The Two Mindsets That Can KILL Your Startup

And you feel like you're strapped to this crazy person. You're like, oh no, I'm like this. I'm in a car and the driver of the car is completely insane, and it's going to take us all down. Yes, what have I done with my life?

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This is Michael Seibel with Dalton Caldwell. Today we're going to talk about whether you are being too optimistic or too pessimistic about your startup. So, Dalton, set this topic up. We certainly meet many founders who fall in either of these categories pretty regularly.

Yeah, I mean the fact is you need to be both optimistic and pessimistic. Okay? And if you're too far on either extreme, you are going to fail. Right? That's simple.

So to start with, why don't you, let's talk about the comical stereotype of someone that's too pessimistic. And we know these people. So what is it like? Paint me the picture, Michael. Who's the stereotypical too pessimistic founder? What are they like?

It is like one painful experience causes them to want to either quit everything or change everything. Fill in the blank on the painful experience. It's like, yeah, bad customer call, bad investor pitch meeting, talk to a friend, like whatever. Whatever it is. Talk to an advisor, but like one negative experience is getting them to run away. Yeah, it's like, uh, Eeyore or something. I don't know if that's too weird of a reference, but you know, woe is me. Everything bad is happening to me. You know, the world's out to get me. Everything that could go wrong is going wrong, and everything's going to, and they're screwed. Like, it's just nothing good can happen to me. That is what talking to a too pessimistic founder is like.

How about the comical stereotype of someone who's too optimistic? What's it like talking to them?

So at first you get really excited. You're like, there must be something here. But the longer they keep talking, the more you are extremely confused why it doesn't appear like anything has happened, like any value has been created or any insight has been found. And then like at some point you start asking questions because you're assumed that you're the idiot. But by the end of the conversation, like you are convinced the person actually has no idea what they're doing. That's never happened to us before, though. That's all theoretical.

Yeah, it's like talking to someone that's had too much coffee or is medicated or something where everything is great. Everything is wonderful. Everyone is out to help them. Like the planets are aligning, you know? Like their startup is the best thing ever. And then again, yeah, you ask questions. You're like, wait, this song sounds kind of bad. Aren't you worried about some of this stuff? And they're like, no, no, this is all going according to plan. This is really good. And so again, in both extremes here, there are problems. Okay? And not only that, they multiply when you have, God forbid, you have employees. Right? Like then it's even worse.

I think it's helpful to do this self-diagnosis. If you're too optimistic or too pessimistic, to put yourself in the shoes of your employees and imagine who would you want to work for? Who would you think would be like a good leader? Because to answer this, I think a good leader is an optimist. They believe. If they don't believe, they're a horrible leader. Like right right out of the gate, a pessimistic leader who doesn't believe that things can work… quit! Not like that. Ain't gonna—like, that's a bad leader. So you're off the team.

Okay, on the other hand though, a too pessimistic—sorry, too optimistic—leader has horrible plans. Their plans are like involve magical things happening, rainbows and ponies and space-time travel. And like, if you actually listen to the over-optimistic person's plans, any reasonable employee would be like, wow, this person has lost their minds. They have no idea what's going on here. And it becomes a little scary when your leader sounds like that. Suddenly you’re like, oh God! Like are we even gonna get the basics right when this person doesn't seem to be tethered to any land mass at all? Are we— you know, the person said two months ago that our company was great and we were all gonna be rich, and now they're saying, you know, the funding fell through but they have a solution. Am I—are we gonna even make payroll? Yes! Like you lose your credibility in like two seconds.

Yes, you make that perfect point. Like when you cross over being too optimistic, your employees start questioning everything. Like you lose all trust because they're like, oh crap! Like if the leader can't see this obvious thing right in front of their face—uh oh! Like what else have I not uncovered yet on what the leader can't see?

And you feel like you're strapped to this crazy person. You're like, oh no, I'm like this. I'm in a car and the driver of the car is completely insane and is going to take us all down. Yes, what have I done with my life?

So those are the extremes, right? So if you're probably pessimistic, it ain't gonna work. It's over. Like, no one—you know, like packing up. And if you're too optimistic, it's probably over too. So what do you do? Or like how do you self-diagnose?

Michael: Like I'm sure people are always, whenever we say things like this, people are like, well how do I know which one applies to me? Let's give—let's start with pessimistic.

Yeah, so you might be too pessimistic. So this happens all the time in YC. You sent a shitty email to a hundred customers that wasn't personalized. You didn't send it to the right person. You sent it in the middle of the night. It had typos. Your call to action was like, would you like to join me for a six-hour phone call to discuss this further? And you only got like five replies. Oh my God, the world's coming to an end! We pro—our startup doesn't work because a hundred potential customers with email didn't produce 100 leads! We get this like every batch. And we have to be like, it's going to be fine, folks. I think expectation setting.

I think when you— I think you could be too pessimistic if you can't—if you don't—if anything short of absolute unmitigated success right out of the gate doesn't happen, and you're like, you know, you're like, oh man, this isn't working out for me. I'm really worried. It's like poor expectation setting. And so I think a lot of folks just—they don't realize that this stuff is hard, and then even when it's working, you mostly get no's. And so that's the way you might be pessimistic. Is it doesn't immediately work? Who knew these things take longer than immediate to work?

So there's a lot of variance on this, right? Like I would argue the next one that I see all the time is, I talked to an investor, I talked to a friend, or I talked to a customer, and they said this wasn't going to work. And I take that to mean like I ascribe god-like predictive powers to one of those three people and think I need to quit or do something else because an investor, a friend, or a customer said this wasn't going to work, as opposed to thinking, let's go through the list. Your friends are idiots and don't know anything, especially if they would never use your product. Investors are close seconds as idiots, especially if they never use your product, don't invest in your space, aren't good investors, don't invest a lot of companies. And then your customer might not be an early adopter, or God forbid, you might have misidentified the customer, and you might be pitching someone who would never be a customer no matter what. So, like, you know, just like one negative signal does not mean you can't build a startup. Like, or this product's not going to work. This idea is not going to work.

One last one that I want to throw in because I find it really interesting. We help founder set goals for YC. What's the goal? I want to accomplish by the end of YC we call the demo day goal, and I'm constantly seeing founders who don't accomplish that goal thinking their company is dead.

Oh, we didn't accomplish our demo day goal. We didn't accomplish our goal for the next three months. Obviously, this is a bad company. And they missed the whole point. We're like—and it's really funny now because I actually wrote this in the advice we give the founders in the batch, but they still miss the point.

Like setting the aggressive goal, the purpose was to get you to move fast, to get you to go, go, go! Like it was the juice. Like if you learned a bunch pursuing that goal, you got value even if you didn't accomplish it. But like so many founders kind of go into the demo day season being like, we didn't accomplish a demo day goal. Does that mean our company sucks? It's like, no, not even a little bit.

It's all some version of gave up too early or wants to give up. You're too pessimistic if you want to give up too early, or if you expect it to be really easy for you, or you think it's easier for everyone else. You have like a victimization thing. Well, everyone else has it easier than me. The world's out to get me. You know, I don't think that's—that means you're being too pessimistic.

Ultimately you can redirect your energy if things aren't working, but you shouldn't give up fast. Like, I don’t know how to articulate it. Like, two founders that are too pessimistic, the way you know they're being too pessimistic is they freaking give up. It's obvious when they're too pessimistic, and they bring everyone down. Their co-founders, like everyone around them talks to them and feels worse after talking to them and deflated.

Yeah, and the last thing on this, like we talk about the synonyms of the difference between being high energy and low energy. It's like the Eeyore thing. Like you want to talk to someone and get energy when they're telling you about their company, and walk away from the conversation being like, yeah, that person's like gonna do things. Like I’m excited to talk to them. If talking to you is deflating, again, this is not pejorative, but it's like that's a sign you're too pessimistic. That like, yes, trying to express what you're working on, what problems you want to solve causes people to feel drained.

Yes, but let's be clear. I think that the cool thing about being too pessimistic—like, I love your opinion on this because I actually think I’d rather help someone being too pessimistic, strangely, because usually when I try to help introduce realistic expectations, they can adjust. You know, usually we just need to tell them what's reasonable, and suddenly they're like, oh, okay, I guess things aren't as bad as I thought.

Alright, so like we said, pessimism sucks, but it's curable. Optimism is a little harder, and I might argue maybe the reason why optimism is a little harder is because we're kind of saying that the good point is optimistic. So if you're too optimistic about your startup, you're like way off in the never-never land and like that's a harder thing for us to cure.

So why don't you introduce the audience to this concept of magical thinking? This is something you talk about to the whole batch, and I think it's one of the best talks.

Yeah, the term I use is is magical thinking. I think it's like a psychology term, but, um, and yeah, I think it's used in more of a clinical setting. So this is not the technical, technical definition. That's just my founder version of magical thinking.

Magical thinking is where you start to believe you live like in a magical world with magical causes and effects and that like things that aren't rooted in reality are true for you. And so an example of like a magical thought is, hey, if I was in an airport and I saw Michael in the airport and I could like approach him and pitch my startup, he would immediately see what a brilliant idea I have and, you know, get out of his checkbook and like fly me away from my life and help advise me to become the next Google.

Okay, so like some people think that way, and that's like completely nuts, right? Like, don't do this. Well, by the way, I think they extend that thought to—that's how companies get funded. Like they extend that thought beyond themselves to believing that's how the world works. Like the people who get funding get lucky like that or like do that, so I have to do it too. And they don't bother actually studying how the world really works.

Yeah, or like they've watched too many romantic comedies or something, you know? It's like they think their life is a movie, and they're the main character, where like if they do some really complex, showy act that's dramatic, and like something you would see in a movie, if you literally do that, like somehow it's gonna work out for you again. You know what I'm saying?

Like there's lots of versions of this, but it's like someone that's not rooted in actual cause and effect of reality and can't tell the difference between normal cause and effect—like, hey, the way you meet Michael is you apply to YC on the website and then like we're just normal people. And, you know, like it's actually pretty straightforward.

But when you start to believe that there's like magical ways to break into whatever, you know—so anyway, that's my definition. And there's more subtle versions of this, but the whole concept of magical thinking is a poor grasp of how the world actually works.

So let's talk about this in the context of startups. You know, how does this come up when we're talking to founders? How does magical thinking pop its rear its head up?

I mean, I think to start with, it's to always have excuses. Like when you ask people direct questions, everything involves a very complicated answer and excuse about why they can't grow, why they can't get customers, why it's hard for them to get customers—why somehow there's a complicated story. It's other people's faults that they can't do something, and all these other people are plotting against them, and like, like basically they're telling a story where they're the main character. They're the hero of the story, and their startup is great. And if it weren't for all these danged external parties doing bad things, it would be working, right?

Again, like put this into practice of like why people can't get a customer, for instance. That's a big one. I think it also comes up in investing a lot. It often comes up in the, if only I had money like everyone else does, I'd be able to go do this other thing. Like, you know, people like telling the story about other companies getting breaks and them not getting breaks, or telling the story that like that break, that magical moment's like one step ahead—we'll go from like zero to 100 in just one step.

Um, that one's extremely frustrating because it's just like, it's a complete misunderstanding of how this game works.

What else are you—what else are you seeing in terms of like, this often happens in product where like someone has a magical version of their product in their head. Like, what do you see in that context?

Yeah, I think in practice, if you can't build a product and you don't have a tech co-founder, or whatever, or you have never once built a product and given it to anyone, and you think it's going well, you are too optimistic. Like, it's not going well. Like, sorry.

Again, think about how many people over the years that have pitched us, like it's a new social network and it doesn't exist, but I—but it's like Facebook and TikTok, and it's with your friends, and you can discover me. You know, they'll just kind of like rattle all the stuff off, but they will have no code, none of it will exist, and they'll get really frustrated that we aren't pumped about that. Like they don't—like they're being too optimistic that the idea, that their articulation of this is somehow valuable or interesting, yes, versus the implementation of it.

Yes, that the deck, that the idea has inherent value as opposed to—and it's like what's crazy is like, man, in one way that gives us—that shows they have a lot of faith in us, the idea that we can just hear an idea and know if it's gonna work or not. Like, don't you wish you had that power, Dalton?

We need a little more.

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What else falls in this category?

I think too much optimism around thinking that because you raise some amount of money, whatever that is, yes, is gonna save you from things not working, or that your investors are magical and will save you. Like somehow they have magical powers. And so because I—you know, because we raised from XYZ, and again in this market, this is more, maybe people will believe us more. No one believed this a year ago. No one did.

No, but just because you raise a bunch of money from important, famous people does not mean all problems no longer exist. And so you see people being too optimistic where they just turned off their brain once they raised money that they would ever—they were just like, hey, I'm on Easy Street, man! Like we got it! We nailed it! Like we did it! Yep!

And if we hadn't done it, why would these folks have given us all this money?

I love optimism also comes in the form of hiring. We have this really big, hairy kind of awkward problem we don't understand well, but if we just hire a marketing person, a salesperson, this person— they will come in and solve the biggest problem inside of the company, especially pre-product market fit. Like they will figure out what the product should do or how people should find out about it.

And what's weird is that, like it's not like, oh they'll help you, or together you'll figure it out even. It's that, no, they'll do it! That's why you hire people! That's the—like way too optimistic! Like, like, and it's often it's too optimistic on multiple fronts. One, the idea that your employees just like hand you that, and two, the idea that even if there existed people out there who could, you could hire them in your like pre-MVP startup or like pre-product market fit startup like, yeah, like why would the number one marketing person in the world work for you at this stage? They probably wouldn’t!

You know, and the last one that I come up with on the too optimistic front that I see a lot is, but this is obviously going to work because it's the cool thing, because it's the trending thing, because the thing investors are talking about on Twitter. I should obviously work in this category because it's the hot category.

And you know probably the one classic example: how many remote startups and video conferencing startups did we see the second that COVID hit? And the thing that was so sad was like having to explain to people Zoom was working for years before this moment. So they could take advantage of this moment. They have years head start, technology start, all these advantages—not that they expected COVID would come—but they, like, they were in the prime position for it.

You starting from scratch after COVID comes, you're optimizing for something that probably happens post-COVID, not something that's going to happen in the next three to six, nine, twelve months. And I think that oftentimes founders, you know, there are a lot of fads that way where a founder basically—or people get in at the end and think that there's a lot to get when, like, the reality is that you want to get in before everyone thinks it's cool, not at the peak of everyone thinking it's cool.

Like the peak of everyone thinking it's cool is usually right before everything is. We sure see this a lot at YC where you can tell when something has jumped the shark, when it is one of the more common ideas people apply with.

Like remember chatbots? Everyone was building a chatbot for a couple of years there, and that's when you knew it was over basically.

So to wrap this up, let's come back to the message kind of in the beginning. How do you have balance in this world? Like how do you—like we say balance, but aren't these—aren't these my—is I think this is a good idea, but it's going to be really hard, and clear evidence for this is going to take a while to develop? These are kind of hard to balance, right?

Yeah, I mean I talk about the term cognitive dissonance sometimes, which again, it's another like psychology term. And cognitive dissonance is when you have two conflicting ideas that you have to hold on to at the same time. And most human beings don't like cognitive dissonance. It makes them uncomfortable to hold conflicting ideas that at the same time.

And I think—I think the best founders have techniques and they can do it. I think—and they can like be really good at it. I think something to aspire for as a founder is someone who can know both, oh no, like my star employee just quit and says my startup is horrible and now I don't know what I'm gonna do, but I'm gonna get on the sales call and I'm gonna sell my heart out and like close this customer.

And I have to kind of like sit with both of—like I have to be able to do this and not go nutso. And like, it's hard, okay? Like because like every day there's gonna be crises of some sort, right? And there's gonna be victories. And the people that screw this up, they like—they can't handle that dissonance, and they go too far.

The way they resolve the dissonance is to go too far one of the directions of either like freaking out of the bad things or losing contact with reality, more or less. You know, a lot of founders I know—I wouldn't describe them as totally enjoying that experience, but I would say that they figure out how to thrive in that environment. Like they execute in that environment, and the risk and danger in some ways sharpens them.

And how many times do we see founders like not bring their true A-game until like shit's pretty bad? It's like, actually, yes. Yes!

So there you go! So that's the blueprint, right? Be optimistic, just don't be magically optimistic. Yeah, be rooted in reality. Squarely rooted in real reality.

Alright, man. Great shot! Sounds good. Thanks.

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