Ryan Rutan: Welcome back to the episode of the start up therapy podcast. This is Ryan Rutan joined as always by Will Schroder, my friend, the founder and CEO of start ups.com. Will we talked to lots of founders who get lots of feedback from investors? And one of the biggest questions that we get is how do I qualify this? How do I act on it? What do I do when I get different advice from one investor or another? We help people make sense of
Wil Schroter: this man. I think what happens is, you know, we want to get investor feedback. Investor feedback is great means
Ryan Rutan: we talk to an investor at a minimum, right?
Wil Schroter: Let's step in the right direction. But what ends up happening is we don't know as founders, most founders, how to calibrate that feedback. We assume that one investor giving feedback speaks for all investors. One investor speaks for all investors. So when we hear it like, oh, you should change your market size or you should change how you go to market in our mind. They just said every investor that we will talk to will have this concern and expect you to go in this direction because 98% of the time when we go through this with founders, we do this all throughout the week, week in and week out, we find that the source of their advice was awful by the way. Always well intentioned, always well intentioned, well
Ryan Rutan: intentioned. Still the same result, the
Wil Schroter: same result, which is I was about to, I was about to go down an entire road that I was not supposed to go on because I didn't even know better. Now we did an episode, right. If you remember not too long ago, that was talking about advisors as a whole, you know, advisors giving, giving bad advice, what have you and, and kind of how to process that. So if you haven't checked out that episode, we're building on that. But being more specific to investors, which I, I think are like, what's the biggest culprit? Because people take their word as gospel. It's
Ryan Rutan: not, I think people just hear fact, facts, facts, fact, fact, right? And it's just not, or if you're, you're taking advice from somebody who probably does have some knowledge, maybe even some knowledge about your business, but they don't have your knowledge about your business. They've known about it for about 45 seconds at this point. And now they're telling you some things that they think, but they're not telling you what they know and you're going to go take action on this now, which is super dangerous.
Wil Schroter: And, and, and you think you're doing the right thing? That's ok. So that's the biggest challenge you're sitting there going. Oh, well, an investor told me to do this and now I'm reacting to it. I'm doing everything right. We finally catch somebody in that moment thankfully. Right. And we say, whoa, hold on a second, be before you do anything. Let's figure out who this person is, what advice they gave you. Exactly. And by the way, whether it's any good and not compared to our advice, like, forget about our advice for a second. This isn't us trying to be more right than someone else. This is us saying maybe without realizing it, that investor gave you the wrong direction that you're about to take as gospel. Imagine you back in the day before people at GPS, you stop by the gas station to say, hey, can you help me understand where to go from here? I'm trying to go from Connecticut to California and they're like per head north.
Ryan Rutan: Here we go.
Wil Schroter: And I'm in Canada at the start of the sea. That's not where I wanted to be. That's
Ryan Rutan: literally what we're talking about. And then I think, you know, it's crazy because it starts to get compounded too, right? When we, we get advice for one and then we make that change and then we go to another and they tell us something different. We make that change as well. It's as if investors are playing this invisible tennis match where they're just batting the in the poor founder back and forth. You know, like uh you need more attraction, you need more uh uh more uh the financial projections bang, you need a better team slide, ding whatever it is, right? And then finally the founder throws up their hands and just quits and, and one of the investors is like 40 love you serve, right? It's just, it's, it's, it's nuts and, and we see this happen all the time because again, people assume that because they're in the investor share that they have to satisfy them, that they have to go do this thing. And I think, and it, well, I'd love to get your, your thought on this. But like does the investor actually care that you go and do this? Are they actually thinking, I'm gonna tell this person what I think and I expect them to go do this?
Wil Schroter: That's funny. I never even thought about it. It's such passing advice. It is kind of like, and, and as an investor, I am almost never called the carpet as to whether I was right? Because if I was wrong, we'll find out in 10 years or something like that, right? Or, or less if I'm really wrong or never. So let's back up a little bit, let's talk about. So, so that founders understand when you're getting any kind of uh advice, feedback, whatever, no different than you're you're kind of getting from us right now. Right now, we're not, we're not telling you about your business. We're just trying to tell you how to process information, right? But even still question everything. First part of that, you have to understand as founders, we have to understand that there a wide spectrum of investors. Now, here's why that's super important because the probability that you're about to talk to one that has the specific type of investment experience and or bias that syncs with what you do is so incredibly small, Ryan, you and I invest in the stock market, right? We understand the stock market. We are not Warren Buffett, technically, us and war we're both investors, right? Technically, we're both investors, we are not the same people and our biases are different. Our experiences are different, right? Warren Buffett giving you advice could be totally useless by the way because he's like, well, just hold for 20 years. I'm like, Warren, I might not live that long, right? You might not have live that long, Warren, but but but you get it right. Everyone's got a bias with that bias comes again, a certain um intention with the advice. Here's an example of how I describe the entire spectrum of investors, right? Again, imagine that every investor somewhere on the spectrum um from one end to the other on one end of the spectrum, you have the most prominent venture capital firms, right in Dr and Horowitz, Sequoia Kleiner. You name it right, the top of the top of the food chain tech, mostly venture capital investing and you're reading their blogs, you're reading their Twitter and they're dispensing this advice. Like, hey, if you don't have a multibillion dollar market, uh your, your business is worth nothing. If it's not growing at 10 X, your business is worth nothing for what they invest in. That was nothing to them. That tiny, tiny, tiny sliver of companies that they invest in. That is entirely true. That is entirely true. And statistically there is a 99% chance it doesn't apply to you just numerically by the number of businesses that could even possibly achieve that milestone or even that care to. So now imagine you are writing down all of their advice because Martin Mark Andreessen, who I love is so prolific and he's so spot on and you have no idea that all the advice you're trying to take and, and put into your deck is totally useless because you're starting the equivalent of a bakery. Yeah,
Ryan Rutan: doesn't apply to you, doesn't apply to you at all. Yeah. Right. So that's the hard thing for, for founders to understand is because they're not really qualifying that advice. They're not saying those things that you just said, right. Which is, this is for a very small tiny percentage of companies that fit exactly this pattern. This happens to be all we invest in. So this is all I'm going to talk about and I'm just going to assume that everybody reading just knows that they don't mark. Um, so it'd be good to preface that. And I think this is where this, where this becomes really problematic, right? Like, if you, you, like, let's just say, like I grab the, uh, the playbook from last year's champions, right? And I, I start pouring through that playbook and then I take it to my team. Like, guys, we're gonna win the championship this year because I've got the playbook from the winning team last year and about halfway through the season, my guys are like, you know, we don't seem to be winning any games and I'm pretty sure that these are basketball plays and not soccer plays. Uh, does that matter here? Yeah, it matters, right? So when the context and, and the modality doesn't fit what you're trying to do, you're gonna struggle. And this is what happens with most advice because even with somebody like Mark who's seeing tons and tons of deals, like, just like you do when you're writing a post. Well, ID, when I write in a post, we're thinking about some specific instance, we're probably thinking about a founder or maybe a small collection. And so that advice is geared towards that person or that situation, which had a ton of context in a really specific situation. And now people are taking that and saying, ok, now how do I just use this to paint really, really broad strokes. Well, you can do that if you want to get a really non detailed painting. This
Wil Schroter: is the problem. Then let's talk about the other end of the spectrum because you're just as important. And frankly, it's the other end that I'm more concerned about the other end of the spectrum are people who've actually never made an investment, but they have the potential to, they have money. It's your rich uncle that made money in the seventies in real estate. And he wants to tell you everything he can about how to run your business. And he's saying to you, uh you need to be focused on um generating an invested rate of return and you need to be focused on uh talking to a, a local bank. You need to be focused on all these things. And he means well, he's a great uncle, right? But he's literally talking about how you're going to start a tech company. And all those terms I just talked about do not exist for actually makes no sense whatsoever. What's your cap rate? Yeah. Yeah, exactly. But, but you're looking at it going well. No, no, no, he, he's an investor. Yes, he's an investor in something that has nothing to do with what you do. I'm gonna expand that a little bit further because that seems like an extreme case. Ha it does come up a lot. I'm gonna uh take that to local investors. And here's why I want folks to listen extra close. There is a very high likelihood that you are currently getting advice from a local investor that does not know what the hell they're talking about now. They're awesome. They're great people. I'm so glad they're giving you advice. The problem isn't them, they're not doing anything wrong. They actually don't understand or haven't how to apply what they know in their bias to you. So, here's what that looks like, which isn't
Ryan Rutan: their job also, right? We, we talked about this in, in the taking advice from, you know, rocks or advisors from anybody, uh, in that podcast. And this is an important point. It is not their job to hand you ready, made advice. They're not giving you a playbook, they're not giving you an instruction set, they're giving you a perspective, right? It is your job to figure out does this apply and how to apply it, right? It is not their job. But if you just take what people say wholesale and run with it, uh, you're likely running off a cliff, you
Wil Schroter: bet. Um, years and years and years ago, I think I mentioned this once before. Uh I got to spend some time with Jim Brody. Uh Jim founded Donato's
Ryan Rutan: Pizza. I love some Donatos. It was one of the things that end up and thank you for feeding me that because it was one of the things was on my checklist of things that needed to happen when I was in college,
Wil Schroter: Jim is a super kind guy or just a super nice guy. Right. Uh, but I met him like, 25 years ago when Donato's like, was he still running the Donato's? Um, if at that time I wanted to get advice on how to start a pizza place and this is talking advisors. I'm, I'm, I'm varying a little from investors but bear with me for a second. Um, Jim would have probably had very current up to speed advice. I would imagine really where I'm getting at here is currency. Um If I were to ask Jim, now Jim may not have even have stepped foot in a Donatos in the last 10 years. Right? I have no idea what he's doing now. Right? They do deliver. But, but I guess what I'm saying is like, um, his current knowledge to how to build a current pizza place might not be applicable whatsoever. Now, let's take this to our local, I call local yokels, the local, local investors. Here's what I hear. Well, I talk to a local investor usually like a mentor in some program or something like that. And they told me XYZ, um Ergo, they told me what my valuation should be or they told me, um, how fast I should grow or how much I'll give up, et cetera. I'm like, cool, how many investments has that person made? How qualified are and we're gonna get all, we're getting into all the qualification questions in a second. Qualifications
Ryan Rutan: are so important
Wil Schroter: for this. I'm gonna preview to say, hey, in most cases, the advice you just got was from a person that actually has no idea what they're talking about. The problem is you don't know that. And again, we'll, we'll talk, we'll talk about qualification here in a second. But these are those two ends of the spectrum on one end of the spectrum. Again, you've got V CS that are, that have great advice. If you a very, very small target, OK. On the other end, you've got people that have advice all over the map that probably doesn't apply to you that probably isn't current, that probably isn't relevant whatsoever. But because you heard that, that they can write a check, you assume they speak for all investors and
Ryan Rutan: you're, you're enamored with the money at least. Yeah, of course, I must follow their advice because if I follow their advice, their money will follow me. Not
Wil Schroter: necessarily. I had a long history, Ryan, I'm sure you did too of associating people that were older than me. Knew the answer. No, no, it's not a bad bet. No,
Ryan Rutan: it's not. It worked for the first like 25 years because generally
Wil Schroter: speaking, they did when I went back, you know, as an adult, uh when I went back and I looked at all the, the, the, the wonderful nuggets that my parents gave me. I'm like, what the hell that was the worst advice ever. Like, what were you doing? Right. And then I fast forward to like my first five years of, of running the agency. You know, when I was like 19 to 24 years old, anybody that was older than me, which was literally everyone, especially if they had gray hair was like Yoda. I was like, oh my God, you're, you're willing to give me this information. This is incredible. I will put it to use right away. In retrospect. I got so much bad but well intentioned advice from people who honestly thought they
Ryan Rutan: were helping. It's tough because again, like, you don't know what they don't know at that point and, and, and, and neither do they to some degree, right? They, they assume that what they're giving you because again, they are probably also not assuming that you're gonna run out and accept this wholesale and just start stamping it into process and procedure and, and, and product and whatever they're like, well, here's, here's what I know, right. What they're not doing is here's what I know. And this is exactly what you go do. Now, people do also do that and I, I just think that's a big red flag for me. The minute anybody's telling you here's exactly what to go do. Like, ok, tell me the last time you exactly did that. Never cool. Fuck off. Right. Like I, I'm not, I'm not accepting that. Uh, so, like, you know, if you want to tell me to exactly, do something, I need to know that you've done. Exactly that. Right. If you're telling me how to throw a fastball, I wanna know that you've thrown like thousands of those things. Exactly. Like that. Cool. I'll try that. If
Wil Schroter: not. No, thanks. And it still applies. Right. I mean, the feedback has to be current. It has to be relevant. Um I, and here's the thing that it has to have and this is the hardest to come by fundamental self awareness, fundamental self-awareness on
Ryan Rutan: both sides. By the way,
Wil Schroter: we have some of our, our, our founder members in start ups.com. Uh they'll come to me and they'll ask me questions about, um, running an agency. I think you had somebody ask you just recently just a couple days ago and, and I qualify, I say, look, I had great success um running an agency, right? Our agency built billions of dollars, right? Which is pretty awesome. I kind of wrapped that up in 2001, which was like 23 years ago. Right? Hell, if I know what people are doing in agencies now, right? I can, I can tell you what work for me. If you've got a time machine, go back to the 19 nineties and put it in place. All right, my
Ryan Rutan: immediate question was they were like, uh can you tell us about your experience with the agency. And I was like, uh, do you have a dust allergy was my immediate response. Right? Because, uh, we're gonna have to knock some off. Yeah, to your point like, yes, I had plenty of experience. Right. Built one, sold one and it's great, but it isn't relevant to how that's done now to put it into context. Like you said it earlier. The internet wasn't a thing yet, right? It was becoming a thing that was what has given us a chance, right? It's so how could we possibly be? Like, probably not much has changed. You probably everything has
Wil Schroter: changed, you know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you, which means the answer already exists. You may just not know it, but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot Start ups.com. So if any of this sounds familiar, stop guessing about what to do, let us just give you the answers to the test and be done with it. I'm very um cynical on this one. But II, I think the, the, the lack of self-awareness that humans show is just absolutely ridiculous. Again, I hopefully throw myself into that category more than a few cases. Um But part of that is as the investors giving you advice, they're likely not even realizing or thinking or taking that moment to say, hey, maybe this would be bad advice because maybe the conditions at which it was uh uh relevant to me aren't relevant to you. Let me give you some examples. Right? Here's an example. Hey, we had a portfolio company that did something similar to this and that didn't work. So you shouldn't do it. Cool any more detail on that or just generally they went in that direction. They spent money on paper, click marketing. It didn't work. Were you there? Did you invest in their paper click campaign? Probably not. So you don't actually know why it didn't work, right? You're just categorically saying something at some point matches this and that didn't work. So you shouldn't do that. Maybe give it a little more thought than that.
Ryan Rutan: Yeah. How about everybody that decided that go good long look at myspace and then skip on their investment in Facebook.
Wil Schroter: Right. Right. I was just like that. Well, that, that's exactly it. OK. So, so one of the things again, danger zone is somebody's dispatching advice to you that you're gonna take his gospel because you think that they've got this knowledge. But you haven't said to yourself what if they're wrong? Right? Like like what if it's just bad advice? OK. Second part investor comes in and you're, you're giving your pitch deck and you're talking about all the things and they say, I don't like where you're on your four, with, with your financials, right? I think that those numbers are too high. They're ridiculous. No one's gonna believe that. Hold the phone. No one's gonna believe it or you don't believe it.
Ryan Rutan: Did you call them all? Did you, did you, how, how widely have you shared my pitch stick
Wil Schroter: also? how do you speak for all these people? I, I will give you a great example, making fun of myself in this process. OK. Um which just so perfectly illustrates how a quote expert can be so insanely wrong. OK. Um Back in like 2006, right? If you remember this, you know, uh I had started a company that did casting for television and at one point we were casting for most shows on television, primarily around reality shows. OK. So, uh every week, throughout the week, I'd be sitting with all the major networks like MTV and NBC and on the lots and stuff. Uh and they'd be pitching me all of the shows that they were, they, they had in development and the kind of people they needed for that shows. And we had to go use the interweb to go find all these people, right? So here are some show uh uh themes that they pitched me that I was like, stop what you're doing right now. OK. Literally no one's gonna watch this. Right. They had this idea, they could have a show, um, where a guy would go on and he would date 25 girls all at the same time and then propose marriage. Like, after dating them once
Ryan Rutan: insanity, nobody's gonna watch that. No
Wil Schroter: one's gonna watch that
Ryan Rutan: or three quarters of adult America at every, on every Thursday or whatever the hell that
Wil Schroter: shows on one of the last. And there's so many cases of this, right? But, uh, one of the last ones we're gonna have, uh, famous people who do know how to sing, um, come on and be dressed in costumes and sing to people, um, who don't know, it's them, I'm like, how is that a show? Right? Is like the mass singer. It's been on like, I mean, there are so many premises where, where I was like, you've gotta be kidding me. Which is also why I'm not a television producer. Ok. My point is I would have had like, uh, you know, again, we're even casting for these shows. So it's like we know nothing about television but, um, I, every case, I'm like, you gotta be kidding me. Why
Ryan Rutan: this, how would this possibly
Wil Schroter: work? Right. Right. Right. Right. Um, now that said, um, as an investor, right? With a purview wi wi wi with a bias with an opinion, I may look at something and say that's a terrible idea, but I have to have the self-awareness to say. But maybe only, I think it's a terrible idea. Or maybe your four financials are so important to me. And that number is like, customer acquisition cost is so important to me because I got burned on one deal. That, that was a problem. Right. I don't speak for every investor. I think that's the point we're trying to any more than I spoke for all of America's reality watching television. I
Ryan Rutan: think the other thing that's, that's Super German here is that they're talking about a moment in time, right? They're, they're also, they're giving you advice based on how you've described the current and your ability to pitch the future state of that company, which how often do those things align, right? Where we are now in the future state of the company, right? It's so far apart and they're giving you advice on this moment in time and that's at a point where there's almost everything is still a variable right? There. All nothing is clear. Everything is at least partially obscured as to how this will turn out. You're not only are you accepting their advice, you're assuming that their crystal ball has any kind of accuracy, right? And it, it, it doesn't, and it's also completely flawed because you, you as the founder are the major input to that crystal ball, they are taking information, you give them, they're trying to make sense of it in a very short period of time. And they're turning around some reasonable response, right? Reasonable being again on, on a very, very broad spectrum and not necessarily accurate at all again, for all those reasons. And so we just have to be so, so careful when we get these blanket statements around things like, you know, the the the the financials don't look right or you know, we're going to need more traction and well, you brought up a great point and, and I think this is also worth mentioning here. Let's think about the motivation behind why the investor is giving you this feedback. I heard you tell this to a founder years and years ago sitting in our offices uh when we still had offices and we sat down with humans. Um and it was that they're often giving you advice or giving you some milestone, something to go chase just to make you go away, right? It's that simple, right? They're like, oh, you know, uh we're not just right now, but if you were to XYZ, then we might be interested. So you go like, oh, that's the key. I know it now I know the pass phrase. Ok, great. All we have to do is go hit this guys and then we're gonna get lots of checks, not necessarily, but there's, but investors don't have any vested interest in telling you to go screw right. They don't want to burn bridges. There's no reason to do that. And then it just makes you dig in your heels, argue whatever. So instead they're like, hey, go do this meaningless thing and then come talk to us assuming that you'll never come back. Right. So, some of that advice is exactly that right. It was a, it was a kind brush off and now you're like, I've got a new strategic plan team that works out
Wil Schroter: well. Ok. So now that we've thoroughly confused everybody in the audience, they're like, ok, great. Now, I don't know what advice to take whatever le let's talk about. Uh you know how to tell who's who basically how to size the advice up. Just a couple of rough passes because honestly, a few key questions usually tells you an awful lot. And the reason I know this is because these are the same questions that I ask to our founders at start ups.com. Um when they say they've just gotten a piece of key advice from an investor and my job isn't to refute the advice, right? Even if I don't agree with it, I'm not trying to refute it. What I am trying to do is qualify the source, qualify the source. Here's how first question I ask is you just nine times out of 10, this kind of we stop right here. Um Do you know if this investor has ever made investments before? Because here's what happens. Um I'm in Columbus, Ohio, I'm starting a, a mobile app for whatever, right? And this is always, they're only in the US specifically, there are only a handful of tier one cities, tier one relative to funding. Um not the quality of the city um that have enough investors that everybody else just has none. Then you leave the US. It gets geometrically worse. So there's a 90% chance really higher that the advice you got was from someone local in a city that doesn't do deals, which would be all but like five cities in the planet. Just to be clear. Let's start there. Let's say you're in Columbus, Ohio and you're starting a mobile app and you get advice from an investor that that says they are a tech investor. First question. How many deals has that investor done? Right? How many checks have they written? Basically? Have they played this game? And they'll say, oh yeah, they've written two checks, dude, writing two checks is like, I've been to two baseball games, right? Derek Jeter, right? Like slow down. Ok. Um Investors who have written a lot of checks and I'm and I'm not knocking any investor by the way, just to be clear. But investor who's written enough checks to start to notice patterns have written like 20 not two just to be clear, the reason that matters because a lot of the advice they're giving, if you've seen enough deals and you've been attached to enough deals, you see the patterns, that's how you give good advice because you're like, hey, there, there are patterns out there that I can turn you on to as an example at start ups.com, we see thousands and thousands of deals, right? We are not investors to be clear. Our job is to help you figure out how to find investors and them properly. We get to see trends. We get to see uh 20 decks and say, hey, you know what on average decks these days are saying X or Y or valuations look like they're coming in from X or Y. This is important stuff where we have enough data points to try to provide an opinion to even then with the caveat that, hey, there's just one opinion, right? But how many investors do you see Ryan uh that are giving advice when the founder comes back to you, you're like, oh my God, that's spot
Ryan Rutan: on. I'm trying to think of a case where that's
Wil Schroter: happened. Right. Exactly.
Ryan Rutan: Yeah, it doesn't, it just doesn't. And I'm thinking for the exception that proves the rule here, but let's just go with, it's a rule.
Wil Schroter: Yeah. OK. So first question again, qualifying question, is this an investor? Is this a person who makes a living by making investments? Doesn't mean they're not entitled to an opinion. Otherwise, it just means that if they're going to give an opinion, that ideally would have a lot of market data to support it, it would help to know that market data, right?
Ryan Rutan: Have how many fastballs have they thrown again?
Wil Schroter: If you were to come to me for retail stock advice, I've bought hundreds, maybe thousands. I don't know the velocity of stocks over my 30 year career. Right. I don't know shit about stock investing. Ok? I just want to be super clear. I've done so much of it. Right. I've made money. I've lost money. I've done all this stuff. I can tell you the basics of what a stock is. Ok. So, so that's what you're looking for. But if you're like, hey, tell me some good stocks to invest in, I can give you an answer and it'll be wrong. Would you like
Ryan Rutan: me to guess for you? I'll guess for you. Yeah. Yeah, that's it. That's what you're asking people to do.
Wil Schroter: Right. So which kind of brings me to my, my question one B here first is, do they make a lot of investments? B is? And did it even go well? Right. Because writing checks is the easy part, getting the money back and being good at being an investor means
Ryan Rutan: you have a checkbook and money in your checking account, correct? And somebody approach you to invest. Those are the only three criteria required to do this. If
Wil Schroter: you want an idea how few people actually become qualified good investors, you need to look no further than the, the quadrant chart breakout, which I love of returns from VC funds. Ok. Without boring you, it looks something like this in the upper right quadrant of funds that absolutely crush it and are very good at what they do. There's like 10 or 20 I think the last I checked there was somewhere between 1000 to like 1500 active VC firms that was not a verbal
Ryan Rutan: typo, that's if you don't lump in all the micro VC stuff that
Wil Schroter: 10 to 20 right. Are the outliers, right? Not even whatever it means. The rest of them kind of suck by comparison. And these are the best of the best of these are all Ivy league grads with all the money in the world, with all the intel, with all the deal flow and only then do a tiny percentage of them make it into that quadrant. If we take a little bit step further part, no one wants to talk about only a few of the partners within those firms accounted for all the good decision. It was, it wasn't unilateral across the board,
Ryan Rutan: right? You know, a lot, a lot of, a lot of associates with uh their names attached to tombstones that fall into the other
Wil Schroter: quadrants. Look nearly 100 people get a Super Bowl ring. Uh When you win the Super Bowl, 100 people didn't play the game, right? You get, you get a ring all the same. Um So first thing we're trying to say is um have they even made investments? Do they even qualify to speak for any investor. Probably not in most cases. Ok.
Ryan Rutan: Just, and, but stick on that for a second. Probably not. Right. And I will not get the math right on this. But it is something like 95 98% of angel investors write exactly one check, they write one and that's it. They, they did the one investment, that's it. And so even if you got somebody that wrote a check, they went to one game, that's it. And so we got, we got to really be careful here. So this isn't binary game either where it's like, well, did they or didn't they? Ok. They did. Cool. How often to your point to what, to what of success? And, and of course, like, you know, the, the success isn't predicated on the investor if it wasn't like the investor didn't write the check, right? And that's why the start up failed. But it does help to see at least understand like, how, how were they in the process? Right. So I think again, what I was with those guys every single day, telling them exactly what to do and that start up failed.
Wil Schroter: Ok. By the way, that's my, that's my favorite thing. I've advised all these start ups that have gone on to do all these things. Yes. But you gave the same advice to start ups that failed miserably and that represents 90% of your investments. How has that not come
Ryan Rutan: up? We don't talk about those. Yeah, we don't talk about those. Yeah,
Wil Schroter: you can't only be responsible for the successes. You are responsible for the failures too. No, no, those guys didn't listen to me. Oh, yeah. Any other that work? Um, I can't see the guys that are successful. Didn't listen. You either. But that said we've got to understand that. Um, this local, uh, I'm gonna go back to my example. You know, I'm starting a, a mobile app in Columbus, Ohio. The local investors that I'm gonna talk to. Columbus is, is, is a fine enough city, but it's no hotbed for competitive investments. What does that mean? That means the investors we're talking to can take meetings and do deals by not being that good because they're not competing with anybody when I lived in San Francisco. Um the, the, the tone in the pace there is competitive as hell as investors. If you were not on top of your game, on top of the latest terms, on top of the latest trends, et cetera, you will get eaten alive by people who are ergo, you invest for a living. Ergo, you're kind of better at, at least understanding, you know how to provide that advice theoretically. Um whereas the, the person that's talking to me that's quote, an angel investor in Columbus, Ohio and I love all the angel investor in Columbus, Ohio. So I'm not knocking any of them. Um just doesn't have that same level of intel, in most
Ryan Rutan: cases it's a data problem, right? It's a numbers
Wil Schroter: game. It's a data problem, right? Let's move on to data problem. Which is my second qualifying question, which is of this data point that you got this data point of one. Is it the
Ryan Rutan: first or the second thing we learn in geometry? How many points does it take to draw a line? How
Wil Schroter: many? Right? It doesn't matter how big the first point is, it's still not a line. Exactly. Yeah. Yeah. And so uh the, the second question I'll ask is have did this come up multiple times or did one person say that in almost every case? It's one person said, but
Ryan Rutan: they said, talk to one of the best person. I'm freaked out and I'm trying to change everything because of what they said.
Wil Schroter: Exactly. Here is the, the the dilemma. On the one hand, you want to seek out advice, you wanna get feedback, right? It is absolutely helpful where we, where we are mistaken is when we just assume it's also definitive. So folks come to us to help uh build their problem statement, let's say within their pitch deck, we provide a very specific formula how to do it. But more often than not before, I'm about to dispatch that formula like on, on our, our workshops, you know, online workshops and everything I say the same thing every time I'm like, look, I want to be clear, this is an awesome way to build a pitch deck and every major company that I can think of raised money without using this advice. It's clear. Yes, it's good advice. But it doesn't mean if you don't follow it,
Ryan Rutan: you're screwed. It's not the only way to do this
Wil Schroter: by any means and we're not in the business of one way to do anything. That's just not the way this works. So, my, my second question though is, did multiple people keep giving you this advice? Because there's the difference between being distracted by someone's advice and not being able to take a hit. What's that church? Once you've got that same p back four times at, at that point, you're like, you know, there might be something to this, right? II, I would argue it's still not necessarily definitive.
Ryan Rutan: I was gonna say, let's, let's pause on this point for just a second. Well, because I think there is, there's an important underlying point here, remind yourself what they're telling you, right? They're not telling you how to be successful as a business. They're telling you what they believe it would take to make you investable at least for them. And if you hear this from a couple of people. Sure. Right. But I, I also want to remind founders, we're not building businesses for investors, we're building businesses for customers. And so one of the really dangerous things that ends up happening is that we do get some of these data points, you look. Well, I've heard this from four investors. So this must be real. It is very real, but it is also very, very skewed from a particular perspective with a particular outcome in mind, which is this is what it would take for me to want to make money within this business because that's what they want to do, right. Yeah, they want to see you succeed to the extent that it makes them succeed, right? But it doesn't necessarily help you to build a better business. You should be the expert on this, right? If, if an investor has a better idea about how to build a business for your customers than you do back up, probably not time to raise funds yet. Go figure out your business first.
Wil Schroter: So the third question I ask, um which is usually the most delicate, honestly, it's kind of the easiest to suss out is what makes you think that this person is qualified to give you that advice. Now, typically I don't get a response where there's like, well, here are their credentials, right? Maybe eventually. Usually the response I get is I didn't even think about that, right? Like they said they were an investor. I'm talking about investments. I just assumed like they're qualified.
Ryan Rutan: Oh my God. How many times have we, we've seen this and have you been in the spot where you were just so happy that they were saying something during the pitch that you could shut up for a minute. I was just so glad not to be the one talking that I took their advice as Gossel because I just wanted to hear somebody else's voice for a minute. Um Right. So you just, you get so caught in the moments. I think that's the other thing that's so important to remember here is think about the mindset that most founders are in when they're receiving this, right? It is a high stress, high stakes situation. So everything is like on that bleeding edge of adrenaline and hope and passion, right? Not exactly the best time to be evaluating stuff because you're looking through a very narrow and very, very skewed lens that when I
Wil Schroter: dispatch advice, I try, I I have this, this inner like math that runs and I say like, what is the likelihood that I'm qualified enough to answer this question in a way that's not gonna give you like a bad data set, right? Again, I've got at least enough self-awareness to say, hey, this is just my opinion and I'm not being modest. I'm saying like, just literally like I I there's a pretty good chance that my opinion doesn't wind up being the one that works my
Ryan Rutan: life, right? Look, you and I have thrown a lot of fastballs in this arena. I mean, this is, this is kind of what we do day in, day out, right? This is what is expected of us, this is why we're here. Um And, and so it is like if, if there are two people in this plant that need to be very self aware about the advice they give to start up founders, it's, it's the two of us. Um And, and, and there's no, there's no harm in that whatsoever. Right. I, you know, I think a lot of cases I can't go back to the motivation. Why is the investor telling you this in the first place? Right. So that's a big one for me. Um Even before we get the qualifications because I might not even care if they're qualified or not, if I figure out the motivation behind why they want to tell me this isn't, isn't aligned with what I needed to hear. Um But going back to the uh this concept of like self-awareness in that situation, right? I hear you do it all the time. I do it all the time. Tell people I will just straight up, tell people, look, I don't know, I can think through this with you. We can think it through together, we can brainstorm this, but I don't have the answer neither do you? Um So let's think about it. But unfortunately, I've never heard that from an investor, right? Because I think that they assume because they're on that side of the table, the ex the expectation is that they know how to return that volley, right? Their, their job in, in their mind is that they have some sort of definitive answer or advice. Uh you know, that ham fed, uh you know, desk pounding and it's just, it's not the way it should be, right. And so I think again, if you're seeing that it's the red flag where if somebody is giving you definitive advice about something that they kind of can't really have the answer to. Um That's a great disqualifier
Wil Schroter: in my mind. I gotta say I started to have like these pangs of questions, right? Like NIO wondering whether he was in the matrix when I was doing like my second fundraising round uh for that company to afford it. I'd be in meetings and we did a lot of investor pitch meeting. Um And uh I'd be in meetings and invariably one of the partners on the other side of the table would start going off about how much uh their strong opinion of our business having had eight seconds of understanding of our business, right? And I was trying to be polite about it, but I really did want to know this answer. And so I started to come up with a couple clever ways to be able to kind of probe a little bit without sounding like a jerk because I also, I also absolutely mindful that there was also an audience, I didn't want to, you know, make them look foolish, but I also wanted to kind of just throw a little something over the wall to say, dude, I hope you know what you're talking about. So, here's what I would say. Uh based on your experience in the past, can you give me an example of where you had a big success or failure in your career on this? Right? By the way, it's another way of saying, shut the fuck up. Right.
Ryan Rutan: It is exactly that in 99.9% of the cases because they don't, they just don't have that experience because why would they, unless you show up pitching Facebooks to the Facebook investor, you're like, hey, we build the social. Now we're gonna start on a college campus. It's gonna go exactly like, yeah, we have seen exactly this before. We know what to tell
Wil Schroter: you. The second way I would ask this is um what's some good data that you're drawing this from that I could take a look at? Ok? Again, these, these are half like hidden jabs, right? And, and, but um if people are left unimpeded and they can just start spewing advice and they don't have to back up any of it. Oh, dude, it turns
Ryan Rutan: into, it turns into improv feeder like really quick. It does. I mean, and like, I've seen this happen before too where like, not only does one of the partners start to go off. Somebody else does and all of a sudden two or three of them, them are riffing on something. And I'm like, this isn't even what we're talking about anymore. Like, because they're so far off base and that's actually the best case scenario when you realize that they have veered so far off course, like, this isn't even relevant to me anymore. That's great. The real danger is when it is highly relevant to you. And you're like, you know what this medicine does seem like the cure I need for the problem that I have. That's when it becomes really dangerous because then we start taking the damn medicine and then all kinds of bad shit can happen.
Wil Schroter: Let's stick with that. What happens when we start taking bad medicine, right? You know, kind of just the total fatal path that comes with all of this bad advice, right? Um I can think of 100 cases where businesses that I had built, that wound up being successful would have been a complete failure. Had I listened to the advice of well intentioned investors, right? That in retrospect, had no idea what they were talking about. I've
Ryan Rutan: got one for you will, I've got one for you. You guys should stop charging any fees and just take equity positions in every company that comes across your
Wil Schroter: desk. That was amazing. Uh Yeah, our early days of starting and we've heard
Ryan Rutan: that more than once, right? So by the time we heard that 456789 times, they're like, there must be something to this,
Wil Schroter: we should do this and it wouldn't
Ryan Rutan: be doing this podcast
Wil Schroter: right now. And it worked for Angel List because they were specifically building a product for investors. Right. That makes total sense. Right. I get it. Um For what we were doing, it made no sense whatsoever. It was, it was somebody taking 10 seconds of, of, of understanding of our business and trying to extrapolate our future. Also this concept that I have the ability to predict your future. Dude, if you have that ability, you should not be investing in start ups, you should be doing market investing and being a trillionaire, right? You don't have that much foresight, right? And again, statistically, um your ability to predict what companies are gonna do and how they're gonna perform and their outcomes is damn near zero because you ain't in that top quartile of, of investment returns. Now, all that said the way I look at this is, is kind of this simple. Um There is a lot of danger in taking bad advice. There's also a lot of danger in ignoring all the advice our job as founders is not to blindly follow advice, it's to seek it out, you know, sometimes it's gonna be for investors advisors, our team, our customers, etcetera and balance it and say, OK, that's an interesting data point. Let me keep asking to see if at some point I actually draw a line. Here's what I would say I gave the same advice to, uh, little will on the day he was bored, right? I wrote a long letter to my son and I said, uh, son, here are all the things as your father. You know, the, the, the advice that I want to impart on you. But one of the things that I said, um, in this, in this letter to my, uh, recently born son of an hour, maybe, uh, is I said, look, I need you to question everyone, even me. And the reason I said that is because I want him to understand that while everybody has an opinion, while everybody has what they believe is a fact. It is not, everything has a bias, everything everything comes from somewhere even well intentioned advice, like the, the advice that I will give to my son holds my bias, right? And if I can say so strongly that I wanna make sure that you question even your father, then yeah, I'm pretty confident that you should question investors and pretty much everyone else because however well intentioned, all of them have a bias and all of them, it leads you down the wrong
Ryan Rutan: path. The path to start up success is rarely straightforward. That's where start ups.com comes in. We're your ally in this journey, offering access to a supportive community, expert guidance and the tools you need to thrive. Don't go it alone. When you can have a team behind, you find out more at Start ups.com.