Dalton & Michael: The two mindsets that can kill your startup

This is Michael Seibel with Dalton Caldwell. Today, we're gonna talk about whether you are being too optimistic or too pessimistic about your startup. So, Dalton, set this topic up. We 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 gonna fail. Right? That's Simple. So 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 is 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 and fill in the blank on the painful experience. It's like Yeah. Bad customer call, bad investor pitch meeting, talks to a friend, like, whatever whatever it is. Talk to an adviser, but, like, negative experience is getting them to run away.

Yeah. It's like Eeyore or something. I don't know if that's too weird of a reference, but, you know, woe is me. Everything 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 shit, and they're screwed. Like, it just nothing nothing good can happen to me.

That is what talking to a too pessimistic founder is like. How about the comical stereotype type 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 cause you assume 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 theoretic.

Yeah. It 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 the planets are aligning. The you know? Like, their startup is the best thing ever. And then, again, yeah, you ask questions, and you're like, wait.

This all sounds kinda bad. Aren't you concerned about some of this stuff? And they're like, no. No. This is all going according to plan. This is, like this is really good. And And so, again, in both extremes here, there are problems. Okay?

There and not only that, they multiply when you have god forbid, have employees. Right? Like, then it's 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 wanna work for? Who would you think would be, like, a good leader? Because to 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 gonna work. That ain't gonna like, that's a bad leader. So you're you're you're off the team. Okay? On the other hand, though, a too pessimistic sorry. A too optimistic leader has horrible plans.

Their plans are, like, involve magical things happening, rainbows and ponies and space time travel. And, like like like like, if you listen if you actually listen to the overoptimistic 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 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.

landmass at all? Like 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 you lose your credibility in, like, two seconds.

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

And 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 gonna 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, it's like, pack it 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 get 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 we email didn't produce a hundred leads. We get this, like, every batch, and we have to be like, it's gonna be fine, folks. Like, why?

I think it's expectations today. I think when you I think you could be too up 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 that even when it's working, you mostly get no's. And so that's the way you might be too pessimistic is.

it doesn't immediately work. Who knew these things take longer than immediate to work? So 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 gonna work.

And and I take that to mean like, I ascribe godlike 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 would never use your product, don't invest in your space, aren't good investors, don't invest in a lot of companies. And then your customer might not be an early adopter, or God forbid, you might have miss 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 is does not mean you can't build a startup, like or this product's not gonna work or this idea is not gonna work. One last one that I wanna throw in because, I find it really interesting. We help founders set goals for YC. What's the goal I wanna accomplish by the end of y c? We call it 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 missed the point. Like, setting the aggressive goal, the purpose was to get you to move fast, to get you to to go, go, go. Like, it was the 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 kinda go into the Demo Day season being like, we didn't accomplish our 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 wanna 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 I don't know how to articulate it. Like 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 cofounders like, everyone around them talks to them and feels worse after talking to them and deflated. Yeah. And and, like, last thing on this, like, we talk about the of the difference between being high energy and low energy. It's like the thing.

Like, you wanna talk to someone and get energy when they're telling you about their company and walk away from the conversation and be 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 and what problems you wanna solve cause 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 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's a little harder. And I might argue maybe the reason why optimism is a little harder is because we're kinda 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 to that's a harder thing for us to cure. So why don't you introduce the 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. I the term I use is is magical thinking. I think it's like a like a psychology term, but and, yeah, I think it's used in more of a clinical setting. So this is not the technical technical definition. This is my my founder version of magical thinking. Yes.

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 start up, 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 that. Well,.

by the way, I think they extend that thought to that's how companies get funded. Like 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 or it's like they've watched too many.

romantic comedies or some 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 acts, 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. Yeah. You get 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, like, 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 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? What 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 fault 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 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. I that's a big one. I think it all 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. 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 cofounder 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 kinda, 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. Yes.

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 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? Like like, we need a little more.

Like like, we're we're just not that smart. What else falls in this category?

I think too much optimism around thinking that because you raised 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 Yes. Somehow they have magical powers. And so because I you know, because we raise from x y z and, again, in this market, this is more maybe people will believe us more.

They no one believed us 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. That has been so often.

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, a 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. As and 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 optimism. Like like, and it's opt it's it's too optimistic on a 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 if it's startup. Like, yeah. Like, why why would the number one marketing person in the world work for you? At this stage, they probably would. You know?

And and the last one that I come up with on the too optimistic front that I see a lot is, like, this is obviously gonna work because it's the cool thing, because it's the trending thing, because it's 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 start ups and video conferencing start ups 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 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 gonna 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 wanna get in before everyone thinks it's cool, not at the peak of everyone thinking it's cool. Like, the peak of everyone thinking school is usually right before.

everything goes to shit. 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 balance is I think this is a good idea, but it's gonna be really hard and clear evidence for this is is gonna 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, is 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 is a founder is someone who can know both, oh, no. Like, my star employee just quit and says my startup is horrible.

And and now I don't know what I'm gonna do, but I'm gonna get on this 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, they go too far. The way they resolve the dissonance is to go too far one of the 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? Until your vaccine's full. 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 talking. Sounds good. Thanks.