Elad Gil Shares Advice from the High Growth Handbook, a Guide to Scaling Startups

The first question I wanted to ask you: the book is called High-Growth Handbook, not the High-Growth Hanjo, just High-Growth Handbook. Given that so few companies ever make it to high growth, you know, thousands of employees, why should an average entrepreneur read this book?

Yeah, I think the book contains some more universal principles. So, things like how do you go about hiring people, and what should you look for when you hire people, including executives? How do you, you know, if somebody's trying to buy your company, you may actually want to read the section on M&A because it'll basically reveal how the company that's trying to buy you is actually thinking about it.

And there's also product management best practices in there, and how do you think about product management? So, I do think that there's a variety of other sections. There's also a section on PR, comms, and marketing, so you know what's the difference between those, just different disciplines, and how should you think about them?

So, I do think that there are areas of the book that touch upon the things that are universal, but ultimately it was geared for either employees who are going through high growth, or executives, or founders who are going through high growth. And in part simply because there wasn't any information out there, in my opinion, that was really pulled together and codified around that.

Yeah, and what inspired you to shift this into a book rather than, you know, your own personal blog site? You know, SEO targeted, sure, content.

Yeah, I was thinking of doing it as a website, and John Collison, one of the co-founders of Stripe, saw the content and got excited about it and thought it would be really relevant to both other founders who are working on high growth but also sort of the broader community of developers and company builders that Stripe serves. And so that led to the genesis of Stripe publishing it.

Okay, gotcha. I have a question about before even page one, maybe it is counted as a page—the dedication. I was just curious what you meant. So the first line is: to my lovely wife, Jennifer, and suddenly everything is possible again. What does that mean?

There's a great book from Jonathan Safran Foer called I think it's called Eating Animals. Okay, and it's about, it's sort of a mixed book, but it talks a little bit about his own son, and he says that when his kid, somebody sent him a card that said suddenly everything is possible again about his son. And really what that means is when you look at your child, you realize that every possibility is suddenly ahead of them, and there's a reinvention of life through that child.

In other words, they could go and become an Olympic skater, they could, you know, become the next Mark Zuckerberg, or they could have a terrible life, but really all the possibilities in the world in some sense are available to them. And so that's really what that means.

And do you take it to heart for you as well?

I'm too old for that, so I think the next generation has everything is possible for them. Okay, barring some breakthrough in anti-aging or something, I think my path is reasonably clear.

Alright, fine. So with all of these interviews, did I know they were edited and kind of they’re transcribed and then edited? Were there any large arguments you got into when you were doing the interviews before you compiled them for the book?

There's no arguments, and the interviews are actually very close to the actual conversations. So the editing was very light, and it was more for clarity or to rearrange a section so it went together better, but there weren't big chunks taken out unless it was a side conversation that was unrelated to the interview.

There are areas where I've disagreed with some of the things that people said, and that's one of the reasons I wanted to make sure it was in the book, yeah, because ultimately I think the only good generic startup advice is that there's no good generic startup advice, and ultimately it's all about context. Each person who I interviewed came from a very different set of experiences, a very different context, and that's one of the reasons I wanted to include those discussions in the book, as they provided a different viewpoint from my own.

Mm-hmm, what are good examples of that?

Honestly, almost every interview. There may have been like one or two things that I would have nitpicked, and I'm sure that as people read my book they'll feel the same way, or they're like, well in my case it really wasn't like that or, you know, the advice I give is a little bit different from that, and I think that's actually great.

You know, it's almost like you're baking a cake and you can get into a philosophical argument about the right way to bake a cake, and when all is said and done, there are a few core components you always need when making a cake, but there's lots of different ways to do it, and I think that's true of startups as well. There's a few fundamental things you absolutely have to do, otherwise it's not really a cake or not a startup. But besides that, you know, go at it—there are all sorts of ways to do things.

Mm-hmm. Yeah, I was rewatching your Investor School talk this morning, and you were talking about how you pick companies based on market and then market again, and then the third was maybe team.

Yeah, yeah, yeah. Do you find that—I think you got into Marc Andreessen a little bit in the same topic, right, and what he said, I found was interesting. He said the companies that charge more tend to grow faster.

Mm-hmm. Do you believe that too?

I think if you can get away with charging more, then it means that you have a product that people truly want. It means that you can grow faster in part because people truly want your product, and in part because the capital leverage that Marc talks about is actually crucial. In other words, he makes this point, I think, really well in the book, which is that if you have higher margins or pricing power, you can reinvest that money in hiring additional engineers. Your sales team can actually afford to go and sell, or whatever customer acquisition method you have, you can scale it up more because you have more margin to give away.

So actually being able to raise prices is a very powerful tool for growth, and I think one of the big fallacies in Silicon Valley is everybody thinks with their Amazon, and they basically say every business model should be Amazon's, which is I’m gonna charge as low of a price as possible so I can get as much market share as possible—and actually, it’s possible that you'd get to more market share if you charged more for your products versus less. So, you know, that's actually a point that I agreed with him quite strongly.

Right, and it's also that you talked about this in relation to investing or not investing in Lyft—that not all markets are winner-take-all Amazon-type situations.

Yeah, exactly. I think, yeah, most founders assume with any network effect they win.

Yeah, I think that in general, there's a set of myths that have built up over time in Silicon Valley around what is a great startup. Yeah, and in the social networking era, things really were winner-take-all because they were social networks in the moment, definitionally they were winner-take-all. And there's lots and lots and lots of businesses all over the world that exist in markets that are winner-take-all.

And there's actually a great book called The Rule of Three, I think it's what it's called, and it basically talks about how many industries collapse into oligopoly markets, where there's two to three dominant companies, and then that's the stable point in the industry. And so I think the market structure really matters, and one of the things that people in Silicon Valley don't think about very much is what's the actual market structure, and does that mean it's a good opportunity or a bad opportunity to actually start a company?

And a great example would be EdTech, where I think that's a terrible market, it's a really tough one. It's very impactful, so I'm really glad that people are working on it. Yeah, but there's all sorts of structural issues in the market that make it a really hard one to be successful in, and therefore it's really hard to start a company in that market.

Mm-hmm, yeah. There was a related question that came in from Twitter. Leon Koh asked what types of businesses do you avoid investing in, and what quote, "good" businesses do you have no interest in? Are there other markets that you have a negative signal to you in that way?

Yeah, EdTech is definitely one, so you know I've never invested in a net tech company and again, I think the social impact is massive. I just think it's very hard to succeed in part because there's nobody who is able or willing to pay in the US for the product. I think in certain parts of Asia actually EdTech is a great market to be in, but I just don't invest very much outside of the US.

But if you think about it, teachers either can't afford or, you know, don't have the wherewithal to buy certain products. Parents often don't want to actually buy extra products for their kids. Children obviously can't afford it. School districts are often cash-strapped and can't afford it, and so there's just not a payer in the education market.

You know, I think there's also markets where it's better for a large incumbent to do it versus a small startup. So Internet of Things is a great example where I think most of the interesting things in that market will come from large electronics players who can just integrate it into something and then distribute it versus a one-off company that's just making a smart light bulb or just making a smart go block or just making a smart, you know, you name it.

Yeah, I think those companies are really struggled after their first Kickstarter, like to launch again.

I mean, yeah, it seems like unless you're selling a smart backpack, you can’t have time.

Exactly, yeah. So you mentioned Asia, and I want to jump from the beginning to the very end of your book because I thought that was funny. You have a page that says things—you just say no—and I’ll go through that list.

But I do want to talk about Asia. One: envelopes full of cash. Two: China. Three: giant chrome pandas. And four: pool tables. Could you explain?

Oh, yeah, that part was very much meant as a joke, and it was kind of thrown in last minute. So basically, you know, as I've been in Silicon Valley for the last decade-plus, there have been a variety of different things that seem like great ideas at the time, and then in hindsight maybe weren't as good.

And so the envelopes full of cash, for example, when I was at Google at Christmastime, the company used to give out literally an envelope with I think it was ten hundred dollar bills as sort of the annual bonus for everybody. And the urban myth around it, I don't know that it was actually true, but the urban myth was that as people would get off the Google shuttle or the bus in San Francisco with their envelope full of cash, they'd get mugged.

I don't think that really happened, but it was more, you know, maybe distributing millions of dollars in cash is a bad idea. Yeah, it sounds almost like the mob or something.

China: just most companies that have tried to enter the China market have failed. There's always counterexamples of that. I actually think their strategy in China was quite smart in terms of their eventual merger with Didi and I think they owned 15 to 20 percent of Didi, which in and of itself is gonna be a hundred billion dollar plus company. So actually, I think that worked out really well for them.

And similarly, Airbnb appears to be doing very well in China as well, so I do think it can be done, but most companies trying to enter China, they don't have a real strategy to it. They don't understand the local presence, they don't understand the competition, and they kind of get quashed. And it's hard to do business there, in part because of government controls around the ability for foreign countries to enter the market.

I'm so that's China. The chrome pandas, you know, Dropbox might have giant chrome panda, and then later they used it as a symbol for frugality. And so that, I think that was a very smart approach by them to basically say, hey, let's take something and turn it into a symbol of how we should act as a company. So I thought that was a very smart cultural move by them.

And then lastly, pool tables, was I moved out here right after the last sort of bubble collapsed, and I was working at a startup where I joined it with 120 people, and it grew to 160, and then it shrank to 15 people or so after five rounds of layoffs. And so after the second round of layoffs, it was probably like 60, 70 people, and the founders bought a pool table to try and increase morale after all these layoffs were happening in a collapsing industry.

And I don't know that pool tables help you increase morale, but you know, that's what they decided to do. And it was a nice gesture, but what would happen is the people who had time to play pool obviously weren't essential to the operations of a company that was in freefall, which meant that the people who play pool would suddenly disappear within a couple of weeks because I get laid off.

And so the pool table became the symbol of like, don’t go play pool because you’re gonna be the next person tired. Yeah, okay, I have never lived through one of those, but it sounds terrible.

I don't think anybody in Silicon Valley in this era has because we've been in an eight-year bull market. Yeah, so obviously companies have gone under, and that's been painful, but we haven't seen the systemic raising of an entire sector at once, and it's inevitable that at some point that'll happen again.

And I think that will cause an enormous sea change in terms of how people do things. Yeah, timing the market is impossible though. Related to that, are there any ideas right now that you think might be raising—they're being raised on—but are potentially too early? In other words, like ideas from the 99-2001 like bubble that later turned into big companies.

Now, do you think any of those ideas in existence now are actually going to be part of the next cycle?

I think there are two big areas where that's definitely true. One is AR/VR, which I think most of it is too early, and I do think it will eventually happen. So yeah, I think the other area is actually in crypto.

So I actually think there's a great analogy between the cryptocurrency world today and the internet world in the late 90s. And in the late 90s, there was a handful of things that truly became massive franchises, right? PayPal and Google and Amazon and etc. were all from that first era, and then there was a bunch of stuff that didn't even exist at that point that became massive like Facebook.

But there also a lot of companies that people started then that ended up failing and were pointed out as these stupid ideas but are now actually giant companies in their own right. So, for example, Webvan raised over a billion dollars and failed, and now we have Instacart, which is sort of a reinvention of that concept. There was pets.com, which was broadly derided—you know, why would you ship pet food online—and that became Chewy, which was acquired for I think three billion dollars.

And so there was this whole wave of companies that were just too early or in the wrong format in the late 90s that have now become major franchises, and I think the same thing is true in the crypto world where there’s still a real lack of infrastructure in crypto. And so there’s all sorts of really interesting ideas of how you decentralize different services.

And I think many of those things will fail, and then in 10-15 years a new form of that idea will exist and be successful, and then in parallel, I think there are things that exist today that are sort of the Amazons of crypto that are going to be massive in their own right and already exist. You know, maybe it's Bitcoin, maybe it's Ethereum, maybe it's the privacy token like Monero or Zcash.

Yeah, but I do think that a subset of the crypto world from today will also continue to just be massive. Yeah, and a certain percentage of people out there as employees will be able to pick those companies.

Yeah. A quote I really liked, I don't know if it was in the first or the second interview, it must be the second. It's on page 311. Naval says, "an evolved Rafa Kahn, the most successful class of people in Silicon Valley on a consistent basis, are either venture capitalists or people who are very good at identifying companies that have just hit product-market fit. They have the background, expertise, and references that those companies really want to help them scale." And I think the question is, how do you find those companies?

Yeah, I think there are a few signals that a company is breaking out. And the point of the quote from Naval—there are a few people who have been very good at that. For example, Matt Kohler was early at LinkedIn, and then he was at Facebook, and then of course he eventually joined Benchmark.

But that's a great example of a career where somebody just sort of identified a few sequentially really interesting things. I think the three key signs of something really breaking out: it really has to do with number one, just anecdotal customer traction. So you can just ask people what they're using if different companies, or you can, you know, try to pick up on market signals. And so one is just what is being adopted by the market and how rapidly is it being adopted, and there are certain metrics you can look at in terms of churn and recurrence and a few other things.

The second thing is what's the network of people around it? So, you know, in general, you're only able to pull in certain people to help with something if that is really working. Yeah, and then lastly, you know, sometimes fundraising is a signal, sometimes it's not, but in general, the best companies that are breaking out, if they want the capital or they need the capital, will be raising new rounds of capital every 9 to 18 months.

Yeah, and that's in some cases given by the fact that we're running out of money, but for the best companies, it's often a sign of people just coming in preemptively and giving them a very high valuation. So sometimes that's a way to track it too.

In general, if you want to do best from a career perspective and you didn’t join in the very, very early days, the best time to join is when a company is probably on the order of 40-50 people and is worth, you know, somewhere between 50 and 500 million dollars, as long as it can turn into a 10-20 billion dollar company. And it’s really hard to know which company will do that, but usually that’s when a company goes from 50 people to a thousand people or 50 people to 5,000 people, and that’s when you have the most growth opportunities as somebody joining one of those companies, but also you have the biggest financial upside because your option package will go up in value between twenty and a hundred X, which can be quite significant.

Mm-hmm. Yeah, would you be willing to call someone out and say what are those companies right now?

It's always hard to know exactly which companies are gonna be the biggest. I think some that are really promising right now are Airtable, Checkr, and Front—in terms of three companies that I'm involved with, that I just think are, you know, amazing founders, great traction, and doing really interesting things.

Yeah, I see. Okay, so we should talk about best practices a little bit; we don't want to just talk about founder mistakes. One thing I really thought was cool, which I hadn't heard about before, was Stripe CEO, Claire Liu, issued this letter out to the company when she started about how to work well with her. I'm curious, what have you done this before? Do other people do it now? What's a story?

Yeah, I haven't done it before. When she told me about it, I thought it was brilliant. And, you know, each person as they join a company, especially if they're in a leadership role, will have a certain set of ways that they like to be interacted with. And often it takes the company six months, or twelve months, or a year, or longer to figure it out.

And especially if you're growing really fast, each incremental hire two years later has to figure it out as well. And so by publishing this letter, she basically spells out what are the best ways to work with her. Is it better to send her emails or to cut your life for five minutes? Is it better to communicate via data, or, you know, there are other mechanisms that really resonate with her in terms of the things that grab her attention?

And so I thought that was just a brilliant onboarding tool that perhaps any executive joining a high-growth company or any manager joining a high-growth company should issue, so that people just understand this is the fastest, best way to interact with me, and just, you know, ramp up on how to be effective in the organization.

What I think everyone should do at every company.

Yeah, I think it's such a great idea. It's like you can't—well, it's not totally fair to rely on everyone to be able to read everyone else because some people can just put on a good face, yeah, and others can't, and some struggle. And also, people have their own quirks, and so I think being explicit about the quirk actually helps a lot.

Like, when I worked at Twitter, I used to do a lot of yoga inside. I literally sat in Lotus on the floor in the middle of executive team meetings, and I was the only person on the floor in board meetings, and the new people event you were like, okay, fine, that's his quirk, right?

Yes, so I just think being upfront about those actually gets rid of a bunch of stuff.

Yeah, I think it's such a great idea. Alright, let's go into some Twitter questions for you. Massoud Hussain asks, he actually has three questions: How did most of the companies you interview get their first ten customers?

And then from there?

Okay, sure. First ten differs a lot by company, and so some companies will literally go and just hand-recruit those first ten people to use their product. And, you know, the founders at Stripe were famous for anytime they met with somebody, they'd try and show them Stripe and get them to use it—the Collison install.

Yeah, the Collison install. There's other companies where, honestly, they just put up a product online and it just starts working and spreading.

Yeah, and so I think, you know, that's sort of the rumor about how Facebook got started, was luck just kind of put it up and told his friends about it to start spreading, because there’s a bit more of a reality built into it.

So I think each product is different. On average, though, you kind of have to grind it out. You have to find your first few customers. If you’re building an enterprise-focused application, you probably want to find early test customers or partners that you work with, who are what people call design partners, so they'll give you feedback as you build it, and you can kind of steer the product based on their feedbacks.

You're actually building something that people want. So it really depends a lot on the type of product it is. Is it consumer versus enterprise, and then how you want to go about getting the first few people?

Yeah, and what about going to a thousand? Because Massoud asked a question related: like, is content really king? Meaning is content the way for like infinite growth?

I'm not always—depends on what you're doing. If you're building a consumer social product, then there's probably mechanics built into the product itself that cause it to spread. So sometimes things spread a bit organically and then you kind of juice it through different tactics.

So with Facebook that was email scrapers, and it was, you know, they were literally running ads against people's names in Europe to try and acquire European users, for example. So I think the best companies actually focus on aggressive distribution early and often.

You see a company that taps out in market cap or market size because the founders weren't aggressive or early about distribution, and then later other companies caught up to them.

Mm-hmm. And so examples where people were very aggressive about distribution would things like Google, where they were spending hundreds of millions of dollars a year on things like Firefox having Google prominently displayed on its homepage. They literally paid for, they used to have this client application called their toolbar that would, you know, install against a browser in terms of being, you know, effectively like a browser client.

And they were paying hundreds of millions of dollars a year to install that with different apps that you download. So you download Adobe, and suddenly you'd install the Google toolbar, yeah.

And those stories are never told. People always say, oh, these things just grew organically and it’s in an amazing, but almost every company that's ended up in, you know, tens of billions or hundreds of billions in market cap had been very aggressive about distribution, often from the earliest days.

And I think a lot of people create in the content category, they're often playing the game that whatever system they're on wants them to play. And that's good to a point but you're like, it's hard to achieve outside rewards in any of these categories by just playing by, like, the exact rules.

I'm not saying like break the rules, but be a little more creative with your strategy.

Alright, next question. Mary Ann Kimmel asks, where do founders make the most mistakes? Is it on hiring? And whatever mistake that might be, what steps should they avoid to avoid these pitfalls?

Yeah, it depends a lot on the stage of a company. You know, for an early company, people make mistakes around how much money to raise. They raise too little, and they run out of cash before they can hit a milestone to raise more money; it could be hiring mistakes, it could be firing mistakes, it could be fighting with their co-founder.

So, you know, early on, I think there's all sorts of mistakes you can make. I think the single biggest common issue—to the point of the question probably—is around hiring. Either in terms of not having a very good selection process or alternatively not letting go of people who didn't work out.

And so there's an old saying that people either hire well or fire well, and if you at least do one of those, then you can build a really good organization. You know, fundamentally, most companies are kind of bad at both, and that really ends up biting them because they're just desperate to get people and instead of saying, you know what, is painful, but we'll wait to find the right people.

Right? It’s the company that has a thousand people, and you're like, wait a second, can we like 500 jobs right now?

Yeah, yeah. I think it's tough. Do you have a ballpark number for how many employees end up working out percentage-wise?

It varies a lot. Again, it depends on your hiring practices. And so Google was an example of a company that hired extremely well. They had, I think it was a minimum for a while of eight interviews per person, literally, and if you didn't do all the eight, you wouldn't be able to get in, kind of thing.

And they were terrible at firing in the early days, so they were absolutely awful at letting people go once they made it in, but they just let in so few bad people that it worked for them for a while. Other companies like Facebook were known as not as good at hiring early on, although they've gotten much better over time, but in the very early days they were known as not great at hiring, but they were very good at actually letting people go if they didn't work out.

And so both companies ended up, I think, eventually did very good spots, and so I think it really depends on the practices of the company.

Okay, Breann Kimmel asked a question around regulation. So you both work, you have worked with Stripe, like biotech, you're kind of aware of these regulated sectors. What are some lessons learned in highly regulated sectors? When should you hire a general counsel? For example, and how do you prioritize public policy in lobbying efforts?

I think it depends a lot on the sector that you're in. So some companies will actually hire a compliance person or a general counsel very early. Waze is an example of that where they hired somebody of that profile I think in the first ten people or so. And so they were always focused on being regulatory compliant.

You can also do it through hiring things like external consultants, or you can get very good lawyers for certain areas. So for example, in the biotech or healthcare sphere, if you’re six scientists working on a problem, you probably don’t need a full-time compliance person, but you probably want to start thinking about the FDA and, you know, how you think about regulations.

And so that could be done through a consultant, for example. So I think you should think about it early, but it shouldn't get in the way of you just doing core things that you need to build a product, because if you don't have a product and you're not on the market, it really doesn't matter, you know, because you're not dealing with regulations as a non-launch thing.

Yeah, in terms of prioritizing public policy and lobbying, I think that tends to come later in the life of a company. Many companies in Silicon Valley wait way too long, so they'll sort of become huge and then they'll realize in hindsight they should have been thinking about it. And really what it's about is a view of less as, you know, lobbying, and more about how can you educate people who actually want to do the right thing but may only get one side of the story if the incumbents are the only ones talking to them.

So how do you sort of share the story of what the industry is evolving to, what the company is about, and who should you be educating? And that doesn't necessarily mean you should be talking to politicians, or maybe other stakeholders you should be talking to. Maybe you should be talking to certain medical groups if you're in biotech or a teacher’s association if you’re an EdTech.

So I would just think more broadly about who should I educate about what I might do and how do I start those conversations or early so that people are aware and, in some cases, can actually become supportive and sympathetic.

Mm-hmm. Do you have opinions on the ad campaigns Facebook’s running right now to kind of like say, "Hey, we're sorry, and we're not about fake news?"

I haven't seen those ads. A couple of people told me about them; they said that Silicon Valley is sort of running all these apologetic ad campaigns for multiple, so Wells Fargo, Facebook, and I think there's another one.

Yeah, you know, one thing that I think has really changed a lot since I moved out here is there's been a real decrease in overall what I call, like, optimism about the future in Silicon Valley. And I think that's awful. I think really the best people that I know who work in technology are doing it because they think they can use it truly as a force for good and to help change the world for the better.

And if you think about what technology has done in terms of basically putting a supercomputer in the pocket of a billion plus people in terms of creating transparency into pricing and markets and other things for a farmer somewhere, are you able to sell your goods on the right day at the right location? You know, it’s really sort of transformed the world in really positive ways and somehow I feel that people have really lost sight of it, and to me, one of the saddest moments is when people write the blog post four years after leaving a company that they joined early, where they self-flagellate, and they talk about how terrible that company is and how a shame they are, and you're like, oh my god, what are you talking about?

You know, these companies have actually done really valuable things for the world, and when they've made mistakes, they need to go and correct those mistakes rapidly. And, you know, you need to early on think about how you avoid creating damage in the world, but I think fundamentally technology is something that's very powerful, very important, and ultimately has largely been a force for good in the world, and we should not lose sight of that and we should really emphasize it because you know, if you don’t think you're doing great things, you're not gonna go and do great things, no but being here, I’m more optimistic than ever. There are so many cool things happening.

It's just tricky. I mean, I know it from talking to my family on the East Coast who isn't, you know, connected in the same way, and all they hear are horror stories from, you know, whatever it might be.

Yeah, I think in general what you find—and this is I've seen on the company level when you work with different companies, they always end up in some media cycle where they get built up and then they get torn down and then later they get built up again as sort of a redemption story.

So usually the story arc is look at this amazing company, they're changing the world, they're doing good things, and then there's some minor crisis and it blows up in the press and, oh my god, this company's now doing bad things and they're failing and they're gonna die and it's awful, and the press writes a story a little bit later about, oh, the company's never redeemed and they've changed what they're doing and look at the great things they're doing again.

And I think that Silicon Valley may be in one of those cycles at a macro level where we had the upswing in the 2000s of, oh look, tech is so great, and there's the iPhone and all these other things and look at how Google is helping people, and now we’re in sort of, oh my gosh, tech is only bad, and my hope is that we come back into the redemption period.

Yeah, I think technology is probably going to be whipped a little bit more in the next election cycle because it's like a very obvious target it seems, unfortunately, especially when people are making such cool stuff.

Yeah, I know. I think one of the most telling moments for me was a founder that I've been helping, I started helping really early, pinged me and said, hey, I was at some dinner party with some friends, and I brought up the fact that I'm really excited about what I'm doing and I hope I didn't change the world with it, and everybody started making fun of me at the dinner.

And I said, well, you should find better friends. You know, like ultimately you should be surrounding yourself with differing opinions over time, but you should also be surrounding yourself with positive voices because, ultimately, I do think that there's a lot left to be done, and technology will continue to have this transformative impact on the world, and people should be proud of what they're working on.

Yeah, I mean, I'm all for talking and having fun, but I think penalizing people for being eager is not the right thing to do.

Alright, let's go to another question. So Marius Chawla asks, this is such a common question: what are the top three things a startup must achieve before VC firms or say an angel investor would line up to fund them?

There's a huge range of answers to that. If I were to rank things in a hierarchy, I think the single biggest thing—and this is going to be obvious and we'll sort of work down the hierarchy—the single biggest thing would be to have a high margin, rapidly-growing, high traction product. In other words, you're growing thirty percent month-over-month, you have 90 percent margins, and everybody's buying it.

Mm-hmm. You have big brands buying it; you have small brands buying it. Or if it's a consumer product, it's just, you know, scaling like crazy with extremely high retention and spread. And so the number one thing is traction.

The second best thing to have is a product in an interesting or exciting or hot market that people want to fund or get involved with. Cryptocurrencies is one area that's like that right now, where all sorts of things are getting funded simply because it's in the crypto market versus because it's good.

Third thing would be a great team, and then last thing is none of those but a compelling story.

Yeah, so that's sort of the hierarchy. Now the thing is that in Silicon Valley there’s different—or in general there’s different trends. So people get excited about a specific area, they'll fund anything in the area whether it has traction or not. You know, similarly there may be teams or individuals that are very well regarded and they'll just get funded no matter what.

And so, you know, sometimes you just need one of those things, and it's good enough.

Yeah, and sometimes I—I mean, I think PG, they've talked about Airbnb is like cockroaches, like just staying alive because I assume the question is about like getting your first funding, but if it's not about that, just reaching profitability and being able to stay alive makes you much more attractive to a company because that's how you generate leverage.

Yeah, because I don’t know. Oftentimes I've talked to Michael Seibel, who's written a lot about this. Companies come to him and they're like, oh, we need to raise a Series A right now. And unfortunately, they have no leverage anymore.

Yeah, I think a tear point to build on that point: VC funding isn't the only way to build a business either. Like, oh, Bloomberg is, you know, a tens of billions of dollar company. Private company that has only raised outside capital once, and I think it's from Morgan Stanley—like Morgan Stanley or somebody bought—I don't remember what it was—ten percent say or fifteen percent of the company, but he basically bootstrapped it.

And I think one of the things that people think about too little is other sources of funding—it could be your customers just paying you for a great product so that you're profitable. Sometimes you can get what are known as NREs—non-recurring engineering charges—where you charge upfront to develop something for somebody that you can then resell.

Everybody else, Microsoft actually used to do this in the early days, and they similarly never had to raise funding; they took one round right before they went public because of a relationship, but fundamentally they just bootstrapped.

So I think too often people think that they should be on the VC train when really, you know, there's lots of different ways to build a business, and sometimes those are actually much better for founders in terms of where you end up.

Oh, definitely. I think way too few people think about what game they're about to enter when they even just start thinking about ideas. Because if you think about ideas with the framework of "this has to be fundable in Silicon Valley," that like by nature constricts your ideas.

And yet people don’t consider what it means to be running a thousand-person company and what that trickles down to in your life.

Yeah, or you could be running a thousand-person company, but you do it without ever having to raise external money.

Totally, yeah, which is great. And I think the value judgments are the hard part, because like whatever works for you, that's fine.

Alright, we have a couple more questions. TD Bryant the second asked the question: when your organization is experiencing exponential growth, how do you choose which functions to outsource versus build—you know, hire someone to picture it?

It depends on what you're actually building. So, okay, you know, Instagram, for example, famously had, I think, about a dozen employees when they were acquired by Facebook, and so they actually kept the team really lean because at the time they hadn't quite gone into the phase of monetizing the product, building out ads, building out a bunch of other stuff, and so they really just kept it to engineering and, you know, maybe one or two other functions.

So it depends a little bit on your objective as a company. Do you want to sell? Do you want to build out the whole thing, etc.? If your focus is on, you know, going for it, then there are a few functions that you're gonna add, and it really depends on the type of business you're in and when you add them.

So there's an earlier question around when should you add somebody as a general counsel or a compliance person. If you're in a highly regulated industry, you may want to add that person quite early, in the first ten people or the first fifty people. But if you’re not in a highly regulated industry, maybe you don’t add a GC until you're much larger.

And so I think it really depends a bit. When all is said and done, you know, I can’t think of very many functions that you want to outsource. I think there are aspects of functions that you want outsourced.

So for example, on the benefit side, you're not going to come up with your own benefits plans, right? You're gonna go and you're gonna work with somebody, and they're gonna say here's your insurance policy and your 401k and all the stuff. It's like a framework you used to invest, right, in terms of what are the things you personally...

Yeah, like Stripe or New Zenefits or whatever. Yeah, I view that less as outsourcing functions unless I'm misunderstanding the question, and more about outsourcing pieces of infrastructure that everybody keeps building, and my mind function means HR or engineering or product or, you know, the functional org.

If what you're asking is what pieces of my IT stack I should—yeah, I mean, I would definitely try and use third-party services for payments or for other things simply because it’s really onerous to rebuild those from scratch.

Yeah, I think again, this maker mindset causes people to feel like they should innovate everything, and you don’t have to innovate.

Yeah, yeah, there’s actually a great— I think I carry a blog post or podcasts on the Andreessen site where they talked about how technical founders always want to reinvent sales, and you know, there's a way to do sales that's worked for, you know, tens of years, and you don't need to necessarily hire technical people for every role, and you don't need to hire, you know, a PhD in engineering for sales, unless, you know, it's a very, very technical sale.

Yeah, I see it too, but like companies getting really creative with how like their shares are issued or equity or whatever; it's like dude, stop.

Yeah, the things that are important to the company and its survival and things that really don't matter. And sometimes it's okay to do the things that don't matter because it's fun and it keeps the job interesting and exciting, and sometimes, it's just a waste of time.

Yeah, agreed. Alright, so I want to get to the Dragon Ball Z question, Juice. I think that's like obviously the most pressing and important one. But here, all right, and Roopa Kuhl asks, who is your favorite Dragon Ball Z/Gt/Super villain? And this is based on your avatar on Twitter.

Yeah, that's right. So Goku is my avatar on Twitter. You know, lately I’d say—and this is still an old anime/manga—I’m more of a Naruto person, and really what I would have wanted to have is Itachi Uchiha as my avatar, but it was just a little bit too gruesome for Twitter.

And obviously, as well, he's a very misunderstood character in terms of really always focused on trying to do the right thing but then sort of taking the fall for the hidden leaf village and everything else by joining the Akatsuki. So, you know, I just thought that I'd keep it simple and have Goku, and if people have any good anime or manga suggestions, please just hit me up on Twitter.

Right on! If people want to reach out to you, if they want to buy the book, where should they go?

Yeah, for the book, the best place is Amazon. Right now it says that it’s temporarily out of stock; you can ignore that. It just means that there’s a bunch of books at Stripe Paths that are just sort of piled up waiting to be processed or that are being shipped over.

So you can still just order and they'll show up within a week or two, and your website is allowedgale.com, correct?

Cool. Alright, thanks man. Jonathan, shot me.