Ryan Rutan: Welcome back to another episode of the startup therapy podcast. This is Ryan Rotan joined as always by Will Schroeder, my friend, partner and the founder and CEO of startups dot com. Will Schroeder uh will uh we also sometimes wear different colored hats. Today is one of those days, we don't always do that. So will, you know, it's startup land, right? And, and we're constantly trying to push the envelope and grow and be better and, and achieve more with our startup companies and, you know, sort of that crystal ball that we all want. It's really hard to tell where on that curve we, we currently are, right? Where, how close are we to the top of the opportunity? And, and I think that one of the things that often gets overlooked and you talk about a lot is what if this is sort of where we're at, right? What if this is the best shot we're ever gonna get? What if we are at the peak of our opportunity right now? What do we do? How do we, how do we protect against, you know, the, the downside? How do we ensure that we're going to maximize what opportunity we do have.

Wil Schroter: You know, the, the problem is we don't know, that's the big thing. We don't actually know where we are in this journey. And it's so much more confusing being a founder because most people have never been a founder before. So it's like playing a sport where we've never played the sport and you don't know when it ends and you don't know what the score exactly is and you don't know if you're any good at it or what

Ryan Rutan: the other teams score

Wil Schroter: is. Yeah, you don't even know who's on your team. Right. And so I think what happens is folks get into this at any stage in their career, but it's just definitely prevalent early in our careers and we say things are going well now they're gonna go well forever. Right. This is the beginning.

Ryan Rutan: This is the new normal. Yeah,

Wil Schroter: careers kind of typically look like this. We start in grade school and each year if we're doing something reasonably right, we move on to the next grade. It's a very progressive life we're used to and then we graduate, maybe go to college and then the same thing and we, and we progress, then we go to a low paying job and eventually wind up with a high paying job. Our expectation for how life works is generally that we'll start small and over time, if we do what we're supposed to, it'll just get bigger then we start a startup. Those

Ryan Rutan: rules go

Wil Schroter: out the window. Yeah. Yeah. And all of a sudden we're in this position where number one, we're not getting paid at all. Number two, we have no concept for whether we're moving forward or backward. And I think even days sometimes we're doing both. What happens is by the time our business, if we're lucky, if our startup maybe catches its stride in whatever way that it's doing, you know, the product starts to take off or we all of a sudden start to get some investment interest or we get some acquisition interest, whatever those telltale signs are, our challenge as founders is, we don't know whether this is the beginning of something that will keep happening or the last time we'll ever see it again. So I think today that's what we'll talk about today, we'll talk about, am I at the beginning? Am I at the end? But more specifically, how do I treat it? What do I do with, with what that little bit of success might look like? And how do I frame it? Because I think if we don't have a frame of reference for how to look at startup success, we're in a really tough spot and we have a lot of chances to really screw this up. So I think we should dig at it. All right. So before we get into this next topic, I just want to let you know what we talk about here is like 1% of the conversation, you know, really, this conversation is going on all day long online at groups dot startups dot com. Um, where Ryan and I pretty much talk endlessly with founders about every one of these topics. So if by the end of this discussion you like the topic and you want to dig into it a little bit more with Ryan and I just head to groups dot startups dot com and we'll pick it up from

Ryan Rutan: there. Yeah, I think so too. And I think the the important thing to, to carry through this entire conversation today is that there are some things we can't see the future, right? There's nothing that we can do to predict whether this is the peak and we should do something about it now or whether this is, you know, 10% of the way there or 1% of the way there. And there's all this opportunity in front of us. But the point is there are things that we can do each of those phases without knowing what the future looks like. That will limit our downside and, and be beneficial to us as the founders, right? They're totally not obvious right to your point. Will we never really know the score, right? It's so hard to understand where we are in all of this. Uh So let's let's hand out some, some tools and some frameworks today for how we can kind of protect ourselves at wherever we are in the startup. Right? Knowing that we don't know, how do we take care of ourselves as founders?

Wil Schroter: You bet. And so let's use the story of a founder that I talked to a couple of weeks ago says an actual founder is a listener. He's awesome, but it remain nameless and we'll anonymize him all the same. Uh If, if you, if you recognize this conversation then, then great. But short of

Ryan Rutan: that, if you're listening now, Bob, we're not talking about you. I mean.

Wil Schroter: Yeah. Yeah, exactly. And so 25 year old founder, amazing founder got into a business a few years back, uh actually raised friends and family. So no, no institutional capital and the business started to take off. It is not an eight figure, it is now a nine figure. So it's moving. So we were talking 100 million plus and uh business is taking off doing incredibly well, scaling like crazy. And he's thinking to himself, where am I in this journey? Is this the peak? Is this, is this where I peak? And this is as good as it gets. I'm getting people that want to invest, I'm getting people that wanna buy me out. Should I sell now? But what if I sell too early? What happens then? Right again, am I am I my peak? Is this the right time to take money off the table? And then the other side if everything fails here, I can just restart. Right. And just do this again. Like that's the way this works. I, you know, I, I, I grow and if I did it once and I'm 25 I can do it at least five more times. Right. So I'll just keep doing it until I get the version that I like. That was certainly how I did it in my career. I thought about it didn't work out exactly like that. And so in looking at how he'd evaluate his career and by proxy, how a lot of other founders that are listening would evaluate where they're at. Let's talk about three different stages or three different questions that we have. The first one being that moment where we strike lightning where all of a sudden all the pieces start working. It's, it's that movie moment in every awesome movie, whether it's Wall Street or Wolf of Wall Street where the main character goes from, broke to like started becoming really rich and there's the montage scene of them,

Ryan Rutan: all the spending spree montage. Yeah,

Wil Schroter: always, always. I mean, it's great because we've got the sense that that's, that's where it's gonna keep on going. Right. And so at that moment, all of the signs point us in a way that's probably not conceivable long term. I'll give you an example that we talked about. Clubhouse, right? Clubhouse, the audio social network that launched. How long ago was that? Two years ago. Maybe longer.

Ryan Rutan: Not that long ago. Yeah. No, I mean, it, it, it was really kind of in everybody's mouth about, uh, 18 months, two years, 18 months ago. Right. And then, uh, yeah. Well, and then not, and then not. Right.

Wil Schroter: And then not, but in, in this, not a knock on Clubhouse just pointing because very few companies have this meteoric of a rise. They go from totally obscure to literally everywhere. $4 billion funding valuation in record time, which again, it's hard to do. I'm not taking anything away from. However, in that moment, when everyone was talking about them, when celebrities were all over it, when investors couldn't, you know, put, put enough money into this company in that moment, they had struck lightning but they don't know. Is this the beginning of our social network or is this the peak of our social network? So how do you treat it? I think we could go on forever about diagnosing it. We could talk about that for a second. But before we get into that, let's talk a little bit about what to do about it in right

Ryan Rutan: bottle, some of it, bottle some of the

Wil Schroter: lighting. I I I'd love to hear your thoughts but overall, when we're talking about protecting our downside, like how would you think about that? Ok. Things are going great. And instead of thinking, how do we 10 X this start thinking, how do I not fuck this up.

Ryan Rutan: Right. Yeah, this is a conversation that, that we, we have with some frequency. Right. Of course, you have to hit, you have to hit lightning first before this becomes germaine. Uh So there's a lot of people listening who are still probably like, yeah, I can't wait to get to that point. I can't wait to have a chance to screw that up, please. We do that. Right. And so to some degree, and I had a conversation about this this morning actually, and it was a company that has, has grown to a point. And now they're saying like, how do we know when to stop investing in growth? And this is kind of the same kind of the same discussion, right? Which is that, is this as good as it's gonna get and that's not what they're saying necessarily, but it's still similar point which is they've now got some lightning, how do we bottle some of it? And so we turned the discussion to saying like, look, you've now earned the ability, you've now unlocked the, the capability of being able to limit your downside a bit here, create some longer term stability and then go back to growing, right? And so it's not, it's not a, a binary decision here of like, OK, let's, let's cash in our chips and, and go home. They don't really have that option at this point. So that wasn't part of the discussion, but what they do have is the ability to stabilize the business, really limit their downside both as a company and as the individual founders, right? And that was what we really started to talk about, right. Going back to your example where he's saying, you know, he's got offers, like, do I sell now? What if this is too early? Well, what does that even really mean? Right. We've talked about this, plenty will, which is that, you know, depending on what your objectives in life are, how much more do you actually need? Right. And so in the case of the, the nine figure business, there may be enough of a sale there that whatever financial goals that individual wanted to achieve could be achieved through that sale, right? So, but in, in the vast majority of cases, what we're talking about is limiting a little bit of that downside saying like, look, can I take some money off the table? Can I do something or, or pay back some, some debts, some things eliminate those personal liabilities, increase my salary a little bit, something along those lines that takes a little bit of that risk out of it for the founder. And in this, the conversation this morning, it was around both de risks it for the founders and in creating a little bit of padding for the business such that they could weather a little bit of storm should that come along. Right. And I think these are the types of discussions that we need to be having at these moments where we start to grow fast, we need to think about like, how are we capturing that? Right. We've done an entire podcast on growth for the sake of growth isn't necessarily a good idea, right? And I'll, I'll repeat that now. So taking a look at that and saying, how do we harness that momentum? Right? How do we harness the momentum? What can we do to limit downside and to put ourselves in a better position to maintain and create an upward trajectory as we move off into that extremely uncertain future?

Wil Schroter: I think what's interesting is in the moment where everything seems like it's going up into the right forever being pragmatic. That's a, a big part of what we're talking about here. Being pragmatic says, I love that things are going well. I love that we just signed up a bunch of clients. I love that all these things happen, but they might not happen again. They might not happen next quarter. So let's just take a beat on hiring that one person, right? Let's make sure we don't overlook the fact that people want to invest in this company because if things don't keep going, the way they are going out, there may not be that opportunity again or certainly maybe not at the valuation, we're getting it at. It's taking a very opposite approach of where all the momentum is shifting in saying what if, and I think that's pragmatic. I just think that's a, that's good business and guess what? It's what you don't do unless you've been through a full cycle before, unless you've seen the other side of this I have and, and as you, the, the gross misfortune to having been through the dot com bust, the financial services bust and now COVID, I know exactly what the other side of this looks like. Right? Shit happens. And when you, when you haven't been through it before, a great example, prior to the dot com bust in 3001 I just assumed that stock markets go up forever, right? Everyone just makes lots of money and you just keep building businesses and they just keep growing, right? Like I'm, I'll just keep repeating this, right? Copy paste. And I and I had talked to these old timers who talked about like in, in these like long gone eras in the seventies and eighties, right? Where, where things apparently had gone bad, unlike our glorious nineties and how, you know, these cycles come and go. But I didn't understand it yet. And so I, I acted without any reverence to things being on a downward trajectory. Now, when things go well, we have very pragmatic discussions saying, hey, this is cool, this is going well, this part of our business is going well, but it might not, right. You know, and so we try to build a system where we can maximize upside, but never at the expense of our downside. And I think that's where people get tripped up. And that's kind of that, that's where my head is at in that striking lightning moment. How do you shore up your defenses in good times? Yeah. Well,

Ryan Rutan: just don't, don't get drunk on the short term success. Right. And when I say short term, I don't necessarily mean that it, that it's defined as short term just because you struck lightning doesn't mean you won't continue to do. So we don't know that you will, right? And so what I'm saying is that we often get drunk in that short term, right? We had our best two months ever and now we extrapolate that out into the future, right? We see this happen all the time, all of a sudden the financial projections change and like, hey, let's just take our best two months ever and pretend that those will exist forever. You can't do that, right? It changes your thinking, changes your planning and lots in, in fact, it's funny, but it's one of the the the best ways to ensure that you won't continue that success, right? Is to absolutely start to change up everything that got you there in the first place. So yeah, now I think the struck lightning moment is a really important one. And as you said, that comes in a lot of different forms, right? It could just be that Hey, we're no longer hemorrhaging cash. You know, we've crossed over into some level of profitability which may not feel like striking lightning, but you're at least no longer weathering the storm at that point. Right now. You're like, ok, relatively smooth sailing. It'll be like this forever. Right. So, now we don't have to worry about all these challenges we had in the past false, that storm can turn right back around and, and come full on again. Right. So these things, unless you

Wil Schroter: haven't seen it go the other way. Yes. Exactly. You know, by the way, I just want to mention if what we're talking about today sounds like the kind of discussion you wish you were having more often, you actually can, you know, we're online all day, every day working through. Exactly these types of topics with founders just like you. So any question you would have or maybe some problem you just want to work through. We're here and we love this stuff and we're easy to find, you know, head over to groups dot startups dot com and let's just start talking. I'll give you another example. This is also within the last couple of weeks. Totally different founder, great founder, amazing company had an opportunity to take 20 million off the table in a business that had been around for, I think, 3.5 to 4 years. Very, they very, very little to no money. So it was real money. To them. And he said, and he said, look as most founders do. He said, it's not that it's an insignificant amount of money. It's not that it's not, not a, not enough money kind of thing. He's like, I think it's worth way more. In fact, I think it's worth 10 to 20 X more as far as what the value is. And by the way, he might be right, what if time will tell? And so we launched into this long discussion and this concept of taking money off the table. And I think we've probably done some episodes on this as well and the net of it was, let's say that you take off five million. And again, I know in startup terms, these two camps, right? There's this one camp that's five million isn't shit. And the other camp that's like you're out of your goddamn mind, right?

Ryan Rutan: So I'm currently losing $4000 a month every month, you know, five million is all the money in the

Wil Schroter: world, right? I, yeah, I definitely not episodes on that. And so what I said to him was like, look, I was like, let's let's assume it was five million. Net. We won't even get any taxes or anything like that. It's five million net and you're in your early forties and you definitely have the opportunity to go build more. And he said, well, yeah, but what if this is it? What if it's that five million and that's the extent of my career. That's all you've ever done. I was, well, let's play that out. Number one, how many professions make $5 million by the time they're 40. Right. None right. Professional athlete, professional actor, Wall Street Trader. You know, like there's, it's like ones of professions where you do that. Ok. So just to be clear because people lose their mind and they assume because they heard it happening with a bunch of other founders that this happens all the time. Ryan and I are here to tell you, it does not happen all the time. You only hear it when it does happen. 99.9% of time it does not happen. So statistically, the probability that this will happen to you is almost zero to begin with here nor there. But the second is what if you were to take that money off the table? And now for the rest of your life, you go get to bet on other bets or even if you lose those bets, you still already won at life again, protecting my downside first, my downside is, do I have safety and then looking at my upside or do a hybrid deal where you take some of the money off the table and you let some of it ride, right? So you, you, you keep some equity in the, in the new venture kind of little lottery ticket. What have you? But I don't have a better, a better way to say this. Do not mess with your downside, do not mess with your downside because at the end of the day it'll be the only thing you can count on. And I think that's a big part of what we're talking about today is, is how do I lock that down? Yeah, I might have given up some upside and by all means, you know, upside is great. But the only way to fuck up at all of this at this whole thing that we do in life here, it's to not fix your downside when you had the opportunity. We

Ryan Rutan: did a really great episode that, that covers a lot of this, which was the, you know, optimize for the probability of an outcome, not just the size of an outcome, $5 million today, right? I'm, I'm doing a, a time value of money here to, you know, finance majors don't get all excited like I remember this one. No, it's not that it's about some money versus potentially no money or potentially negative money, right? So two key points here that you're making will one is that there is some certainty and we're not saying, you know, trade all of your future upside for something today. It's not like, oh just if you get any opportunity, take it, there's never going to be anything else. It's not worth saying. We are saying when you have opportunities, leverage them, take advantage of them do whatever you can to maximize them. Secondarily as you level up in the business do everything you can to make sure that you never go back to that previous level again. It's your save point. That's your safe point. Don't ever go back. You don't have to restart the entire game all over again because the cost of doing that is massive. We used an example in the discussion this morning talking about how much cash Microsoft carries in their balance sheet. For example, they have three years of cost. That's what they carry, they carry three years of cost in their balance sheet. Why? To limit their downside and, and to limit downside isn't just about taking care of yourself as the founder. Now in in startup land, they're kind of the same thing, right? We talked about this before. Businesses don't run out of money founders do, right? When you can no longer make ends meet, it's game over, right? There's no safe point. We're out, we're done. Uh we got to go home now. And so when you can create that security, when you have that stability to play from, you can continue to play. And by being around the chances that you create that upside are massive, right? This is why Microsoft does that because they know that the cost of keeping three years of cost on their balance sheet and cash is far less than the cost of losing what would be the next 10, 15, 20 years of operations and the cash that we generated from it, right? We have to look at it the same way as startup founders when we can create that security so that we can keep moving off into the future. We must do that, right? It buys you so much and it's hard to describe. But I, you know, I keep doing this like asking people, hey, did you take high school art class? You remember vanishing point, right? Where like it just goes off into like that point where like you can't see infinity. That's where you want your runway to be. You want it to end there. You want it to just not be able to see the end of your runway even if it's one

Wil Schroter: dollar profit. Yeah,

Ryan Rutan: exactly. As long as you can keep going, there's the chance that something else is gonna happen, the minute we become susceptible to strong downside turns where it can absolutely end what we're doing. We give up all of that. Right. Absolutely.

Wil Schroter: You know, I think the other side of it is a factor of our age or the point we are in life and where my head is at here is uh this kind of concept of how much risk do we have going forward that I mentioned two stories of two founders in the last couple of weeks. One was in uh mid twenties, the other was in his mid forties. Very very different points in life on this. Is this my last shot kind of question. And so let's paint that picture a little bit because I think this is really important and we'll go through a few of the decades if you will, that, that folks are likely in and kind of what their challenges are in assessing their, their risk if you will about whether this could be my last shot in your twenties. The challenge at that point isn't that you don't have all the time in the world to fix stuff. If you, if you do this wrong, you do. It's that you have no frame of reference as to where you are on the map, you have no idea. I'll give you an example. So when I was 26 I guess we were doing about 500 or $600 million at Diesel in my uh the agency and I didn't know any better. I just assumed that that's like how businesses go, right? And honestly, it sounds so silly when I say it now because it's so ridiculous. But at the time I, I was pretty unaware. Yeah. What

Ryan Rutan: was the only experience you had? You know, that, that you, you had seen that one thing. And so therefore this is the thing, right? And this is what all things are

Wil Schroter: like, correct. And so in talking to uh the, the founder who's got 100 million plus business, he's 25 years old, my point to him was the challenge you have right now is if you screw everything up, you do have the rest of your life to do it again. But what you don't realize is how unlikely it'll ever be that you do this again. So you become somewhat cavalier, right? In this case, at this stage, in our careers, early stages of our careers, we don't consider risk or consequence in the way we're going to later in our careers, couple things working against us. We don't have the experience, we haven't seen it and we don't know where we are now. Fast forward another decade now. We're in our thirties. Not that old. Technically, we've only got 10 years of being in a career adult under our belt. But we've seen a decade go by. We've seen a decade where we did all the right things right. We, we made all our bets and they didn't pan out or maybe they did. My point is we now have a little something to compare it to. Now, we're 35 we've got a business that seems to be doing pretty well, still plenty of years ahead of us. But guess what, for the first time if I screw this up, this could set me back in my career at a really tricky time to be set back in my career because guess what? Maybe I'm planning for a family or already have one. Maybe I'm looking to buy a house or already have one. Maybe I'd like to get out of that student debt. Right. You name it for the first time in my life. I've got some serious consequence. Like stuff that if I screw this up has long ranging impact might not come back. Right. Compare where you like because you know, you and I met when you're in your thirties, you got married, you had your kids or you have like, like shit. Got real.

Ryan Rutan: Yeah, I mean it for, for me, you know, a lot happened is a lot has happened in every decade of my life. Right? And yet the, the thirties I would say was that decade where the, the most sort of permanent changes started to occur, right? Like everything up until that point felt pretty flexible still. Right? And so, uh, and a lot of that probably wasn't true. It felt that way again to your point just didn't have enough experience to know that some of the decisions I was making were going to have permanent consequences because hadn't lived long enough to see them yet. But as you start to do things like get your mortgage, get your, your, your partner or your spouse, have your Children build new businesses. All of these things start to really uh kind of dictate what options you have left. Right. Yes. At 23 I could go overseas, come back, crash at my parents' house, start another company and then kind of run from there. Right. The, the whole ramen uh mentality, right. Talking your entire family of five into moving back to your parents' couch and ramen is a really, really different conversation. We just don't have the same choices and I, I think that we forget that, that it's easy to forget. Right. It's easy to forget how lean, how tight things are at the beginning. Right. And again, like if you're doing some of these things that we're talking about, if you limited your, your downside and you created some padding for yourself and start up 12 and three. If you're on number four or whatever you're at now, then yes, maybe you do have the ability to continue to go back into it. But if you, if you let it burn all the way down, right. Let's, let's just assume that we didn't do that thing. We didn't take money off the table, we didn't manage to keep ourselves or whatever that save point was and we really have to start over from zero. That truly may not really be an option, right? If that's the difference between not having retirement funds or not being able to pay for university for the kids or whatever it is that you need to be doing at that point by need. I mean, need, right. There are some non negotiables in life that come along. Uh, that really changes your ability to, to chase down a startup and So to your point will I think that, you know, decade by decade, this happens. So I, I'm sorry, I'm jumping ahead. I'm, I'm out of my thirties. I'm in my forties and I, I forgot how

Wil Schroter: old I was funny how that works. Right. But, but actually, but play that out. So again, as we're continuing down this path, now, we're in our forties and we have definitively shit to lose, right. However we got here, uh whatever assets we have whatever savings we have whatever, if we screw this up, we have real consequence and we have some consequences that aren't just us anymore. We have consequences that are other people in our lives. It could be anything from our Children, to our spouse, to aging parents, you know, all kinds of folks that are relying on us. I got all those things. Yeah. And we don't have another chance to do this again. Everything we put into this, we're where we're at right now is leading up to this moment. We can't screw this up. Now. We advance another decade and we're in our fifties now. We're looking at it in a, in a totally different lens and we're saying, I've got to look toward retirement. Not only can I probably not do a restart. I'm not saying it's impossible. I'm not, I, I, again, this is, has nothing to do with when people can't go build new things. Right. But what I am definitely saying is that. We're definitely at a stage in life where we don't have as many income earning years, peak income earning years that we had behind us. And this is the biggest difference. Now, we know better now. We know we've been to this game over and over. I mean, I've been doing this for 30 years. I know exactly in a lifetime. Having done nothing but startups, how many opportunities you truly get to strike lightning, to be able to kind of cash out to have all those moments in a career of 30 years across nine startups. And this is all I've done. I've lived like 100 lifetimes. I could probably barely count on both hands. How many moments I had to do something? Life changing in some of the times I executed and some of the times that I didn't, but they were less than 10 moments in my entire life and that's doing everything you possibly could pushing every button and running at full steam. Now, imagine you don't. And what I mean by that is right. Imagine you've, you've been a career person, salary person for 17 years and this is your first startup, right? This is sort of my point. You have even less of those moments, right? Those kind of total arc in your startup type moments. And so I think for all of these, all of these moments, whether we're talking about striking lightning, right? We're talking about whether we can sell the business, whether it's our last shot at risk, I think in all of these moments, we have to stop and say, look, if we're being honest, this might be as good as it gets. It's not, it's not us doubting ourselves or anything else like that. That is just a pragmatic stance. You look at any empire in the history of history, it had a moment, right? No matter how great it was at that moment, it had a moment. Every star, every startup, every, every everything had a moment in that. It didn't what we need to do as founders. We need to look at those moments. And the first question we have to ask ourselves is if this is it, what did I do in this moment to protect my downside? So if it is it now I look back and say, oh shit, I should have missed it. I did it all right. So that was fun. But let's actually keep this conversation going. You've heard what we think about this. But you know, Ryan and I would really like to hear what you think and we're online like all day long, pretty much talking about every startup topic you could think of from fundraising to customer acquisition to just really how to get all of this crazy startup stuff out of your head. And there's tons of other founders just like you, they're weighing in on these topics. So you'll get a chance to just hang out and meet some really smart founders. We're also super, super easy to find you head over to groups dot startups dot com and let Ryan and I hear what's on your mind. Let's get to know each other a little bit and let's just start having more of these conversations.