higher the expectation is of the series A investor. Um, I've had some conversations that go like this. Well, we raised a $4 million seed round and we've just hit $1 million ARR. It's time to raise our series A. Well, I think and I I tell the founder, okay, understand there's another company pitching for their series A that that have reached a $1 million ARR and they only raised a million or a million and a half in their seed round. As an investor, am I going to measure you

similarly or am I going to say, "Huh, how much more is this company that raised three to$4 million accomplished than the one that raised one and a half?" Um, and so that's the first issue with raising more than you need. The second issue is that we have funded some of the most talented and smartest people at YC that I've ever had a chance to work with. And I've yet to consistently meet founders who aren't um who can prevent themselves from spending more money when they have more money in the bank. I've yet to

consistently meet founders who will double down on the metrics that matter when they have a lot of money in the bank. Um it's a very very hard thing to do. Um what are the top one or two things that make startups really great? Um from my experience um first and foremost excellent technical talent like and I don't necessarily mean amazing

resumes you know having managed a thousand people or built amazing things. When I think about amazing technical talent I actually think two things. one is the ability to build software and the second is a lack of intimidation. I think that um one of the things that I've been amazing recipient of as kind of a business founder is that in both of my companies um my technical co-founders were not intimidated by building things they'd never built before. Um I never heard anyone say I don't know how to

build this or I don't think we can build this. Never heard it. And like folks who've never built anything before built massively scalable websites, built massively scalable video systems, built video filters, but like like almost everything they were building they'd never built before, but they weren't intimidated. So um the combination of ability and a lack of intimidation I think is very big. It's probably the number one thing that makes a startup um increases the chance of startup success. And then I would say the number two

thing is setting goals. Um it is really scary to set goals. It sets you up for failing. Um founders who are able to get over that fear and set aggressive goals. Um oftentimes weekly and monthly goals, oftentimes numeric goals, um the folks who are able to get over that fear and just embrace the challenge, they always do better. Okay, let's see. Um

um yeah this is a question about you know if you're in an emerging market do you have a chance of getting into YC? I would say if you go to ycom.com/compies you can see we invest in companies everywhere. Um so um that's not an issue. Uh as a SAS company starting out how do you deal with customers with credentials and big logos who want customizations? Um you know this is an interesting question. This is why I think operating in an area where you have insight is

extremely important. Um if you have insight you'll be able to understand are these customizations features that new customers will want or are these customizations that only this customer will want. Then you have to basically ask yourself the question how much is the logo or the contract worth? And um every company has to make that decision for themselves. What I will say though is that you should be definitely afraid of becoming consulting company. Most big

companies will try to force startups to become consulting companies. Um by customizing to a degree that is useless. Um, if you're actually attacking a problem that people have, they are usually um, and people have aggressively, like a strong problem that is a top three problem for a company, they're usually willing to work, um, with you and use a product that isn't fully built and isn't fully customized. Um

before we hit product market fit, how should we how far in advance should we be getting the pieces in place for growth? Um you know it's funny. I think that um these two ideas kind of live at the same time that are in direct conflict with each other. The first idea is that you can disrupt a big company by being more nimble um by planning less um by moving faster. And then the second part is

um I'm running a startup and I want to hire more people and I want to do more things at the same time. It seems to me like that second bit is exactly what big companies do and exactly what opens up the opportunity for you to disrupt them. The company's not focused and hiring a bunch of people. So I would argue that in the early days what we tell YC companies is get a 100 customers who love your product and do it in a non-scalable way. Um sorry we tell them to get 10

customers. Get 10 customers who love your product and then get a 100 customers that love your product. Um, word of mouth is a very powerful, very powerful thing. And I would argue that like oftentimes getting sales channels and marketing channels working is a secondary project. It's something that's far more important to do after you have paying retaining customers who love you. Um, it's very hard for a startup to do

multiple things at the same time. So, I always choose paying retaining customers who love you over marketing stuff. Um, always choose that in my opinion. Anyways, um, what else do we have here? You mentioned the three-month rule with new hires. When you're thinking about your first high five hires, what are your key pillars to recruiting in the early days to ensure you're only hiring essential workers? Um,

they're kind of a couple off the top of my head. Um, hire mostly software engineers. Um, know that you're going to be bad at hiring. Plan for you to hire people who aren't good, who aren't productive. Not that the people aren't good, but they're not productive inside of your company. Plan for what you're going to do when you discover that. Um, I think those are probably the two biggest things. I think that most people build their hiring process with the assumption that they're going to have 100% success, which is crazy. Um, no one

has 100% success with hiring. Um, let's see. Is it okay to play underdog until you actually develop product market fit? Uh, yes. Being an underdog is great. Being an underdog, being um being underestimated is a superpower of a startup. Um being underdog is great. I think that all too

often founders are looking at the press too much and they're seeing companies raise a bunch of money and make a bunch of I don't know noise. Um what you should think about though is that a lot of companies get funded and most companies die. Where are all the stories about companies dying? They're not written. So when you are developing your kind of mental model for what to do um and you're reading the

press, are you really getting a full picture or are you getting a distorted picture? Um always keep that in mind. Uh the press is not giving you a complete picture. It's not it's not they're not to blame. Um, to be honest, you wanna you probably want to read a distorted picture. Um, but if you're going to win in this game, you have to go um and do things you don't like doing, which is understand that things are not rosy and that raising money doesn't equal success. Um, let's scoot down, try to

get some newer questions here. Um, what's the optimal role of a lead investor upon raking investments? Yeah, it's a really good question. Um, I want to split this off and really talk about seed investors as opposed to series A investors. Um, in my mind, seed investors should be far more aggressively following the uh kind of hypocratic oath, do no harm. One of the things that I've realized

when giving companies advice, um, and I someone tweeted about this the other day and it was it was really on point, was that like it's hard to understand as an investor how, uh, seriously your company might take your advice even if your advice is low conviction or you have little experience in that space. And so I would always be really careful about doing harm, about leading someone down a road that they shouldn't be led. I

always try to separate out um information that I think a company should get from their users versus me. Um when they're talking to me, I'm trying to give them a sense of how not to fail. Really common failure modes they should try to avoid. I'm not trying to tell them what to build or what their customers want. Um, I recognize that almost always I'm not the customer. And so anytime they're asking me, "What should I build?" um, I always push them

to talk to the customer. Um, I think that's really important. Okay. Uh, let's see. [Music] Can you be really extraordinary as an early stage startup? Yes. Yes. I see it constantly uh inside of YC. Maybe a

better question to ask is what does extraordinary look like when you're an earlystage startup? Um, most of the things that I talked about in my presentation are things that early stage startups that are extraordinary do. So they release product faster. They set goals and they exceed them. They maintain great relationship amongst the co-founding team and they don't lie to themselves and they're metrics driven. Um, if you do those things, you will be operating your company better than 95 to

99% of other startups. Most founders don't do the things that they know they should do because they're hard. And, you know, in the Atomic um habits book that I mentioned before, um there was a really interesting passage in it that that has has stuck with me since. Um, I've always been overweight. It's something that I'm recently made some success on, but it's most of my adult life I've been overweight. And I've always kind of held this thought that people who were more

fit than I um being fit came easier to them. And people and and then I kind of applied this theory in other parts of my life. People who are better managers than I being managers were came easy to them. People were better at math, doing math well came easy to them. And I kind of used this as an excuse. And there's this passage in the Atomic Habits that I'll I'll I'll butcher that basically said the people who are more effective than you. Um, learn how to do hard

things. Being healthy isn't easier for them. Um, being good at math isn't easier for them. All these things that you think you're bad at, the people who are better than you, it's not just it's not that they're it's easier to them. It's that they've trained themselves to be better at doing things that are hard. And the second I realized that, I realized, oh wow, like in our lives, we have this process of doing self-improvement. And it's really our responsibility to level ourselves up. And we can all do

really hard things. We can all be extraordinary if we try to, but if we think it's some, you know, outcome of a genetic lottery, um, we're going to lose to someone who's just working harder and more effectively. Um, scrolling around here. Um, [Music] I think I answered that one.

How tough is it to not give up 30% of your company prior to the A? Oh, wow. That's a great question. Um unfortunately with the rise of professional investing prea um this trend has basically happened where investors have understood that in order for them to make really good returns they really need significant ownership in your company. And so if you raise money from a preed investor, an

accelerator, a seed investor, and each of them for their model to work needs like 7 to 12% of your company, it's really easy to give up 30% of your company before the A. Um, to be honest, my best answer to that question is fund your company with revenue. I think that sometimes founders forget that like they can generate revenue and that that revenue can be a significant portion of their funding. So if you can

fund your company with revenue, each of those pre- a rounds can be smaller. You don't have to raise as much money, you don't have to give up as much dilution. Also, here's a fun trick. If you're generating revenue, each of those pre-Arounds will be at higher valuations, so it'll also be less dilutive. So more often than not, I think founders like laser in on a bad plan and then kind of want everything else to work well. They want to not be diluted. You know, they laser in a plan that doesn't involve charging their

users, involves them needing a lot of money up front and a lot of employees up front and but they're worried about dilution. And it's like the world is what it is. Investors have the needs that they have. Um, the thing that can change is your plan. And if you can figure out how to have a plan that requires less money that gets you revenue faster, you get leverage. Um, if not, um, it'll be more and more the case that you'll have to sell larger

and larger company, uh, chunks of your company. Um, that's just the way it is. Um, all right. There's been some new ones. Um, how do early stage startups set really good clear goals from your experience? Um, this is actually very simple. Um, they actually write the number they want to achieve every week down on a spreadsheet. They create a graph and they look at it every day. Um, you know, the Airbnb founders did this amazingly

well. When they came into YC, it was um, January 2009. the economic kind of crash was fully realized and Paul Graham told the whole batch we don't know if any investors are going to come to demo day so you all need to try to become profitable and the Airbnb folks internalized this and they basically said we need to be generating I believe the number was $4,000 a month to be profitable they called it ramen profitable basically would cover rent and eating ramen and

they basically said if we want to hit that number by demo day. Here's every number we have to hit every week between now and demo day. Then um they printed that graph out and they put it all over their apartment. They put it in their kitchen, they put it in the fridge, they put it on the bathroom, uh mirror, they put it everywhere. And every week they tracked to see whether they were going to their numbers or not. And before demo day, they were ramen profitable. Um,

it turns out that like you won't know how you'll accomplish a hard goal before you set it. But once you set it, that's when you start getting creative. That's when you start figuring your out. So step one is aggressive goal. Step one is not plan. Step one is set the aggressive goal. Step two come up with idea on how to hit it. Um, that's the best flow. All right, I think we are at uh 11:50, so I'm going to cut it off right here.

Um hopefully this was helpful. Um for many of you who have raised seed rounds, the fate of your company is in your hands. Most of your competitors will not do most of the things I said in this presentation. If you do, you have an unfair advantage in beating them. If you don't, just imagine the team that you're competing with who does do these things. who's gonna win. Um, they probably will. So, don't let anyone beat you on the basics.

Um, that's my my last piece of advice. Great chatting with all of you. Have a good day. Thank you, Michael. Thank you all for attending. We hope you visit our last sessions and enjoy SAS annual. Thanks.
