Lessons from 1,000+ YC startups: Pivoting, resilience, tar pit ideas, more | Dalton Caldwell (YC)

Dalton’s background (00:00:00)

• Dalton Caldwell is the managing director and group partner at Y Combinator.
• He has worked with over 1000 startups across 21 different YC batches.
• Some of the notable startups he has worked with include Instacart, Retool, Brex, DoorDash, Webflow, Replit, Amplitude, Whatnot, Razorpay, and 20 other unicorns.
• Prior to Y Combinator, Dalton was the co-founder and CEO of imim (acquired by Myspace) and co-founder and CEO of app.net (an early ads-free competitor to Twitter).
• Don't die: The most important thing is to keep your startup alive.
• Avoid "tar pit" ideas: These are ideas that seem like they have potential but end up being very difficult to execute.
• Be willing to pivot: A good pivot is like going home - it's warmer and closer to something you're an expert at.
• Talk to customers: Get feedback from customers early and often.
• Don't over-delegate early on: You need to be involved in all aspects of your startup in the early stages.
• Avoid these startup ideas:
  • Anything that requires a lot of capital.
  • Anything that is too complex.
  • Anything that is not scalable.
  • Anything that is not defensible.
• 20 ideas Dalton is looking to fund:
  • New ways to make work more productive.
  • New ways to make healthcare more affordable.
  • New ways to make education more accessible.
  • New ways to make transportation more efficient.
  • New ways to make energy more sustainable.
  • New ways to make food more nutritious.
  • New ways to make housing more affordable.
  • New ways to make entertainment more engaging.
  • New ways to make communication more efficient.
  • New ways to make shopping more convenient.
  • New ways to make travel more enjoyable.
  • New ways to make finance more transparent.
  • New ways to make government more accountable.
  • New ways to make the world a better place.

The value of simple advice (00:04:41)

• Founders often need to hear seemingly simple and obvious advice because even the best in the world benefit from being reminded of the fundamentals and basics.
• Caldwell's mantra is "just don't die", which means keep your startup going and doing high-quality reps.

Dalton’s advice: “Just don’t die” (00:07:04)

• The underlying theme in successful startup stories is that the founder should have rationally given up at some point.
• Founders need to have an irrational intention to keep going even when the world tells them it's not working.
• Founders often have to go through near-death experiences before they get lucky and achieve success.

Knowing when to stop (00:08:39)

• Consider if you still enjoy what you're doing and if you have fun with your co-founders.
• If it's profoundly affecting you negatively, your relationships, and your team, it might be time to stop.
• Founders who turn things around often love their customers, product, and the problem they're solving.
• If you don't care about any of those things and are just having a bad time, it's harder to be encouraging.
• It's okay to shut down a company if it's going poorly; in 10-20 years, no one will remember.
• Life is short, and it's not worth forcing yourself to work on something that makes you miserable just to avoid losing face.

Deciding to pivot (00:11:45)

• Dalton Caldwell shares a story about Brex and Retool, two startups that were struggling during the YC W17 batch.
• The founders of Brex (originally called Vyond) were feeling despondent about their VR headset idea and considered shutting down the company.
• Cashew, another startup in the batch, was also struggling with their PTP for the UK.
• Brex pivoted to become a corporate credit card company and is now a decacorn.
• Cashew pivoted to become Retool, a no-code development platform, and is also a successful company.
• Both companies were able to turn things around by changing their ideas and getting excited about their new directions.

Characteristics of a good pivot (00:14:26)

• A good pivot gets warmer instead of colder from what you're an expert at.
• Builds on what you learned from the prior idea.
• It's closer to something you know and have experience in.
• It might not have occurred to you that this thing you know all about would be a good idea.
• You might have a barrier on why you don't want to work on a certain idea, but sometimes you have to get over it.
• Brex: They had worked on a fintech company in Brazil when they were younger, so they pivoted to focus on what they knew.
• Retool: They had built similar internal tools at their internships and for their Venmo competitor, so they knew what to build.
• PostHog: They knew a lot about analytics and had strong opinions about it, so they pivoted into their idea.
• ZipRul: He knew a lot about the crazy picture process at Airbnb because he worked there, so it was a good pivot.
• Segment: They started with software that they sold to universities and then pivoted into a Mixpanel competitor after learning about how analytics works.

Knowing when to pivot (00:17:53)

• Consider pivoting when you run out of ideas to grow your business.
• Continue trying new growth ideas if you have many viable options.
• Pivoting may be necessary when you lack clear growth strategies.

Zip’s journey and finding a market (00:19:03)

• Zip went through six pivots before finding success with a billion-dollar business.
• The founders of Zip had expertise but lacked clarity on the target market.
• Dalton Caldwell suggested targeting large, publicly traded or private equity-owned companies that are hated by customers and have poor software.
• Zip followed this advice and found success by disrupting the procurement software industry.

Why Dalton says to “Move towards the mountains and the desert” (00:21:22)

• People tend to have similar startup ideas because they consume the same information and network with similar people.
• To find unique startup ideas, founders should explore their personal interests and experiences or venture into unconventional areas of expertise.
• Founders should avoid following conventional wisdom and trends, as these can lead to saturated markets.

Tar pit ideas (00:23:45)

• Tar pit ideas are ideas that many people are drawn to and get stuck in.
• They are often unsolved problems that receive positive feedback.
• Tar pit ideas can be difficult to pivot out of.
• Examples of tar pit ideas include:
  • Apps to coordinate with friends to decide where to go out at night.
  • Music discovery startups.
  • Location-based social media platforms.
• Tar pit ideas are appealing because they seem like good ideas and receive positive feedback, but they can be difficult to execute successfully.

Understanding why investors say no (00:26:49)

• Investors have limited budgets and can only make a few investments.
• Investors choose to invest in startups that they are personally excited about or that have the potential to be phenomenally big.
• Investors are not saying no because of minor details like a bad Zoom setup or the color of a shirt.
• Founders should put themselves in the shoes of investors to understand their decision-making process.

The importance of market size (00:29:14)

• Market size is crucial for later-stage investments with high valuations.
• At the early stages, market size is less important.
• Some successful startups, like Uber, Airbnb, and Razorpay, had small initial market sizes.
• YC focuses on team and product-market fit rather than market size during early-stage investments.
• Many investors are focused on market size, so founders may face rejections if their market is deemed too small.
• Founders can make arguments for a large market size, but investors may still prefer less risky opportunities.

Avoiding over-delegation and hiring senior people too early (00:32:16)

• Founders should avoid over-delegating and stay close to product development.
• Hiring super senior people with fancy resumes too early can be a trap.
• Founders should be deeply involved in product development and care about users and product quality.
• Common mistakes include hiring a PM or senior salesperson too early.
• Investors may push founders to hire executives or scale the team too quickly.
• Founders should prioritize spending time on what they care about, such as customers and product, rather than networking with investors.
• Dalton Caldwell uses Koda to plan podcast episodes, manage content calendars, and prepare questions for guests.
• Koda is an all-in-one platform that combines documents, spreadsheets, and apps to help teams collaborate and get more done.
• Koda offers extensive planning capabilities, including setting and measuring OKRs, mapping dependencies, creating progress visualizations, and identifying risks.
• Product teams at high-growth companies like Pinterest, Figma, and Qualtrics use Koda.
• Startups can sign up for Koda for free and get $1,000 in credit by visiting coda.io/Lenny.

Why startups fail (00:36:43)

• Founders often lose hope and give up before exhausting all options.
• Founders tend to fear running out of money and shut down prematurely, while in reality, many startups fail due to internal conflicts and loss of motivation.
• It's important for founders to recognize when it's time to let go and move on, but they should also be aware that many successful companies have faced near-death experiences and turned things around.
• Almost all founders experience moments when they feel like giving up.
• About 50% of founders go through extremely difficult situations where they seriously consider shutting down.

Effectively talking to customers (00:40:30)

• Founders should prioritize in-person meetings with potential customers to overcome social anxiety and engage in direct conversations.
• Founders should allocate around 20-30% of their time to customer meetings, as demonstrated by successful startups like Airbnb, Brex, Retool, and Zip.
• PostHog's open-source launch generated excitement and valuable feedback from the community, shaping the product's development.
• Despite not always receiving positive feedback, the PostHog team consistently found people eager to engage with them, refining their product through this engagement.

Examples of startups hustling to talk to customers (00:45:17)

• DMD reached out to people on LinkedIn for advice on procurement products and gained early beta testers.
• Collision Install helped customers implement Stripe by visiting their offices and assisting with the installation process.
• Stripe's Patrick Collison was very hands-on with customers, checking in weekly and providing support.
• Collison's persistence in helping customers implement Stripe contributed to the company's success.

Patterns of successful startups (00:48:01)

• Founders who build big companies share a common belief that they can make their company successful, even when faced with challenges and setbacks.
• This belief is not necessarily a personality trait, but rather a core belief that drives their actions and decisions.
• Founders often gain this conviction as they pivot to a good idea, build a product that customers care about, and receive positive feedback from customers and data.
• Founders should focus on building conviction in their idea by talking to customers, building a product that solves a real problem, and getting positive feedback from customers and data.

YC’s Request for Startups (00:52:05)

• YC put out a request for startups, which are 20 categories of ideas that YC wants to fund.
• The purpose of the request is to inspire people to apply with ideas that are not commonly seen.
• Some of the ideas YC is excited about and looking to fund include:
  • Enterprise resource planning (ERP) software.
  • Open-source companies.
  • Space companies.
  • A way to end cancer.
  • Spatial computing.
  • New defense technology.
  • Bringing manufacturing back to America.
  • Better enterprise glue (software to connect business systems).
  • Small fine-tune models as an alternative to gigantic generic ones.
• Dalton made a request for ERP software because he gets few applications in that area and believes it's a good opportunity.
• He hopes the request will introduce the idea of ERP to founders who weren't previously aware of it.
• Dalton would like to see more applications with open-source ideas, space companies, and hard science/deep tech ideas.
• He believes there's room for improvement in enterprise glue software and small fine-tune models.

Early days of Silicon Valley (00:55:37)

• Successful individuals in Silicon Valley, such as Mark Zuckerberg, Reed Hoffman, Sam Altman, Elon Musk, and Sean Parker, share a common trait of perseverance and adaptability, continuously reinventing themselves and embracing different eras and industries.
• Career paths are often long and varied, allowing for multiple shifts and reinventions, with both introverts and extroverts achieving great success by leveraging their unique skills and strengths.
• Genuine passion and obsession with a particular field or interest are key drivers of success, regardless of external factors like location or career choices.
• Dalton Caldwell, a successful entrepreneur and investor, emphasizes the importance of passion and enjoyment in work as key drivers for success.
• Pivoting is crucial for startups to adapt to market changes and customer feedback, while resilience is essential to overcome challenges and setbacks.
• Tar pit ideas, which are initially exciting but ultimately lead to dead ends, should be avoided, and founders should focus on building products that solve real problems and provide value to users.
• Conflict policies at venture capital firms may need to be reviewed to avoid potential issues with founders.

Contrarian corner: growth hacking for early startups (01:05:33)

• Growth hacking and analytics are a waste of time for early-stage startups.
• Founders should focus on getting their first customer and talking to them instead of complex growth hacking theories.
• This advice is especially relevant for founders who have worked in big tech companies where products already have scale.
• For consumer apps, founders need to have a sophisticated view of how to get the company off the ground.
• They should focus on understanding their competition and what they did to get their first customers.
• Founders should ignore what successful companies are doing today and focus on what they did when they were starting out.

Failure corner (01:09:28)

• Despite failures as an investor and in startups, Dalton Caldwell emphasizes the importance of perseverance and not letting failures define one's career.
• He stresses the need to maintain optimism, positivity, and energy to keep trying and doing good work.
• Caldwell highlights that even if many attempts fail, it doesn't diminish the truth or value of these principles.

Closing thoughts (01:11:15)

• Caldwell suggests that aspiring entrepreneurs should start by talking to potential customers and attempting to pre-sell their product or service before writing code or taking other steps.
• He believes that customer validation is a crucial first step before building a PowerPoint deck, raising money, or engaging in other startup activities.
• The timing of building the product depends on the level of conviction and evidence of customer interest.

Lightning round (01:12:22)

• Dalton Caldwell, a partner at Y Combinator, shares valuable insights gained from working with over 1,000 startups.
• Caldwell recommends reading popular sales books like "Getting to Yes" to grasp sales fundamentals.
• During founder interviews, he favors direct questions like "Tell me about your work" to evoke genuine and insightful responses.
• Caldwell seeks evidence of thoughtful preparation and research in founders' answers.
• He suggests founders regularly self-assess their enjoyment and fulfillment in their work, considering a change if necessary.
• For non-startup founders seeking general advice, Caldwell recommends the "Life Tips from Top Founders" podcast episode.
• Founders who approach YC after watching Caldwell's videos are often surprised by his authentic and consistent demeanor.