there is a final judge of all startups like someday all will be accounted for okay there is a reckoning for all startups right and that's either you know when you go public and the market gives you a value you may not like it but that is a reckoning that is a record it's you get acquired and that is there will be a number there and someone will come up with that number
This is Dalton plus Michael.
This is a throwback episode.
And today we're going to be talking about the ethics of the startup game.
Maybe a topic that doesn't come up enough.
What do you think, Dalton?
This was a recurring theme in all of our talks to the YC batches over the year, which is
There's some basic rule of the game and one cool thing about, you know, Silicon Valley in the tech industry is you can fail and you will be held up and celebrated by the community, right?
Like it's okay if your startup doesn't succeed.
It's not unethical to fail.
Yeah, that's part of the business.
You earn respect from your peers.
But we would always say in our advice to YC companies, there are rules and if you cheat people or lie or follow bad business practices, you will be in trouble.
You were out of the business, basically.
It is very hard if not impossible to recover from that and that is not the way to fail.
Over the years, it's become painfully obvious that we're in a trust-based business.
And I think the major mistake that founders make
is they over fetishize the next milestone.
I almost want to kill this analogy that's been popular, which is like, oh, a startup, you know, first you're pushing the rock uphill, and then it's like, you're pushing it down, you're following downhill, and that's the easy part.
And then there's kind of a bit of a mentality that like, do whatever you can to get to the easy part, because then it's going to be easy, and then like, whatever, you'll fix it later.
where like when we talk to our friends who are running massive successful companies, I think they haven't found the easy part yet.
Like I'd argue it's like, it's maybe a better analogy is pushing a rock uphill, but your legs are getting stronger.
When you believe this myth that like, oh, if I just raise that round,
Then everything will break open, or if I just hit this ARR, then everything will break open.
Yeah, it's like how small lies become big lies, right?
Like you start by little things, and then to keep up, you just dig deeper and deeper and deeper.
until you can't recover, right?
And I think that's the tricky thing is that, you know, we're both founders.
I remember there was a moment where, you know, I was like, I'm pitching an investor and I'm giving them our metrics, right?
Like there's no like third party audit on how many unique visitors we have.
Like, but then, you know, my next thought was this is that ultimately I'm being
rated on how much value I'm creating.
Like ultimately there's an accounting.
When that ultimate accounting happens, if it shows up that like, oh, this is all smoke and mirrors.
There's no reward at the end of that tunnel.
So it's like... It's all downside, right?
But it's weird because maybe it's fun on that road, but if the end of the road is no payoff, is the road... It's not just no payoff, it's career end.
I think if you look at the history of the tech industry, there's a culture thing to talk about.
I think that historically engineering, not software, let's talk about engineering, the deal with engineering is you had to build things that wouldn't kill people like bridges and buildings and stuff.
And so I think it was built heavily into an engineering mindset that like details matter and not hurting people matters.
And that's literally the job.
That's the final accounting.
Someone's gonna walk on this bridge.
And I think it's like pretty well grounded to you.
I think the other thing going on is, you know, not to make generalizations, but spectromy type people tend to like rules.
I guess I'm one of those people.
in logic and reason and the whole way you see the world is through an engineering mindset of like strict rules and like everyone has to follow the rules and like rules are important.
Historically engineering is like a good place for those types of people because you can put numbers on everything and you can make sense of the world and there's laws of physics and you know there's all these rules where the where everything makes sense in a way that other parts of of society may be a little bit trickier.
The technology industry was seen as a place for people that feel that way and think that way and are aligned with everyone agreeing to a code of conduct and agreeing to rules and numbers being super factual.
And so I think there's always been this tension as money flows into the tech industry that the more money and lucrative this stuff gets, the more it attracts people that would not be in this industry if there were no money in it, right?
Because there's some people that are like engineers, whether physical engineers or software engineers, they'll be doing this even if this was like making no money, right?
And there's some people that are 100% only doing this versus whatever because, right?
In the 60s, it was starting a rock band, right?
Like there's a lot of people, if you're an ambitious young person in the 60s, you started like a rock band and a lot of people went far with that.
Starting a startup is like something you do if you're an ambitious young person.
And so where I'm going with this is that in this cultural tension, I think a lot of the true nerds are very angry and upset when they see what they feel is an injustice.
And again, I guess I'm one of them, like it bugs me too.
Like, you know, I'm gonna love it with you.
And that folks with a different perspective might just be like, oh, this is how everything works.
And it reminds me a little bit of,
I don't know, like high school, where there are some people that were like, yeah, cheating is just part of the game.
Like of course we cheat, like everyone cheats.
And I don't know, man, like I always just found it kind of a drag to see some of that influence coming into the tech industry.
And like last thing for me on this point, I've noticed it has everything to do with market cycles.
And when, you know, the hotter,
things get in terms of money, the sketchier things get.
And when there's no heat on the tech industry, this is less of a problem.
I think that investors also have a role here.
I remember reading something where some young investor would be given a lot of praise and some snarky Twitter person was like, well, those companies haven't even exited yet.
And then their reply was like, well, how do we grade people if it takes really, really long time?
I feel like investors can get caught up in these short-term competitions.
Did I get the hottest company on demo day?
Like, how many of my companies have raised a series A?
How fast do they raise a series A?
How fast is my fastest company growing from 1 million to 10 million in ARR?
Because the longer competitions take so long.
And I think that, unfortunately, when early stage investors get into this mindset,
it can help and affect the community with the mindset that these short term things matter.
And I don't know about you, Dolphin, but like, man, I've been advising startups for so long now, you know, time separates everything out.
And like, the fads go away.
things that don't create value go away, valuations become irrelevant.
The amount of money you raised, how famous you are, like all those things with time, the only thing that's like the core and rock is how much value you're creating.
And like sometimes I kind of wish investors would have that longer term mindset as opposed to wanting to split the long game up into short games that probably don't matter or not indicative of the long game at all.
Sort of to their defense, they're just worried about their career and their next promotion and whether they're, you know, like what we're saying works for us, but if you're like a junior VC and your entire career is based on if you're funding winners, otherwise you're out.
From the investor perspective, it's hard for us to say they should do bad things for their career by not hyping up the companies they invested in.
They're just trying to show that they're good investors and they're trying to, you know, make the portfolio companies look good.
And so I understand the incentives are a little tricky there.
But to reiterate what you've been saying, there is a final judge of all startups like someday.
All will be accounted for okay there is a reckoning for all startups right and that's either.
You know when you go public in the market gives you a value you may not like it but that is a reckoning.
As it's you get acquired and that is there will be a number there and someone will come up with a number and so.
At the end of the day, all the numbers between when you start and when you end are a little bit made up.
So you should be worrying about your reckoning value, which is how you articulate the value you're creating, which is a real thing and not fake vanity stuff, you know, like that stuff's not real.
I don't want to be on a high horse here.
It is hard and during a heavy buzz.
My parting piece of advice is the advice I often give to founders when it's like, when they see something blowing up, it's so often I'll be an off sourced.
I'm like, Oh, well, these guys that they're blowing up, like, should we chase them?
Like, I have not seen games won or lost in six months.
And so it's like, don't don't kind of like, don't use some short term excuse to justify
cheating, bending the thing, like cooking the books.
Like don't use that because you're overreacting to something that is probably going to change and that overreaction is extremely dangerous.
Like it could be career ending.
So like don't overreact and like destroy people's trust in you over something that's probably not the end of the world.
I worry a lot about peer stuff.
So I think a lot of why we used to talk about this in YC and I guess why we're making this video is that you can say, oh, these guys, you know, they're full of crap.
They're just saying this, but every, you know, all the founders I know are exaggerating their numbers and lying to investors.
And A, that sucks if that's what you, you know, sorry, sorry for you.
Sorry to hear that if you feel like everyone is doing it.
You should get better friends.
And then two, again, I really mean this.
I know the numbers of a lot of the most successful YC companies, and they really did go public, and Michael can attest to this too.
These are real companies.
What nots numbers are real, and Brexit's numbers are real, and Reddit's numbers are real.
I can't stress enough that the truly successful big late-stage companies are doing something real.
It's like cheating on like a practical test where you're learning a skill, but then you actually have to go out there.
Like, okay, we think you know how to build a house now.
You cheated on all the tests for carpentry.
We're now sending you out there to build a house.
Oh, your house doesn't work?
What did she didn't get you in the end like you know if there's gonna be a final accounting cheating it can help i think in this environment for the founders who are kind of holding the line.
You know, we want to say we have your back, like, create long-term value.
You have a place in this industry.
And your integrity is the most valuable thing you can have, and you should never compromise on that.