The video discusses the importance of finding a balance between optimism and pessimism in running a startup. It highlights the negative effects of being too pessimistic or too optimistic. Being too pessimistic leads to giving up easily and losing credibility, while being too optimistic can result in unrealistic plans and loss of trust. The video also provides examples of situations where founders may lean towards either extreme and offers advice on self-diagnosing and redirecting energy.

- The video discusses the negative impact of pessimism and magical thinking on founders and startups.
- Pessimistic founders can drain the energy of those around them and struggle to express their ideas effectively.
- Magical thinking refers to a poor grasp of reality and unrealistic beliefs about how the world and startups work.
- Founders with magical thinking often make excuses, blame external factors, and have unrealistic expectations about their product, funding, and hiring.
- The video emphasizes the need for founders to have a realistic understanding of their startup's challenges and to avoid excessive pessimism or optimism.

- Founders should not be overly optimistic about the success of their startup just because it is a trending or popular category.
- Examples of remote startups and video conferencing startups during COVID were not successful because they were late to the game, while companies like Zoom had a head start.
- Founders should aim to get in before everyone thinks an idea is cool, not at the peak of its popularity.
- Cognitive dissonance is important for founders to be able to hold conflicting ideas and still succeed.
- Founders who can handle crises and victories and execute in difficult environments are more likely to thrive.
- Being optimistic is important, but it should be grounded in reality.

The video emphasizes the importance of finding a balance between optimism and pessimism in running a startup. It discusses the negative impact of being too pessimistic or too optimistic, and provides examples of situations where founders may lean towards either extreme. The video advises founders to have a realistic understanding of their startup's challenges and to avoid excessive pessimism or optimism. It also highlights the concept of cognitive dissonance and the importance of being able to hold conflicting ideas. Overall, the key message is that while optimism is important, it should be grounded in reality.

Dalton Caldwell and Michael Seibel discuss the qualities that make a founder overly optimistic or far too pessimistic about their startup. Where is the right middle ground?

Apply to Y Combinator: https://yc.link/DandM-apply
Work at a Startup: https://yc.link/DandM-jobs

Chapters (Powered by https://bit.ly/chapterme-yc) - 
00:00 - Introduction
00:30 - Stereotypes
03:09 - The Two Leaders
05:45 - Pessimistic mistakes
06:28 - Expectation setting
07:14 - Faulty feedback
08:24 - Demo day goals
09:20 - Energy drain
11:22 - Magical thinking
14:23 - Founder mistakes
16:03 - Product mistakes
17:43 - Magical investors
18:41 - Hiring optimism
19:57 - Doing what's cool
21:46 - Cognitive dissonance


#startups #entrepreneur #tech

And you feel like you're strapped to this crazy person.

I'm like this, I'm in a car and the driver of the car is completely insane and it's going to take us all down.

This is Michael Seibel with Dalton Caldwell.

Today, we're going to talk about whether you are being too optimistic or too pessimistic about your startup.

We certainly meet many founders who fall in either of these categories pretty regularly.

Yeah, I mean, the fact is you need to be both optimistic and pessimistic.

OK, and if you're too far on either extreme, you are going to fail.

So to start with, why don't you, let's talk about the comical stereotype of someone that's too pessimistic.

So what does it like, paint me the picture, Michael, who's the stereotypical too pessimistic founder?

It is like 1 painful experience causes them to want to either quit everything or change everything and fill in the blank on the painful experience.

It's like bad customer call, bad investor pitch meeting, talk to a friend, like whatever it is, talk to an advisor, but like 1 negative experience is getting them to run away.

I don't know if that's too weird of a reference, but woe is me.

Everything that could go wrong is going wrong and everything's going to shit and they're screwed.

Like it's just nothing, nothing good can happen to me.

That is what talking to a too pessimistic founder is like.

How about the comical stereotype of someone who's too optimistic?

You're like, there must be something here.

But the longer they keep talking, the more you are extremely confused why it doesn't appear like anything has happened, like any value's been created or any insight has been found.

And then like at some point you start asking questions because you're assumed that you're the idiot.

But by the end of the conversation, like you are convinced the person actually has no idea what they're doing.

That's never happened to us before though.

Yeah, it's like talking to someone that's had too much coffee or is medicated or something where everything is great, everything is wonderful, everyone is out to help them, like the planets are aligning, you know, like their startup is the best thing ever.

And then again, yeah, you ask questions, and you're like, wait, this all sounds kind of bad.

Aren't you concerned about some of this stuff?

And they're like, no, no, this is all going according to plan.

And so again, at both extremes here, there are problems, okay?

And not only that, they multiply when you have, God forbid you have employees, right?

I think it's helpful to do this self diagnosis if you're too optimistic or too pessimistic to put yourself in the shoes of your employees and imagine who would you wanna work for?

Who would you think would be like a good leader?

Because to answer this, I think a good leader is an optimist.

They believe, if they don't believe, they're a horrible leader.

Like right out of the gate, a pessimistic leader who doesn't believe that things can work, quit.

On the other hand, though, a too pessimistic, sorry, too optimistic leader has horrible plans.

Their plans are like involve magical things happening, rainbows and ponies and space time travel.

And like, if you listen, if you actually listen to the over optimistic person's plans, any reasonable employee would be like, wow, this person has lost their minds.

And, And it becomes a little scary when your leader sounds like that.

Suddenly you're like, oh God, like, are we even going to get the basics right when this person doesn't seem to be tethered to any landmass at all?

You know, the person said 2 months ago that our company was great and we were all going to be rich.

And now they're saying the funding fell through, but they have a solution.

You lose your credibility in like 2 seconds.

Like when you cross over being too optimist, your employees start questioning everything.

Like you lose all trust because they're like, oh crap, like if the leader can't see this obvious thing right in front of their face.

Uh-oh, like what else have I not uncovered yet on what the leader can't see?

I'm in a car and the driver of the car is completely insane and it's going to take us all down.

So if you're pessimistic, it ain't going to work.

And if you're too optimistic, it's probably over too.

Or like, how do you self-diagnose Michael?

Like I'm sure people are always, whenever we say things like this, people are like, well, how do I know which 1 applies to me?

You sent a shitty email to a hundred customers that wasn't personalized.

Your call to action was like, would you like to join me for a 6 hour phone call to discuss this further?

Our startup doesn't work because a hundred potential customers we emailed didn't produce 100 leads.

We get this like every batch and we have to be like, it's gonna be fine folks.

I think expectations today, I think you can be too pessimistic if you can't, if you don't, if anything short of absolute unmitigated success right out of the gate doesn't happen and you're like, you know, You're like, oh man, this isn't working out for me.

I think a lot of folks just they don't realize that this stuff is hard, and that even when it's working, you mostly get no's.

That's the way you might be too pessimistic, is it doesn't immediately work.

Who knew these things take longer than immediate to work?

So there's a lot of variance on this, right?

Like, I would argue the next 1 that I see all the time is I talked to an investor, I talked to a friend, or I talked to a customer, and they said this wasn't gonna work.

And I take that to mean, like I ascribe godlike predictive powers to 1 of those 3 people and think, I need to quit or do something else because an investor, a friend or a customer said this wasn't going to work.

As opposed to thinking, let's go through the list, your friends are idiots and don't know anything, especially if they would never use your product.

Investors are close seconds as idiots, especially if they would never use your product, don't invest in your space, aren't good investors, don't invest in a lot of companies.

And then your customer might not be an early adopter or God forbid, you might have misidentified the customer And you might be pitching someone who would never be a customer no matter what.

So like, you know, just like 1 negative signal is does not mean you can't build a startup.

Like, or this product's not gonna work, this idea's not gonna work.

1 last 1 that I wanna throw in because I find it really interesting.

What's the goal I wanna accomplish by the end of YC?

And I'm constantly seeing founders who don't accomplish that goal thinking their company's dead.

Oh, we didn't accomplish our demo day goal.

We didn't accomplish our goal for the next 3 months.

We're like, And it's really funny now because I actually wrote this in the advice we give the founders in the batch, but they still missed the point.

Like setting the aggressive goal, the purpose was to get you to move fast, to get you to go, go, go.

Like if you learned a bunch pursuing that goal, you got value, even if you didn't accomplish it.

But like so many founders kind of go into the demo day season being like, we didn't accomplish our demo day goal.

It's all some version of gave up too early or wants to give up.

You're too pessimistic if you want to give up too early or if you expect it to be really easy for you or You think it's easier for everyone else.

Well, everyone else has it easier than me.

You know, I don't think that's, that means you're being too pessimistic.

Ultimately, you can redirect your energy if things aren't working, but you shouldn't give up fast.

Like, I don't know how else to articulate it.

Like, founders that are too pessimistic, the way you know they're being too pessimistic is they freaking give up.

It's obvious when they're too pessimistic.

Their co-founders, like everyone around them talks to them and feels worse after talking to them and deflated.

And like, last thing on this, like, we talk about the synonyms of YC, of the difference between being high energy and low energy, it's like the Eeyore thing.

You want to talk to someone and get energy when they're telling you about their company and walk away from the conversation being like, yeah, that person's going to do things.

If talking to you is deflating, again this is not pejorative, but it's like that's a sign you're too pessimistic that like trying to express what you're working on and what problems you want to solve cause people to feel drained.

let's be clear, I think that the cool thing about being too pessimistic, like I love your opinion on this, because I actually think I rather help someone being too pessimistic, strangely, because usually when I try to help introduce realistic expectations, they can adjust.

You know, usually we just need to tell them what's reasonable and suddenly they're like, oh, okay, I guess things aren't as bad as I thought.

So like we said, pessimism sucks but it's curable.

I might argue maybe the reason why optimism is a little harder is because we're kind of saying that the good point is optimistic.

So if you're too optimistic about your startup, you're like way off in the never never land and like that's a harder thing for us to, That's a harder thing for us to cure.

So why don't you introduce the audience to this concept of magical thinking?

This is something you talked about to the whole batch, and I think it's 1 of the best talks.

I think it's like a psychology term, but, and yeah, I think it's used in more of a clinical setting.

So this is not the technical technical definition.

This is just my founder version of magical thinking.

Magical thinking is where you start to believe you live like in a magical world with magical causes and effects, and that like things that aren't rooted in reality are true for you.

And so an example of like a magical thought is, hey, if I was at an airport and I saw Michael in the airport and I could approach him and pitch my startup, he would immediately see what a brilliant idea I have and get out of his checkbook and fly me away from my life and help advise me to become the next Google.

So like some people think that way and that's like completely nuts.

Well, by the way, I think they extend that thought to that's how companies get funded.

They extend that thought beyond themselves to believing that's how the world works.

The people who get funding get lucky like that or do that, So I have to do it too.

And they don't bother actually studying how the world really works.

Or it's like they've watched too many romantic comedies or something.

It's like they think their life is a movie and they're the main character where like if they do some really complex act, showy act that's dramatic and like something you would see in a movie, if you literally do that, like somehow it's going to work out for you.

Like there's lots of versions of this, but it's like someone that's not rooted in actual cause and effect of reality and can't tell the difference between normal cause and effect.

Like, hey, the way you meet Michael is you apply to YC on the website and then like, we're just normal people.

And, you know, like, it's like actually pretty straightforward.

But when you start to believe that there's like magical ways to break into whatever, you know, so anyway, that's my definition.

And there's More subtle versions of this, but the whole concept of magical thinking is a poor grasp of how the world actually works.

So let's talk about this in the context of startups.

How does magical thinking pop its rear, its head up?

I mean, I think to start with, it's to always have excuses.

Like when you ask people direct questions, everything involves a very complicated answer and excuse about why they can't grow, why they can't get customers, why it's hard for them to get customers, why somehow there's a complicated story, it's other people's fault that they can't do something and all these other people are plotting against them and like basically they're telling a story where they're the main character, they're the hero of the story, and their startup is great.

And if it weren't for all these dang external parties doing bad things, it would be working.

Again, like put this into practice of like, why people can't get a customer, for instance.

I think it also comes up in investing a lot.

It often comes up in the, if only I had money like everyone else does, I'd be able to go do this other thing.

Like, you know, people like telling the story about other companies getting breaks and them not getting breaks.

Or telling the story that like, that break, that magical moment's like 1 step ahead.

We'll go from like 0 to 100 in just 1 step.

That one's extremely frustrating because it's just like, it's a complete misunderstanding of how this game works.

What else are you, what else are you seeing in terms of like, this often happens in product where like someone has a magical version of their product in their head?

Yeah, I think in practice, if you can't build a product and you don't have a tech co-founder or whatever, or you have never once built a product and given it to anyone and you think it's going well, you are too optimistic.

Again, think about how many people over the years that have pitched us like, it's a new social network and it doesn't exist, but it's like Facebook and TikTok and it's with your friends and you can discover, those kind of like rattle all this stuff off, but they will have no code, none of it will exist.

And they'll get really frustrated that we aren't pumped about that.

Like they don't, like they're being too optimistic that the idea that their articulation of this is somehow valuable or interesting.

That the deck, that the idea has inherent value as opposed to, and it's like, what's crazy is like, man, in 1 way that gives us, that shows they have a lot of faith in us, the idea that we can just hear an idea and know if it's going to work or not.

Like, don't you wish you had that power, Dalton?

I think too much optimism around thinking that because you raise some amount of money, whatever that is, is gonna save you from things not working or that your investors are magical and will save you.

And so because we raised from XYZ, and again, in this market, this is more odd.

Just Because you raise a bunch of money from important famous people does not mean all problems no longer exist.

You see people being too optimistic where they just turned off their brain once they raised money that they would ever They were just like, hey, I'm on easy street, man.

If we hadn't done it, why would these folks have given us all this money?

I love optimism also comes in the form of hiring.

We have this really big, hairy, kind of awkward problem we don't understand well, but if we just hire a marketing person, a salesperson, a this person, they will come in and solve the biggest problem inside of the company.

Like they will figure out what the product should do or how people should find out about it.

And what's weird is that like, it's not like oh they'll help you or together you'll figure it out even.

And it's too optimistic on multiple fronts.

1, the idea that your employees just hand you that.

And 2, the idea that even if there existed people out there who could, you could hire them in your like pre-MVP startup or like pre-product market fit startup.

Like why would the number 1 marketing person in the world work for you?

And the last 1 that I come up with on the too optimistic front that I see a lot is, this is obviously going to work because it's the cool thing, because it's the trending thing, because the thing investors are talking about on Twitter.

I should obviously work in this category because it's the hot category.

And you know, probably 1 classic example, how many remote startups and video conferencing startups did we see the second that COVID hit.

And the thing that was so sad was like having to explain to people, Zoom was working for years before this moment, so they could take advantage of this moment.

They have years head start, technology start, all these advantages.

Not that they expected COVID would come, but they were in the prime position for it.

You starting from scratch after COVID comes, you're optimizing for something that probably happens post COVID, not something that's gonna happen in the next 3 to 6, 9, 12 months.

And I think that oftentimes founders, you know, there are a lot of fads that way where a founder basically or people get in at the end and think that there's a lot to get when like the reality is that you want to get in before everyone thinks it's cool, not at the peak of everyone thinking it's cool.

Like the peak of everyone thinking school is usually right before everything goes

We sure see this a lot at YC where you can tell when something is jumped the shark, when it is 1 of the more common ideas people apply with.

Everyone was building a chatbot for a couple of years there.

And that's when you knew it was over basically.

So to wrap this up, Let's come back to the message kind of in the beginning.

Like how do you, like we say balance, but aren't these, aren't these, my balance is, I think this is a good idea, but it's going to be really hard and clear evidence for this is going to take a while to develop.

These are kind of hard to balance, right?

I mean, I talk about the term cognitive dissonance sometimes, which again, it's another like psychology term and cognitive dissonance is when you have 2 conflicting ideas that you have to hold on to at the same time.

And most human beings don't like cognitive dissonance.

It makes them uncomfortable to hold conflicting ideas at the same time.

And I think the best founders have techniques and they can do it.

I think, and they can like be really good at it.

I think something to aspire for as a founder is someone who can know both, oh no, like my star employee just quit and says my startup is horrible and now I don't know what I'm going to do, but I'm going to get on the sales call and I'm going to sell my heart out and like close this customer.

And I have to kind of like sit with both of like I have to be able to do this and not go nutso and like it's hard okay like because like every day there's gonna be crises of some sort right and there's gonna be victories And the people that screw this up, they like, they can't handle that dissonance and they go too far.

The way they resolve the dissonance is to go too far 1 of the directions of either like freaking out of the bad things or losing contact with reality, more or less, you know.

A lot of founders I know, I wouldn't describe them as totally enjoying that experience, but I would say that they figure out how to thrive in that environment.

Like they execute in that environment And the risk and danger in some ways sharpens them.

And how many times do we see founders like not bring their true A game until like, shit's pretty bad.

See all Y Combinator transcripts on Youtube

The Two Mindsets That Can KILL Your Startup