Ryan Rutan: Welcome back to the episode of the start Up therapy podcast. This is Ryan Rotan joined as always by Will Schroder, my friend, the founder and CEO of start-ups.com. Will, this might be our shortest episode ever. I don't even know that we should be doing this episode. Now, we just found out that a competitor got funding and now the world's gonna end, right? I mean, how often has this happened? And, and what will we do about it? What will we do?

Wil Schroter: It happens like weekly, we've been doing this a long time and in that time, we've seen an awful lot of competition and because we bought so many businesses, we actually have so many competitors across so many businesses. It almost

Ryan Rutan: sounded like you emphasized the awful will. Was that intentional?

Wil Schroter: Well, fortunately not so much for us. And, and again, when I say this, it's not like, you know, we're so special or something. It's more the fact that most of the other companies you know, that are coming to the market, et cetera are so confident that they've got it figured out. I don't like to name names because I just think it's kind of a jerk thing to do. But when we started in the funding space, right, circa 2012. And we told this story before there were like 30 other companies that came out at the same time that were in some version of crowd funding or equity funding, et cetera. And almost all of them are gone and most of them were funded. Oh, yeah, absolutely. So, I think we were the fundable.com ironically was the only one that wasn't funded. And, and with that said, it's not that we did anything special, you know, that we were so great. Nothing like that. Right. It was more that everyone else had gone way over their skis. Yeah. Right. You raised a bunch of money and tried to build this big thing when there wasn't a big thing to build on top of that. You now have essentially these walking dead companies and I'm not knocking the companies. I don't dislike this. I know some of these founders. It's more the, the cap table structure that's dead. They've raised 2050 $100 million and the company makes $3 million a year in revenue.

Ryan Rutan: Yeah. It's a whale in a fish bowl. Right. They grew to a size that just, it can't sustain itself. And they, they didn't, they, they forgot to account for how big they, because they didn't know. Right. We don't know at these early stages. And so that's where that, you know, we, we talk about the trap of funding all the time and all the things that it does. But this is one of them. Right. If you end up building a $3 million business and you bootstrapped it, that's ok. That might be really cool. That might put a million five in your pocket every year. Congrats. If you build a $3 million business with $50 million in funding behind you. Oops. Yeah,

Wil Schroter: it didn't go so well.

Ryan Rutan: Nobody likes that

Wil Schroter: one. Let's get into the set up of what it looks like when you first hear that this competitor has been funded. Right. It looks something like this. Somebody forwards you the article or you see a tweet come across because you're following them or something and stalking them or something like that and your stomach drops and you're like, oh my God, I can't believe it. Like we're so screwed XYZ company. That's either a direct competitor. Tangent competitor just announced a funding round now to be clear. Getting a ton of money isn't a bad thing. It's not, it's not like they're not necessarily. Yeah. Right. Right. But it's never, ever, ever the death knell that people perceive it as

Ryan Rutan: for the competitors. The only

Wil Schroter: reason I know this is because I did freak out year after year after year after year across all these businesses that I've done ac, I mean, everything, right. Everything.

Ryan Rutan: Yeah, it does. It al it always gives you that feeling like What if this is the one, right. What if they're the one that eats, eats our lunch because they can now afford to rarely comes to pass so far, hasn't come to pass.

Wil Schroter: Yep. Now, now, ok, let me give some, some caveats to that. It's hard to believe even folks listening to this, like, there's gotta be a catch here. Right. It's hard to believe that your competitor could be handed millions of dollars that you don't have and be in a worse position, especially because there are a few things that happen in that moment. Number one, they're getting a ton of praise. It's kind of hard not to get a ton of praise when you just raised millions of dollars, right? Everyone celebrates funding grounds. You get some

Ryan Rutan: awareness, you get some brand recognition. Yeah,

Wil Schroter: you get the investors that are in the deal tweeting about how incredible you are, all those things, right? And it feels great. I've been on that side. It felt great. Cool. The other side is you project in your mind that that money must be being spent in a really intelligent manner and we have a spectacular outcome which rarely happens, read a

Ryan Rutan: case study on lottery winners and see how that usually goes. Not the same thing, not the same thing, but just back up for a second though. So like imagine this. So this is an interesting one, the the the case where you do get like the press cycles. And all of a sudden you got some notoriety, oftentimes we're taking on cash so that we can improve our product, right? We need to do something. We need to extend the product, we need to, we need to scale the team. There's all these things have to happen. But when does the press cycle happen? When is all of the noise and, and fervor around funding at the moment it happens and we've seen this happen, time and time again. You get these press cycles. Everybody hears about you. They all show up and you're like, wait guys, wait, wait, we haven't spent the money yet. We haven't improved anything. We're still the same crap product we were, we were raising so we could build a better product and you end up with this tragedy of riches in that you get a big traffic pop or a whole bunch of new users at a point where you're still not ready to take them on or it conflicts with needing, you know, those cycles to do other stuff and spend that money in ways that will improve it. And now instead you're just shuffling through a bunch of customers. Look, it's not a bad problem necessarily, but it is a problem. And I think that too often we just see it as like money is just going to make all of this easier. It doesn't necessarily necessary even just the success of the funding round can create its own problems because of that notoriety at a time where you're not ready to fully handle

Wil Schroter: it. You bet. And again, because most folks have never gone through this full cycle, they just don't understand how it plays out. So, right now, all you see is the glitz and glamour of fundraise and you think, oh my God, they have all the money and we don't and we're so screwed. You see press releases, you see big announcements, you see all these things, right? And again, at the beginning, that does sound awesome. And so of course, because you haven't been through this long enough, you don't get to see how the rest of it goes. Right? It kind of reminds me of someone uh being at a college party and drinking for the first time and they're like, this is amazing. I'm having the best time of my life. You're like, yeah, well, talk to me about it tomorrow

Ryan Rutan: in the morning a little bit

Wil Schroter: differently, right? So, what we're gonna talk about is how the rest of it plays out. We're actually gonna tell you the rest of that story. So you can not just think about the front end of it, which is, oh my God. You know, they're doing so well. You can start to understand what all the things that start to crop up and become exponential problems that even their founders probably don't see. But it happens time and time and time again. It's especially happening right now because we are in one of the worst funding, you know, values of all time and all those companies that were pumped up, you know, to become these big things now don't have that fake cash that was keeping them alive and now they're dying left and right and to be fair, that's part of how all this goes. Yeah, I was

Ryan Rutan: gonna say I actually want to caveat the, the worst funding time ever. What we're seeing is a shift with an investor population to want to invest in companies that are doing things like cash flow positive or, you know, we're actually profitable companies over a longer period of time. Right. So I'm not sure that I look at this as like a bad time in funding. It's a bad time in funding if you aren't profitable, if you're not focused on, on actually making money within your company, which we podcast about 23 weeks ago. So, yeah, just caveat there. Yeah. It's harder to raise funds on a, on a grin in the story.

Wil Schroter: Yep. Absolutely. Again, if you understand what's about to happen, your perspective on this changes. So let's talk about what's about to happen. Number one new company is about to get fat and bloated. All the things that they did really well, a moment ago by being young and scrappy that probably led to them getting funded are all about to go away. Absolutely. In the name of progress. Here it's gonna happen. Number one, they're gonna staff

Ryan Rutan: up. Oh, yeah. Hiring Blitz, adding lots of people into a party always makes the party better. Right. Yep. Not always.

Wil Schroter: Every time I see this, especially if it's one of our competitors. One of the first things I do is I jump out to their site and I look at all their job listings and I'm like, oh, yep, they're screwed

Ryan Rutan: overnight explosion. Yeah. It's

Wil Schroter: like, yep, that's because here's like, I know the economics of the business, right. The way venture economics work is generally make this very big and hope that the rest comes and follows you. Right. If you build it, it might come and by the way, when it works, it looks like a genius plan. Right. And it sometimes does work, there's plenty of examples where it worked. The problem is there's way more examples of where it doesn't work. Right. So, part of what, what I look at again and looking at those, those, those job postings is ok? You've now got 65 open hires, right? For stuff. I know, I, I run the same company. There's no way you need a head of a, I, I know it sounds awesome but you don't need one. Right? Yeah. What a hard thing. But

Ryan Rutan: that was part of our investor pitch. That's why they, that's why they, we're doing, we actually have no idea what we're gonna do with a, I, we just told them, we're gonna do something and they, they were, yeah. And this is again, like going back to just like the hype cycles and, and when funding is based on these hype cycles, it's so dangerous for everybody. Right. Because now you've got people raising more money than they needed to raise, to go do things. They're not really sure if they need to do because that's at the tip of the zeitgeist right now. Why do we do this over and over again?

Wil Schroter: Well, ok, so, so let's, let's stack on to that though. It's not just hiring. All the hiring is a big part. It's a big part. It's all the kinds of commitments that we make it back in the day. It used to be office space, but office used to be a big one. It also came with a commitment that well extended past your, your amount of funding. You also have things like doing partnerships. Hell, even just the way you spend, right. Show me a newly funded company and I'll, I'll show you the most outrageous comp packages you've ever seen

Ryan Rutan: outrageous comp, outrageous customer acquisition costs. That, that's one of my favorites is when you look at allowable pack customer acquisition costs before and after funding, they're like, ok, we, we gotta make sure we get $20 leads and they're like, well, so look, we're bringing in leads at, uh, $250 now. And, you know, we, we think we're pretty happy without, we're not sure if it'll scale. We have growth. Yeah. Sure. Because all of a sudden you have 10 times as much money, you're spending 10 times as much money to get the same outcome. Not in what you want

Wil Schroter: to do if you want to get fired really quickly in that company at that time. Raise your hand and say, hey, should we be thinking about maybe holding on to some of this cash and try to get ourselves through profitability? You will be shown the door by security. They won't even let you pack your things right now. Again, we joke about this stuff because it happens so, so often, right? And again, we're not knocking the companies who are raising. We're saying these are the problems that come with raising that just, it just is what it is, right? And whereas we used to look at it as, oh my God, they have so many people, you know, how are we going to compete? Now? We look at it. He goes good luck keeping all those people employed because we have the same economics you do. And, and uh, they're not that good. So that's how we looked at crowdfunding. Crowdfunding is a great example, right? And a lot of people, it's almost an old topic now, you know, as far as like an oldie timey back in, in the days of your type topic is 12 years

Ryan Rutan: old Obama was president and Right. Yes,

Wil Schroter: Jesus is going back. But if we, if we go back at the moment, everybody thought crowd funding was gonna be huge. Right again, Kickstarter was in it. All this stuff. Right. It was

Ryan Rutan: a huge news

Wil Schroter: cycle. But it was awesome. It was exciting. Right. It was great. It was fun to be a part of, but we looked at the economics of, you know how those crowd funds were working and we were scratching our heads going. There's no way, like we're pretty smart guys and like, you don't make that much money on it and there just aren't that many investors and there just aren't that many companies that can fund the perfect

Ryan Rutan: storm that had to happen, didn't happen. Right. We, we got a gust of wind from the east, a little bit of rain from the west. And like that was it, like, it didn't, it didn't all come together. It was like all of a sudden now because we could not, everybody's rich auntie, uncle dentist, lawyer, whatever decided, like, you know what, I'm going to pour money into start up companies because I don't understand them at all. And the odds seemed really long and even the professional investors don't do that well with it. Let's do it right. It didn't happen, it didn't happen. A niche

Wil Schroter: market developed in it and I'm glad that it did. Right. Yes. It helped

Ryan Rutan: a lot of people. It just didn't help lots and lots and lots of people to create the mass market, to support the hundreds of companies that flocked to that space at the time that it

Wil Schroter: happened, it helped the way we get funded. It didn't change the way we get funded. Right. So be it not the end of the world. My point though is at the time people were raising tons of money around it. They're building huge staffs and they're getting to the point where all of a sudden in order to maintain that momentum and that payroll and everything else they were selling to investors. Yeah. And that's when you know, things aren't good.

Ryan Rutan: Yep. Yep. It's interesting, man. I'd love to just run an analysis at some point and find out how many companies raised more for their clients. Then they raised more for their company. And I'll bet it's not a pretty ratio. I'll bet far more of these companies raised more cash to help people raise money than they actually ever helped anybody raise. Which

Wil Schroter: is right. And the thing is once you get onto that track where you've increased your costs and money will come someday. But for the time being, we've got to fill the coffers with investor money and we thought a whole episode about this, the investor becomes your customer more importantly becomes where your focus goes.

Ryan Rutan: Yeah. Yeah. You're building for investors. You're designing for investors, you're hiring for investors, you're spending for

Wil Schroter: investors and there's, there's whole mentality that changes and anybody that's been funded, anybody has been funded, that's listening right now or is going through this process is just, you know, nodding their head, going to preach right here's what starts happening. We start making decisions, this is your competitors. Now, we start making decisions as to what we think investors want partially because they're sending us messages saying that's what I want or suggesting as much or of course, we need to raise more money. Most start ups when they raise money are raising for 12 to 24 month windows, which means they are gonna be out of money by the time they get the money. And so in order to stay afloat, in order to keep this growth going and everything else like that gotta keep raising money. It's, it's part of the game and we teach people how to do this all day long. So again, we're not knocking it, it just is what it is. But with that, that is a massive distraction, not

Ryan Rutan: just a distraction, I'd take it a level further than distraction. And this might be what you mean by that, but it's a dangerous diversion. Yeah, because a distraction would imply that you just stop paying attention to things you needed to. You're actually also doing things that you might shouldn't do. Like you end up building features or adding that A I person things that are actually counter to the real progress, you need to make so beyond distraction. It's, it's a diversion of resources, energy, money time, all the things that are in such limited supply within start up company, I think it's a huge, huge

Wil Schroter: trap, 100%. And the way I see it is the moment you're focused inward and inward would include fundraising, staffing. Now, dealing with all this staff and dealing with, with all ops that come with adding all the staff. That is a perfect opportunity for me as your competitor to run circles around you. So all I have to focus on is is getting customers. You

Ryan Rutan: don't pay attention to your customers. Somebody else will,

Wil Schroter: somebody else will. Yeah, that's the old aum. Yeah. Yeah, it's 100% true. But as soon as I see companies go down this path, he here's kind of the the cadence of the funding distraction, the funding path. The first is again, tons of fanfare and by the way, I've gotten funded on three different companies. It is awesome to get that check wired into your account, right. It feels phenomenal and dangerous for other reasons. But regardless at that moment, uh again, it's so exciting to exciting to, to tell marketing, just spend money. Let's see what happens. Like those are fun decisions to make and if you haven't experienced it, it's great. However, that's the start of the party, correct. Right. The next milestone comes in 12 to 18 months later when you realize that you have to raise more money, not, you'd like to raise more money. It is do or die. Now, two things can happen. Both of them are essentially terrible. Number one, you run out of money and then you try to bootstrap it and try to hold on until you can raise again, which doesn't end well. You know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you, which means the answer already exists. You may just not know it, but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot Start ups.com. So if any of this sounds familiar, stop guessing about what to do. Let us just give you the answers to the test and be done with it. That's it.

Ryan Rutan: It's, it's so hard to go back to bootstrapping. You know, once you've put on dress shoes, going back to boots is really, really tough because it means lots of decisions that are, that are counter to the progress or at least the momentum that you've at that point. Like, I don't think it's the death knell necessarily, but it fundamentally changes how you're gonna operate that company, how it's gonna grow. And then if the idea is to go back to bootstrap until we can afford to move forward and get more, more funding. It's a full disaster at that point, right? Because how are you going to do that? You, what's the story you tell at that point, which is like now we're back to bootstrapping like, hey, everything is a uh, we're, we're back to near zero now, but please put some more money into, we'll do better with this

Wil Schroter: time, right? It doesn't end well. So with that said, the next milestone, once you raise some more money is you either realize that you're gonna run out of money, you think? Hey, can we bootstrap? But we can't because we've got this huge cost. But the second would be all of a sudden, you're like, dude, that means I've got to raise money again and again, I know it sounds silly because some people know this is true. But when you just got a huge seven figure wire into your bank account and everything was cool and like that it's gone and you're like, damn, I gotta do that all over again. Except this time I gotta explain what happened to that money. Yeah, that's it.

Ryan Rutan: You can't sell in a grin anymore, right? You gotta sell on progress on, on traction. What did you accomplish with the money last time? That tells me we should put more into this thing. Yeah, it's a lot harder as you

Wil Schroter: go forward, you go back to your previous investors and very important for them to continue to invest to, for them to follow on and a couple of them were like, yeah, you know. Yeah, I think we're gonna pass on this round. Right. How do you think that looks for your next round of investors? Right. Oh, the guys that already put money aren't back in it? Cool. Yeah. Yeah. Like

Ryan Rutan: if you're driving down the highway and all of a sudden you see everybody start to exit, you're like, maybe I don't want to keep going this direction either. Right. It's, you don't step on the

Wil Schroter: bad signal for sure. And so essentially what happens is we get in this very myopic mindset, which is all that matters is getting that next wire, getting that next top up of funding right

Ryan Rutan: at the cost of everything else that you need to be doing to build that business at the

Wil Schroter: cost of everything, everything else. Right. Oh A I is hot. So we're an A I company now. Let's, let's rewrite the pitch deck to talk about how we're A I because investors want that. Aren't

Ryan Rutan: you a Blockchain company? No, no, no. That was the last investment cycle. They, they're, they're into A I now we're an A I company

Wil Schroter: now. No one does Blockchain anymore. Blockhead. And so like all of a sudden our whole focus changes to again, you know, what do the investors want? Let's pause there for a second as their competitor. That is great news. Good luck on the funding. Tr dude, I'm gonna be busy getting customers and trying to make money. Right. And that's where you start to see this thing divert. So, so here's what I would say within the first year of your competitor getting funding, it's gonna sound all awful because they can kind of do no wrong because at that point they're getting rewarded just for growing. Right? And they're growing because they have a bunch of money, right? They haven't actually earned anything. They're just spending money. It's like

Ryan Rutan: celebrating somebody for spending their allowance but not celebrating them for earning it, right?

Wil Schroter: Uh So with that said, first year is always gonna look like, oh man, we missed the boat. It's not till second year. You start to see some of the *** in the armor and then third year where things are totally different. Now, we've had the interesting experience at start ups.com in three different ways of seeing what the other side of this looks like. In one way, Ryan, you and I have gone full cycle on multiple businesses almost 20 between us, right? So we know what's kind of how this thing tends to play out. It's very difficult to get past the first couple of years. The second way is we have over a million companies in the platform and we spend all our time talking to them through these things. We're well aware of what happens.

Ryan Rutan: We have a pretty good finger on the pulse of what's happening around here.

Wil Schroter: Correct. The third way was we actively buy companies. Right. We tend to buy companies that are venture funded that have already gone through a funding cycle. In some cases can't raise another round. They're very good companies but they can't raise more money. Somebody just invented an ungodly amount of money into a product that maybe won't become a billion dollar company. But it's awesome for us. Right. We don't care about that. And so we have so many data points about this journey about how it kind of veers off the road. Most people only have one data point. Most people have one data point, which is essentially here's how my company is doing and or here's what I read about in the press about somebody else's company

Ryan Rutan: that data points often. What's our bank balance? It's not enough. OK. So let's go raise some

Wil Schroter: funds. And so for most companies, you know, they're going through this, oh my God, my competitor got funded scenario. They're seeing like the best of mix tape of the whole thing. All they're seeing is how great things are, you know, maybe the proper analogy here is when two people get married, right? The day of their wedding. It sounds amazing. Everyone's celebrating whatever. And you see these Facebook posts and everything that are amazing and nobody stops to say, hey, why hasn't there been a Facebook post in a minute? Yeah.

Ryan Rutan: Right. Call him on the third day of school, seven years later. Right. Is he, how does it look then?

Wil Schroter: Exactly? The marriage, the funding round doesn't Presuppose the rest. So, you know, when I look at things I look at and I say, ok, now how did it start? How is it going? And how did it end? Ok. Usually by year two year three, that company is a bit shook. Right. They're kind of like, oh, shit, this, this market isn't yielding nearly what we had said. It would. And guess what, over the past few funding rounds we've now stacked up a massive preference, right? And for those that are unfamiliar with the term preference simply means when the investors invest money, let's say they invest a million dollars. Whenever you sell, they get their million back first and then the rest gets distributed based on who has what percentage? See,

Ryan Rutan: I thought it just meant that your preferences go away as in ter in terms of like, here's what I'd like to do with the company. Here's how I'd like to exit. Here's how I'd like to draw distributions here. So I'd like to, these are my preferences when you have investor preferences, your preferences go away.

Wil Schroter: A lot of things go away. Ok. So here's one, at which point I've raised $50 million over a few different rounds. That sounds awesome. But people forget that money got spent. Yeah, I raised it and I spent it right. But I still owe it implicitly. I owe it to the investors to put in the form of a preference. What does that mean? That means if I raise $50 million and we sell for $50 million that goes back to the investors and I don't see a penny. We sell for $60 million.50 million dollars goes back to the investors first and we split up the remaining $10 million and guess what? Probably can't sell for $60 million. The assumption is that I can sell for that much. Right? Very few companies get to that threshold. So our window of options starts to, to get reduced further and further. You know what I mean? It goes from a

Ryan Rutan: window to a keyhole,

Wil Schroter: right? Or none, right? A good example. And, and I don't know this business well enough so I could be talking out of school. But in the early days I spent some time with uh Slava Ruben who was the founder of Indiegogo, right? And again, this was like 2012, you know, good enough guys, we weren't like best friends or anything. I just saw him at different conferences and stuff and he was raising big money at the time, right? You in 1020 $50 million funding rounds and to be fair, he had a good story, right? I mean, his story was essentially I'm not Kickstarter but whatever it worked and, and I thought they were doing pretty Well. Right. But then I remember, like, five or six or seven years into it, they were sitting on a wonder, like, ok, well, what happens to this business? Right. Like it, it's, it's no longer the billion dollar opportunity. We thought it would be exactly who would even buy it and what would they buy it for? And how would that work for anybody

Ryan Rutan: involved? Can they? Right. With the transaction be allowed to go through? Right? Like it, it, it becomes really complicated at that point. Your options just go to near zero. It's, it's ring the NASDAQ bell. Sell the company or bust, right? You don't have other options at that point. Let's

Wil Schroter: talk about the other options they don't have that we have. And I think this is where it gets interesting. We were direct competitors with them because we had, you know, uh fundable was used to be a crowdfunding platform for equity, not just a funding platform, but when we were doing crowd funding by name in the same thing, they were doing rewards fundraisers where you don't get any equity at all at the time. And we looked at it as, you know, kind of quasi competitors, but at least in the same space and I kept thinking it just doesn't seem that big. So I was like, I got a cool idea. How do we just make it profitable? Right. I know, I don't see a version where it needs $50 million to go exit. It's not

Ryan Rutan: gonna become a billion dollar company. Right. So, we don't need to raise a bunch of money to try to push it to a billion dollar company.

Wil Schroter: Right. Right. And again, we probably made low double digit millions of dollars in profit on that thing in the same time period of time that they lost as much money. Right. If you think about that, the reason we were able to do that is simply because we had the option to when, when our competitors raise all this money, even if it's not that much money, they are on a totally different plan. They have to the go big or go home plan. Our plan can be like, hey, this thing makes $250,000 a year in profit doesn't pay all of our bills, but it's a sweet side hustle and we'll get paid that for the next 20 years. Right? Once you get funded, there is no option that looks like they're not even remotely close.

Ryan Rutan: You can't, you can't, the investors won't allow it. The cap table doesn't allow it. The required growth doesn't allow it. Nothing lets you kind of just take distributions, take profit off the table. Everybody's gonna have expectations around that, that just continues to get used for growth until we surpass what we raised by enough that you can have some liquidity in this thing, right? That's the contract that you enter into and and it's hazardous, right? So be on the bootstrap side, you've got literally as many options as you can think of or you could trade it for a vacation home in Hawaii. If you want to ask your investors about that one. Hey guys, hey guys, we're thinking about trade and fundable off. There's this sweet place in Maui that will and I were like to share timeshare uh on a six month basis. You guys, ok, if we trade the company for that, I mean, I'm, I'm being facetious here, but like you could do that if you

Wil Schroter: wanted to, the counterpoint that I'll make to, to all of this is just kind of funding in general. A venture capitalist will very quickly point out they'll be like, look, you guys keep to the spectrum, which is, you know, where VC companies fail, right? Which, which is true. And he'll say, like, look all the big companies that have rung the bell, they've all raised a ton of money, right? Almost none of them have been bootstrapped and that person would be entirely correct, right? It's basically saying when it works perfectly, it's the best plan when it works perfectly. But you, you have to apply that, that statistic if you will, like how often it doesn't work like most of the time to your competitors in this case. Think about that for a second, let's say that one in 20 venture investments do well, right. The, the numbers have changed over the years. They've certainly gotten worse the past couple of years. But out of 20 investments I'm gonna make one. If I'm lucky is a home run two will be ok. And the others will kind of use some version of suck. Right. When we give this advice, when we talk to people about these topics, what we're trying to point out is, look, if you're the one that makes it great, you don't have any problems. Yeah, we're talking about the fact that you probably won't be and what to do about it. Uh Because you only have one investment, the investor has 20. This portfolio theory only works for them. We only care about founders that doesn't work for us at

Ryan Rutan: all. Yeah, a couple of other subtle points I want to make here that I think are, are important to this entire thing and in putting it back to the perspective of you're the one sitting there looking at your competition and they've just gotten funded. So let's put ourselves back in that founder's seat for a minute. And I think one of the important ones is that there's, there's a really interesting opportunity now to kind of see what happens right at the early stages of business. You're, you're not. And, and I'm gonna dovetail on the 0.2 here in a second. But 0.1 like it's a canary in the coal mine, let them raise the funds, let them go prove out what works and what doesn't and then follow on to that stuff because there's room in the market for both of you in all likelihood. Right. Like, it's very rarely winner takes all. It just doesn't work that way. We even, we have laws against this happening. So good news. Which Doug tells him the second point, which is that especially at the early stages, you're not really competing with anybody other than your own ability to meet people in your market who want your product.

Wil Schroter: That's it.

Ryan Rutan: Like until you are these two megaliths in the space competing for that last little bit of market share, you're not really competing with each other. And so when I see companies get funded around, it's, it's sort of like, well, that's another good indication that maybe there's a market here, but I'm not gonna take that as a sign that there's a market here. I'm gonna watch and see what they do with it. I'm gonna, I'm gonna try to understand how they're spending their money, how they're hiring, how it plays out. Is there anything I can learn from that? Is there any data that I can take away from that now that they're under a spotlight? Can I talk to some of their investors? Can I meet some of the board? Like, is there anything I can do now that's gonna give me some intelligence. So for me, it's, I do, you do get nervous, right? Of course, you do because there's, there's the chance that like they're gonna dr you know, drop the killer feature before you. There's gonna be something that happens. But I'm gonna go back to this thing if you can really remove yourself from that line of thought and just go. Yeah, but we're still both reaching 0.5% of our time. So who gives a shit at this point? Like we're competing over? Like there is so much out there to still be captured. We're talking about, you know, the competition between what little we've already accomplished. It doesn't matter. It's like, it's like getting worried about a Super Bowl outcome when you're at Peewee football. Like, oh man, they got, they got local Denny's to sponsor them. They're gonna have better helmets than we do this year. How are we gonna make the Super Bowl? Like you're seven, right? Like it doesn't matter yet. You're not competing with the people who are actually going to be your competition long term

Wil Schroter: yet. It's, it's exactly the case. You know, I always picture in my head, Ryan that you and I both land on an island the size of the United States and you're on the west coast and I'm on the east coast and we're like, we're competing for resources. Like, no,

Ryan Rutan: no, not really. There's a whole lot of chopping to do before either of us runs out of fire. We'll see you in

Wil Schroter: 200 deers. And so, and II, I get it, it's natural to be, you know, uh concerned about that and, and, and as, as founders, we should be concerned, what we're trying to do is add to the concern. A measure of prudence that essentially says, let's see what actually happens. Right. Again, it's easy to predict what might happen. But if you've been around the block enough times, like, you know, sadly Ryan and I have been on like many times this, you almost laugh

Ryan Rutan: about it. I literally do. Now. I, I had somebody the other day who is still at idea stage who's worried about what the competitor is doing. I'm like, you need to worry about like talking to a stranger about your business who might want to pay you for it before we start worrying about what anyone else is doing.

Wil Schroter: Agreed. And so like a couple years ago, uh maybe three or four years ago, it was right toward the beginning of the pandemic again. I won't name names but uh we had a competitor that got funded and they raised like $20 million and they hired like hundreds and hundreds and hundreds, hundreds of people. And, you know, we, and we talked about the time and I was like, damn, maybe we missed something because that's a natural reaction, right? They must have been, they must see something that we don't see and sometimes, sometimes it's

Ryan Rutan: something they see me we don't see or maybe it, sometimes it's even just, it is probably just goes pure ego. Someone else saw something in them that they didn't see in us. Why don't they see that same potential in us as if the investor just walked up and dropped money on them. Like, hey, we saw what you've been up to. Here's $100 million right? Never happened.

Wil Schroter: The difference this time around was while I had that reaction and I think it's healthy to have that reaction. You should stay as competitive as you can be. I also also think that for folks that have been around a while, you kind of step back and say, you know, I'm kind of in this business and I don't see it. So maybe you don't know what you're talking about, right?

Ryan Rutan: We, we'll let time

Wil Schroter: tell. Yeah. Yeah. Yeah. And as time has gone on, I've started to become more and more aware of that fact. Right. That like, it's not really an attack on my call, like my ego or my confidence as much as it's me going, you know, maybe you see something that I don't, I'm not all knowing, I'm not an omniscient by any means. However, I know a little bit and, uh I don't think this is a $20 million problem at all. Let's solve it with $1 million.

Ryan Rutan: Yeah. Well, again, I'm gonna go back to the fact that it really doesn't need to change what you're doing, right? Because if they hadn't gotten funded or said differently if they got funded and you hadn't heard about it. Would you have been worried about the plan that you were on? Would you have been worried about the path that you're on? Would you have changed anything about what you were doing? Probably not. Right. And so the fact that this news comes and it looked so I'm hearkening back to the episode we did on, don't just optimize for the size of the outcome, optimize for the probability.

Wil Schroter: Absolutely. One of our best

Ryan Rutan: episodes, there's an inverse here where we can basically say, like, look, don't work about the size of that threat. Like if the competitor took all of the business, it would be terrible for us. Yeah, it would. What's the probability of that multiply that those two numbers together? And now tell me how you feel about that, right? The, the likelihood they're going to come in and just sweep you like it's not even sweep the knee, right? They're not gonna do that, right? And if they do just crane kick them,

Wil Schroter: well, a little good karate reference. Uh No, but when I'm talking about that company that raised $20 million they missed a funding round, had to fire every single person. Right? Almost exactly like we're talking about, this is a direct competitor of ours, right? So I'm not talking about some hypothetical person. This just happened, right? It happens over here's a great example. Virtual.com business of ours that, uh, was virtual system business, whatever. Right. How many times per year did a competitor come into that business? That was venture funded? Right. How many times per year? And this is going years back where it was like, yes, but we're going to automate all these tasks and, and we're like, um, yeah, good luck with that. On the one hand, you can't be too cynical because you gotta keep your ear perked and, and, and you know, things do change. On the other hand, it's like, maybe I know something that you don't know, maybe I've actually acquired these customers and you haven't and I don't know damn well how much they're gonna spend and it ain't the kind of money you're, you're

Ryan Rutan: spending. I mean, that, that's a perfect example actually because I used to watch is that the reason those cycles mattered for me, it just got to the point where it was a bit annoying. I'd see a new one get funded and I'm like, here we go. I'm gonna have to go adjust paper click budgets because they're gonna come in. They're gonna get wild. They're gonna spend a ton of money. They're gonna, they're gonna drive the bids up. So I just have to pull our spend back. I have to be really careful now because they're gonna screw this up for everybody. I burn through the money and they're gonna find out that paying, you know, $5000 to acquire one customer isn't a good idea, but they don't know that yet. Yeah, I mean, it was just one after the next, after the

Wil Schroter: next, the way I look at it is good for me, like the way I look at our company right now just because we've got more experience. We are that sergeant on the battlefield in saving private Ryan where everyone else is just running around trying to not get shot. And we're just kind of like walking around casually because we're like, I'm either gonna get shot or I'm not. Yeah,

Ryan Rutan: all the commissioned officers, all the commissioned officers from West Point who, who just raised their funds, right? You know, just, just getting blown to smithereens, right?

Wil Schroter: And I think there's some value in that, right? And, and in fact, the last episode, we talked about where there, there's, there's some value in not having experience. This is one of those cases where having the experience can also be helpful because your first instinct isn't to freak out. Your first instinct is to say, oh, they're screwed. Let's figure out how that can, that can work to our advantage. You know, strategically, I don't want any company to fail, but if they're your competitor, you probably don't want them to succeed either. And so knowing that this funding round could likely be one of the greatest things that happens for our company is wildly important. So I think for folks when you're seeing these, these funding rounds. When you're seeing these big announcements, here's the deal. Take a breath, tell yourself that you don't actually know what the outcome of this funding round will be for 3 to 4 years. The only thing that matters, the only thing that separates you from them right now is you need to be around in three or four years to pick up the pieces. If you are, you win. If you get freaked out and leave, now you lose. And we want everyone, everyone, everyone to be the one that sticks around in the one that wins. So in addition to all the stuff related to founder groups, you've also got full access to everything on start ups.com that includes all of our education tracks, which will be funding customer acquisition, even how to manage your monthly financers. They're so, so much stuff in there. All of our software including Biz plan for putting together detailed business plans and financials launch rock for attracting early customers and of course, fundable for attracting investment capital. When you log into the start ups.com site, you'll find all of these resources available.