YC Partner and Head of Admissions Dalton Caldwell gives us the rundown on pivoting and shares his advice on how founders should think about it for their startups.
Dalton: How's everybody doing? I am Dalton. I'm a partner at Y Combinator. In addition, I'm the Head of Admissions, which is our selection process for the companies that get into YC. I'm here to talk about pivoting. Yeah, let's talk all about pivoting. Cool. All right. Here's some stuff we're going to cover. What the heck is a pivot, why you should pivot, when you should pivot, and evaluating ideas to pivot to. So we're going to try to cover all the bases here, all right? Let's talk about the term "pivot". This is one of those terms that if I'm in a cafe and I hear someone talking about pivoting, I roll my eyes because it's one of those words that I associate with annoying startup people. And so, let's just explain what we mean here. It just means changing your idea. That's all it means.
And technically, if we want to be really technical, I would call a true pivot where it's like a real company and you have lots of users and you've raised money, and you're like, "We're going to shut this thing down and do something different." So the most famous example is Slack. They raised money and had, like, 100 employees for this video game called Glitch, I was a beta user, and then they one day just shut it down and, like, did something crazy. I would call that a pivot. I think that's a valid use of it. Probably what most of the folks here are doing, I interchangeably call it pivoting, but you should just call it changing your idea. It should feel really lightweight. When you're at the earliest stages of your company, especially prelaunch or very near after-launch, changing your ideas constantly is kind of the norm, and I wouldn't think that this is some huge thing.
It should feel lightweight. And frankly, if you're not in a state where you're rapidly changing ideas or assumptions over, and over, and over again in quick succession, you are likely doing it wrong. You are likely moving too slow. And so this is just, like, part of it, changing your idea constantly. Trying to find exactly the right version of your idea is something you should be doing in the beginning. Let's talk about why you should pivot. So the main reason I would argue is opportunity cost. And the definition of opportunity cost is that the loss of potential gain from other alternatives where one alternative is chosen. So in other words, you can only really work on one thing at a time. Sometimes people try to violate that rule, but that's a whole different topic. And so, by working on something that's not working and you have evidence that it's not working, you are taking opportunity cost to not be doing something else. It's as simple as that, right?
I don't know. I tried to write some pseudo-code here for you about, you know, it's kind of a joke, but, like, how well things are working divided by the number of months of concerted full-time effort. If that number is less than excitement to work on something else, plus confidence you can find something better, you should pivot. And so, the key thing, if you, like, look at this equation, like, what am I really trying to say, it's that if you've worked on something for months, and months, and months, and months, and it's not happening, like, that's a pretty good signal, right? Like, that's what drives this equation that I put here the most is the number of months you worked on something and it's not working. And so if you're throwing good money after bad, good time after bad, and it's not happening for you, that is a pretty darn good signal.
But if it's really, really, really early, and you've only been working on something a couple of weeks, it's less obvious. Let's give you some good reasons to pivot. "I hate working on it." All right. "It's not growing. It's just not working. I keep doing the thing and nothing is happening. I'm not a good fit to be working on this idea." Like, the more you learn about this, the more you realize that you are just not the right person for the idea. Another one is, "I'm relying on an external factor outside of my control to make my startup take off." So a couple of examples of that are like relying on mainstream virtual reality headset adoption. That's a good one. You know, like, "Any day now, the new Facebook thing is gonna take off and that's when my VR app is going to take off." Or like relying on like mainstream crypto-adoption, things like that.
Those are totally out of your control, and if you're just sitting here hoping someone else does something good and then your startup will work, man, you should definitely pivot. Another one is just where you're out of ideas on how to make the thing work. You've thrown everything against the wall to make your current idea work and you're actually kind of out of ideas, that's usually a sign you should pivot. Good reasons to not pivot: You're trying to run away from doing hard work. Sometimes you see people where they build a product, and right when it gets to sales time, they pivot, and they do that over and over again. That's probably not a good reason to pivot. It's just someone trying to dodge the sales part. So watch out for that. Also, another reason not to pivot is if you're the type of person that changes their idea over, and over, and over, and over again, like, chronically, and you're detecting yourself doing that. It's good to actually follow something through all the way.
So you just want to watch out for that happening. Also, a good reason not to pivot is that, like, you know, you just hear there's some hot new thing and you want to pivot because you write a Tech Crunch article because someone raised money for a hot new thing. That's not a great reason to pivot. Let me give you some reasons on why people take too long to pivot. And the reason I mention this is I would argue on average, most people take too long to pivot, right? I think that's usually, like, if I had to put people in buckets, more people take too long than the reverse. And so, why do they take too long? Loss aversion. When you feel like you've invested in something, you have a really hard time letting go to it and that's loss aversion.
You can research this. Have a little bit of traction. Like, you have a few users or, like, one customer and you're like, "Maybe it'll work." That will make you not pivot, and that's rough. Another thing is, like, people are very polite in the world and they have a hard time telling you the truth that they don't like the thing that you're working on. And so a lot of founders get confused about politeness and getting that confused with traction. And so you're never gonna really, I mean, I shouldn't say never. Most likely you're not going to have people being like, "Your idea is horrible. Give up. Now. I will never be a customer." They're not going to tell you that to your face. They're gonna be like, "Oh, this is great. Maybe if you add a few more features and come back, you know, we'll take a look at it," right?
Oh, that's dangerous. Because you can end up doing that iteratively over and over and over again for, like, years and never actually get customers. So watch out for politeness and getting that politeness confused with traction. Another one is a fear of admitting weakness or defeat. If you pivot, you're giving up in some way. Another one is putting blame on why things aren't working on customers or investors. So this is where you're like, "I'm not wrong. The world is wrong." You know, like, "No one gets this. This is, like, way ahead of its time." Things like that are not a great sign. And usually, people realize that maybe it is kind of on them versus on the external world, but it takes a long time to get there. And then, finally, there's a lot of inspirational stuff out there that's just like, if you just believe hard enough and keep going, you know, you'll eventually be recognized and everything will be great. And so there's a lot of those inspirational messages out there and that can kind of be counterproductive.
I don't know if this is super legible, but basically, this is where I talk about a little bit of traction thing. I call it the uncanny valley of product-market fit. And you know what's weird, I noticed this as a YC partner. Someone that gets into YC with an idea that's just a total fail, like, immediately, is actually at a huge advantage than someone that has, like, a little bit of traction. Isn't that weird? Like, a total fail, the founders can declare bankruptcy on the idea immediately and just work on other stuff with no regrets and no, like, second-guessing, "Oh, should I pivot?" You know? They're like, "Wow, that was really bad." And having that freedom to immediately throw off the old idea and work on a new one is actually a weird advantage. Isn't that counterintuitive? And so you just want to really watch out for a little bit of traction because I've seen that be a trap that have captured a lot of really talented people for long periods of time.
And then let's just talk about the anecdotes. So anecdotes about, you know, stories of people that just kept doing what they were doing and it didn't work and then five years later, you know, it was great. I think those are cool and they're inspirational, and I like them, and they're all true, you know, they're anecdotes, but it's kind of like anecdotes about people that, you know, play the lottery every day for, like, five years, and then they won the lottery and now they're like really happy and, you know... That's super cool, but that is not actionable for you. Right? There's nothing you can do with this anecdote about someone that just kept believing strong enough. Like, I would much rather give people advice to play the statistics of this and to take accountability for, like, their own actions in the world than just, like, hope and dream that you might be one of the anecdotes too. And so, if you decide to pivot or don't decide to pivot, just remember you decide. It's your life and if it works out good or bad, that's on you.
And so often I get founders that want to push this decision on me as a YC partner or other authority figures about, "Is this idea of working or not? When should I know when to give up?" And ultimately, all we can do is give you guidance, but this is exactly in the class of problems that is on the founder and never something you should look to an authority figure to tell you how to decide. Product-market fit, I'm sure, you know, we're talking about this a lot. It's been discussed a lot in Startup School and it's because it is so important. Most people will never get it. Probably most people watching this don't have it, even if they think they do. And you know you have it when growth is not your biggest problem, it's other stuff. And one good reason to pivot is you just get more shots on goal to try to get this elusive thing, right? Like if you made something and you launched it and it's like, "Man, not really working," a dang good reason to pivot is you get another roll of the dice. You get another shot.
And so I've just seen people that use these opportunities really well. It's much easier to be lucky when you get, like, half a dozen shots on goal than one, right? And so, if we're just playing the statistics of how do I get product-market fit, taking several high-quality shots, notice I say, "high-quality", you can't just constantly pivot through stuff and never launch it. But if you do a full, awesome product iteration of making something, completing it, shipping it, giving it to people, following all the device you're looking here and you can give yourself multiple of those shots, I would argue you are creating luck for yourself. And the odds that you actually hit something that works are much higher than someone that only ever takes one shot. Okay. Let's talk about how to find a better idea. Here's the advice that I give people during the batch when they are looking for an idea to pivot to. Find something that you're more excited about and that makes you more optimistic about the world and just generally more excited to wake up in the morning and work on the thing and not less excited.
And there's a corollary here, and this, I think, is counterintuitive. Often choosing what is perceived as a harder idea is good. And so I see a lot of people where they're like working on something like ad network, ad tech thing to, like, affiliate something, ad targeting. I don't know. Those never work and it's because they're not inspirational and no one cares. And so, when you see people go from that into something that's really, really exciting, right? Like, "Oh, I want to help small business owners do X," or, I had a company in this last batch, and they started it with this ad tech thing that they're all very bored with and they pivoted to Robinhood for India. And the moment they pivoted to that, the founders, they were like, they lit up and every conversation I had with them, they were, like, so excited about their idea, and it was contagious talking to them.
And it was almost like a different...like, the amount of change, and it was the same founders, but what changed is they found an idea that was real, that they were excited about and not just some, like, boring ad tech crap. No one cares about that stuff. Okay? So if you're doing something that seems like a good startup idea because you read in Tech Crunch people raised money for it but it's not inspiring to you, and you're like, "Man, this is pretty lame," you probably want to find something that's more exciting to you. Another thing to do on finding a better idea is make an honest assessment of what you're good and bad at. This is hard, but you want to be really self-aware of what you're good and bad at and play to those strengths.
And another thing here for finding a good idea is, especially if it's a pivot, find something that you can very quickly build and validate and not something that takes like a year or two of R&D, right? Often, like, if you pivot from one thing that's impossible to ship into another thing that's impossible to ship, not good. Ideally, you find something that's way easier to ship, like, really fast. Highly recommended. Quick note here, caveat, it's totally okay to work an idea where you're not going to raise venture capital. All good. Most businesses in the world don't require venture capital. And so if what you're doing is consuming lots of content on how to start a company like this, and it's all kind of venture capital-focused stuff, and you're not going to do something that raises venture capital, you can kind of get blown off course idea wise. And so, just be self-aware about this and realize that if you do want to raise venture capital, the idea does matter a lot.
And there's a constant, like, recurring theme I see is people that are trying to raise money for something that is definitely not venture capital fundable, and they get really frustrated. Everyone gets frustrated with that. It doesn't make sense for all businesses, and so just be self-aware of this when you're choosing an idea of like, is this something that, at least hypothetically, is VC fundable? Just to give you some rule of thumb of, what does that mean? I don't think there's a guidebook for what venture scale means, but here's some rules of thumb. Can I imagine this business generating hundreds of millions or billions in net revenue per year? That sounds venture capital fundable.
Can I imagine the revenue growth to get to those numbers to happen in, like, less than 10 years or 5 years? Like, can this happen really fast? Can I imagine this thing that I'm doing is a publicly-traded company someday? Can I picture it? Can I visualize it? Kevin's first lecture talks about this, but these are all things, like, if you just can't see any of these, that's not a great sign. And other key properties is usually technology is a key component, and usually, the founders build the technology, at least in the early days for something to be VC fundable. You want to see really high margins, not for everything, but again, just a rule of thumb, software margins, you know, 80% gross margins, 70% gross margins, really high margins is something you will want to see. And then, it's funny, like, I think a lot of people learn about fundraising from "Shark Tank", and I don't think a lot of that stuff is venture fundable just in case you were wondering. It's fundable for people that want to put product stuff together, but I don't know if, you know... I think you'd have a hard time raising money from venture capitals for the majority of that stuff.
But, hey, like I said earlier, it's your call, it's your dream, so figure it out. When's the best time to pivot? As soon as these things happen. You've launched and trying to get users for weeks or months and you feel hopeless, it feels hopeless, you should probably pivot. When the idea is impossible to get started with. Like, "Cool, once we raise $100 million dollars, then we will build a prototype." You should definitely pivot if you're one of those people, because unless you have $100 million dollars, you are in a chicken and egg unsolvable issue. And here's another one, you know when in your heart it's not going to work. A lot of founders know secretly that their thing isn't working, but they want to keep up this front to everyone in the world that it is working and they think they can fool people into funding them or working with them.
If you can't convince yourself and you know this isn't really working, man, is that a good time to pivot, right? Like, you know, more than anyone else about your business, so you gotta listen to yourself. And it's sometimes not stuff you want to hear from yourself. Okay. Let's talk about other pivoting stuff. If you pivot over, and over, and over again, it causes whiplash. Whiplash is very bad because it causes founders to give up and not want to work on this anymore, and that actually kills the company. Weirdly, it's more deadly to your company to get whiplash and get sad than to work on a bad idea. Because if you're having fun working on a bad idea, you won't give up, and then conceivably, you can maybe make it work. If you get really sad and hate your life while you're working on your startup, you will definitely not succeed and it's because you will give up.
And so this is weird. Like, it's kind of better to work on an idea that's not the best one if you're really having fun. And then you just wanna be in a happy medium. Some founders pivot way too much and they'll probably watch this lecture and then pivot once a day for six weeks. Don't do that. And some people just work on the same idea for five years and it's not working. And they just are really obstinate about it. Just find the happy medium, like everything else in life. Another thing is it's really hard to have employees and be pivoting, so don't do it. It just makes it slower and it makes them really sad. And so trying to scale up, like, a team and taking all the advice here about how to scale a team while you don't even know what your idea is, or you think you're gonna change your idea, definitely not best practices. It only slows you down.
I would only add people to the team after you know your idea is working and you have confidence. Otherwise, it's just all downside. Okay, let's go to a different thing here. I made this up for this lecture and I came up with a subjective notion of a quality score just to give you a few criteria to evaluate an idea. Okay. And so what I did is there's, you know, four key things that I think you could use to evaluate the quality of an idea, and you could give them a 1 to 10 and then you average those together to give an overall quality score. Okay? So let me just go into detail on these. How big of an idea it seems to be. And again, this is the stuff I talked about earlier. Is this an obvious publicly-traded company?
Like, I don't know, Tesla? Hey, it's a new car company. There's lots of publicly-traded car companies. That seems pretty big. A new bank? There's lots of banks that are publicly traded. That seems pretty big. The opposite end of the spectrum is like, I don't know, "I'm going to buy a subway franchise." You know, that's the other end of the spectrum. Or like, "Oh, I'm going to import some stuff and sell it on eBay." You know, probably a little less obvious how that's big. The sequent, founder/market fit is really, really key. So again, a 10 out of 10 would be, "Hey, I was on the self-driving car team when I was an undergrad and then I worked on self-driving cars my whole career, and so now I'm gonna do a self-driving car startup."
Yeah. That's a 10 out of 10. A 0 out of 10 is like, "I'm going to do some kind of advanced AI startup, and I don't know how to program." That's a 0 out of 10 right there. Don't recommend that. How easy is it to get started on the idea is actually, I think, undersold. I don't know if people realize this is actually really key is ideas that are easy to start are highly recommended. And there's so many really good ideas out there that never work because the founders can't figure out how to get started. And then someone in the future does the same idea and has a much better way to get started and then they win, and the people get bitter because they're like, "I had that idea." So I would argue finding an idea that's easy to get started with is just as important as the idea itself. And finally, early market feedback from customers.
This just means, "Do people just want it immediately and a sale is straightforward, or is it just impossible?" So let me give you some examples of companies that I worked with and advise at YC that you may or may not have heard of. Brex is one. They were in YC Winter '17, and I funded them to do a different idea and talked to them a lot during their pivot. And they pivoted during the batch and they got product-market fit pretty quickly. And they have now raised hundreds of millions and are worth billions in two years. So it's like one of those rare outlier stories. I'm not saying this is common, but Holy cow, I got a front-row seat to watching kind of the most epic pivot of all time, I think. Maybe there's other ones, but I was like, "Wow, that really worked."
So let's talk about the before and after. Here was what they started with. They had this idea for a new VR hardware headset that you would use to do work or something. And so, here's the scores I just put in, you know, and I put these in now, I didn't do these at the time, but how big does it seem? Yeah, it seems like medium, big. Like VR headsets, there's no publicly traded ones, but that seems like the future, right? Founder/market fit, I gave a 1 out of 10. These guys knew nothing about hardware or optics or any of the things associated. They were just FinTech software folks, so they had literally no idea what they were doing. And they were very upfront about that. How easy it was to get started, that's only a two. And the reason is they had to hire hardware people to build a prototype, not a good sign. They needed millions of dollars to build a prototype, not a good sign, and it would take, like, years, and years, and years of manufacturing. So this was pretty bad. And then, finally, early market feedback, they went and talked to people and they were like, "Do you want to use this?" And no one wanted to use it. So this was bad.
Okay. So overall score 2.5 out of 10. Okay. Post-pivot, credit card for startups. That seem pretty big. There's tons of publicly-traded comps of, like, FinTech companies. You know, again, even at startup land, there's Square, there's Stripe. I mean, there's lots of examples of that,so I'd give that a 10 out of 10. I did at the time. Founder/market fit, 10 out of 10. The reason is they had started a FinTech company earlier in Brazil and it was successful and they sold it for like $20 or $30 million. So they knew exactly what they were doing and they could write all the code themselves and they could ship it themselves, and they had all these existing relationships. Man, is that such a better fit? How easy it was to get started? I'm only giving this a 3 out of 10, because they actually...it's hard to launch a new credit card product. This is one where if you don't have founder/market fit, I would not necessarily try this at home.
There was something about the founder/market fit that made it easy. And then finally, the early market feedback, I'm giving 8 out of 10 and it's because in the batch, they were like, "Hey, do you have a credit card? Do you want to be a customer?" And people were like, "Yes." And that was the whole sales process. Like, I witnessed it multiple times. So if that's your sales process, good. It's like a three-sentence sales process and people say yes. That is good.
Let's talk about Retool. They were in Winter 17, and they are a really good SaaS company. And honestly, everyone should check it out and maybe use it. It's a tool to build internal tools. It's awesome. I'm encouraging all the YC startups to use this to build internal management pages. It's actually a really great product. So that's what Retool is. You should look at it.
Pre-pivot was Venmo for the UK. How big it seems? It seems pretty big, like, Venmo is big. Founder/market fit, 3 out of 10. They didn't really know anything about FinTech, but they managed to get a launch. There was something there. How easy it was to get started? I'm giving that a 7 out of 10. It's because they already launched. They'd already had a bunch of users then. So that was pretty impressive. And, you know, the early market feedback though was only 3 out of 10 and the reason is no one wanted to pay and they were losing money on every transaction. So there's all these reasons that this wasn't really working, and so they decided to pivot, even though this is an example of the insidious sorta traction, right? They had enough traction that it was hard to decide to give up on this because they had users and it was kind of working. So that was a tricky one. Anyway, Retool post pivot is the no-code internal tools built builder. I think it seems like a 10 out of 10 because 80% of all software built is for internal consumption, not external consumption, like, at big companies. And so that seems like a big market to me.
Founder/market fit 10 out of 10. One of the founders had made something like this at his college internship, and so he had a very good idea of what the product should be and had relevant to it. It was easy to get started. They built it in two weeks and got their first customers. Great. And early market feedback, I wanna give it 5 out of 10. People were interested in it, but they weren't sure they wanted to trust some new start-up to this thing. So this one did not fly off the proverbial shelves. They managed to get some users, but it was not immediate obvious product/market fit. They had to build it out a bit. So that was a great pivot. Next, we got Magic. They were in Winter '15. They pivoted during the batch and what's great about them is they built a profitable and sustainable company.
Yay. I wish we all could do that, right? How did they do it? They started off with this idea for a blood pressure coach, where there was an app and you enter your blood pressure and it would tell you how to lower your blood pressure. It didn't seem like a huge idea, 2 out of 10. Founder/market fit, they didn't know anything about health whatsoever or much along those lines. That's probably just a 2 out of 10. How easy it was to get started, 8 out of 10 because they built the app really quickly and they got users quickly and they followed all the advice, good for them. And then the early market feedback was, like, not good. Everyone was really polite and no one used the dang thing. Like, their usage was just horrible. So this one, again, was kind of obvious they should pivot.
They realized it on their own pretty quickly. And then they built a bunch of prototypes. They actually built the Magic prototype in a weekend. No joke. This is actually true, not an exaggeration. And they put it on Hacker News and it went to number one and got like 2,000 upvotes. And it blew up overnight. I don't know if anyone remembers this thing, but it went crazy viral and they got all this press. Like, it was an example of a shots on goal thing I was talking about earlier where they didn't know... Like, they had like five ideas and there's no way I would have known it or they would have known that this would be the thing that would capture the world's imagination, but it did. And so not obvious founder/market fit on this one either, but it was very easy to get started. It got really good early market feedback and it seems pretty big. So that was great.
It also inadvertently inspired tons and tons of clones. So I would argue that anyone that's doing chatbot stuff, it's sort of like a direct descendant about when this thing blew up and everyone was like, "Oh, chatbots are the future." It was sort of like second-order effects from this going so crazy viral and inspiring so many people. Segment, they were in YC Summer 11. They pivoted a bunch of times, including years after the batch. It took them a really long time to get it going. They didn't even pivot during the batch and now they're worth billions and it's a really good company. It's a top data infrastructure company. So pre-pivot, they had this thing that was a classroom feedback tool where you would give it to students in a classroom and they could say if they were lost or not, I think was what the feature was. So if you were confused, you would push a button and it would tell the professor.
Okay, didn't seem huge in my opinion. Founder/market fit, well, they were students and they were young, so I would give that like a 5 out of 10. They weren't experts on education, but they understood the audience. It was easy to get started. They built it really fast and the early market feedback was actually decent where professors liked it and they got a bunch of schools to adopt this thing. So their sales were successful, but ultimately this was not...you know, it took them on the order of years to discard this one. And yeah, it's good that they pivoted because now they're doing Segment, again, which everyone should use.
So that I would say is easy to get started and really good market feedback, you know, with the markets begging for something that you don't even think it's good enough to convince you it's good, that's a pretty good sign. And so that was a good pivot. Okay. In summary, I tried to give you those examples just to give you real, real, real-life examples of stuff that I personally worked on just to show, like, the before and after, and how these decisions are really made. And so, changing your idea is part of a startup. The sooner, the better, because of the opportunity costs and the shots on goal type of stuff. And when you're considering changing your idea, especially the early stages, it shouldn't feel like a big deal. You should probably do it all the time. And following best practices is recommended. Hopefully, I gave you some good pointers on what those best practices are. But if you are really scientific about this, you can dramatically increase the odds that your startup will work. Great. That's it for me. Thanks. All right. We're going to do some questions. Yeah. All right.
Woman: How important are barriers to entry in what you're considering pivoting and starting in a different direction?
Dalton: How important are barriers to entry? I would put that under the variable around founder excitement. And so if you yourself are, like, in your heart, "I'm going to build this thing and everyone's going to copy and there's no barrier to entry," that's a good sign it may not be great. But again, in the case of Magic or many of these others, there is basically no barrier to entry other than execution. But if you are really worried about the idea, even at inception time, that's probably a good signal you want to think about it. Does that make sense? So it's really in the eye of the beholder or the founder, if that's the thing they're most worried about versus not that worried about.
Woman: Okay. Thank you.
Man 1: So thanks, Dalton, for your talk. So what made you take up all those pre-pivot teams?
Dalton: Yeah, so in the case of Brex, they'd built a really successful company before and they were very ambitious. And so I just had lots of confidence. Even they weren't really sure that that was the right idea for them, and, you know, they clearly had their technical skills on that. I think the other example is the same with Magic. They built a product, they launched it. They had early traction. They had great skills on the team. And same, Retool, they shipped a pretty popular app in the UK that had tens of thousands of users. You know, they had something. And so all those, they kind of had a thing that was in a decent state, and there was something really exciting about it, and that was the major reason why. And I think that's pretty consistent with all the advice you're getting here, right? Like, if you really make something and give it to people and you have all the right stuff, people will take a chance on things. Let me go a different part of the room. Yeah.
Man 2: Thanks for the presentation. How do you deal with a situation where the founder thinks that it's time to pivot but the team doesn't think it is?
Dalton: Okay. Question is how do you deal with when the founder thinks its time to pivot and the team doesn't? So this is actually one of those things why it's bad to have a team if you're this early, is because you will create bad morale issues if you pivot with a team, especially a large team. And it's because they were hired to do a job. Like, it's like whiplash. Like, if you're a team member and you're working somewhere, you know, you're working at Slack and you're like, "We're making a video game," and then like, "Hey, just kidding. We're going to do this other thing." They're like, "What the...? What?"
Like, people have a career, they have a goal. Like, they're not thinking the way a founder thinks. And so imagine, have you ever worked somewhere where they pivoted? It's pretty lame. So putting people through that is rough. If you want to try to retain these people, you want to really reason with them and listen to them. But ultimately, someone could be like, "I signed up for project X and you want to do project Y?" It may end up that you need to part ways and it's no fault. It's just a lot of times people join a company for a mission or an idea, and if you change the idea, it's really easy for the employees to be like, "I'm not interested in this." Over there.
Man 3: Yep. So how can we decide in the initial phase how big the market is? Like, how does it scale up to billions? Maybe because when starting, they have the idea that it is going to go up into play?
Dalton: Yeah. So how do you know how big something is? So I tried to give you some examples, but I think that you don't have to overthink it. If people will give you lots of money for it quickly and easily and it's very obvious how you make lots of money quickly, that's usually a good sign. Like, I don't think looking up "Gartner" studies or stuff like that is a good use of your time. But if it's really obvious how you can go to get lots of revenue really fast without convoluted ideas, that's a good sign versus if you're just doing something that is hard to imagine someone will ever pay for, or you're just going to have to lose hundreds of millions of dollars or raise hundreds of million dollars. That's usually a sign it's gonna be rough. And so it's kind of on you, I guess, is what I'm trying to say. Yeah. Let's do you, blue. Yeah. What's up?
Man 4: So you mentioned about not having enough traction and too much. You know, like it's better to have no traction versus a little bit traction. So what is that little bit that you shouldn't point to to know you have that module?
Dalton: Okay. What is the kind of little bit of traction you should avoid? It's basically where you're either flat, like, you get some early users of some sort or customers of some sort, and then it's sort of flatlined and you feel like you're pushing a boulder uphill and no matter what you do, you're still flatlining and the thing's not working. Like, you feel like you're putting in tons and tons of effort, and there's just not much feedback or pay off that things are getting easier. If anything, they might be getting harder. Again, this is super subjective stuff, I admit that. But it's very obvious when you talk to a founder in office hours, when they don't have product/market fit, it's because they're like exasperated that no matter what they try and they're trying everything, it's just not working. And so flatline is a good way to detect that, is if your overall growth has flatlined. Yeah. In the back.
Man 5: You said in your introduction, you are the head of admissions.
Man 5: We are interested in applying for the main school. We are building a startup for enterprise prelaunch. What should we be focusing on for the next 25 days? I think the deadline is September 25th.
Dalton: Okay. What should we focus on for applying to YC and we're prelaunch? We don't need to get the whole thing here, but you should not be prelaunch. That's a great way to demonstrate that you are...again, even if you need to change your idea, that demonstrates competence. Like, the act of launching and going through the process alone demonstrates really good stuff. Even if you end up needing to change your idea, the toughest thing is yeah, if it's pre-launch. Yes.
Man 6: I'm curious about app.net and, like, two parts. One is, what was your thinking behind shutting down as opposed to pivoting, and two, do you think the timing was just off, because a lot of crypto networks right now are launching something similar where there's like a community effort to build something?
Dalton: Yeah. The question was about one of my companies. I guess I didn't get into this. I probably pivoted personally seven or eight times, and I've done a lot of things at my startups. And so he had a specific question about one of them. I would say for the app.net use case, I did not enjoy working on it anymore. That was, like, honest to God, it's exactly the advice I just gave here. I was, like, not enjoying myself. And so, I'm not sure what to say about the market, that's a long conversation. But to follow my own advice, I lost enthusiasm and excitement that that was a good use of my time. And so that was how I made my decision. Yeah. Yes.
Man 7: So Kevin talked about SISP, solution in search of a problem in the first lecture. And so we're in a situation where we have worked hard on something for a year and we feel that it's gonna be used for a different problem, right? It works really well for a different problem. So it is kind of in that zone, the solution in search of a problem. So would do you call that as a pivot or...?
Dalton: Yes. Okay. So we built this thing for a year and it's not taking off, but we realized there might be a different market to sell it to. And so my answer would be, can you test this really fast? And so this is what always I tell people when they have these forks in the road, is if you can find a way to test this other market in, like, a week or two or three weeks, heck yeah. But if it's like, "Well, we need to spend another year on this with no market feedback whatsoever," that sounds rough. And so, especially if you put lots of time into something, look for ways to very quickly validate or test it or get customers, because my guess is you built a lot of stuff. And so, yeah, hopefully, you can get quick market feedback that you can get customers fast in this new market.
Man 7: Can I say something?
Dalton: Yeah. Go ahead.
Man 7: Let me just add one thing to that. So, solution in search of a problem, this is a concept of avoiding this when you're first starting the company. And so you don't want to be building something without having a user or a problem in mind because it makes it much more difficult when you're starting your startup. If you already have the thing built, then the advice is not to be like, "Oh, I don't have a problem that I've identified, therefore I should abandon all the work that I've done." And so those are independent things. And so once you realize that you're in that situation, and you're like, "Oh, that's going to be difficult," the question is like, "Oh, do I need to pivot, do I need to change, or am I going to eventually find a good fit for that problem?" So the whole thing is SISP just makes it much more difficult for you. So you're in this situation and the question is basically like, "Hey, you should probably pivot into wherever the growth you may find."
Dalton: I think last question, what's up?
Man 8: Is there a defined line between fast and not fast?
Dalton: Yes. Question is, is there a defined line between fast and not fast? This is one of those interesting subjective things where there's, like, anecdotes of people that go off and spend five years building stuff in a vacuum. And like, those are great. I put that in the anecdote session I gave earlier that sometimes people do build things in a vacuum for five years and it's a great idea, hooray. But in general, I would consider fast or not fast for...I think it's context-dependent. If you're doing like a biotech, then it might be months or years. But if you're just doing something that's pure software and you could build pretty quickly and get users pretty quickly, you want to see your iteration cycle on the order of weeks, like major progress on the order of weeks, if not months. Definitely weeks.
And if your iteration cycle is to, like, try a new idea and test it out or launch a version or go get a bunch of customer feedback is on the order of months or longer, that's probably too slow. And again, I know this is a tricky. I can't give you...everyone always pushes me. They're like, "Well, what's the actual metric?" It's just super context-dependent. Right? And this is why I tried to give you concrete examples, is all those companies had different cycles. In the case of Magic, that was a really fast cycle. It was literally days to go through that pivot iteration. In the case of Brex, that was months. And so I think it really depends on the idea.
Man 8: For software, less than 10 weeks. Is that a good goal to have?
Dalton: Yeah. I think for software, less than 10 weeks, at least to feel like you've made major progress and you've learned a lot. This is a question I ask people a lot, "What have you learned?" And if you can't articulate that you're still learning things constantly and you're reassessing some of the assumptions you made and changing them, that's a good sign you're not moving fast enough. You should be constantly learning new stuff. Cool. Cool. Thanks, everybody.