- The video discusses the top things that early stage founders waste money on.
- Hiring is one area where founders often waste money, particularly when hiring expensive employees from big companies.
- Contractors are also not a cost-effective solution as they lack commitment and may not bring the same level of productivity.
- Marketing is another area where founders tend to waste money, particularly on advertising platforms like Facebook and Google.
- While advertising can potentially reach a large audience, it may not provide valuable insights and can quickly become costly.
- Other marketing expenses such as events and sponsorships are also often wasteful and difficult to track.

- The speaker discusses the temptation for startups to spend money on things like conferences and PR agencies based on the success of other startups.
- They emphasize the importance of being scrappy and finding creative ways to market and get press without spending excessive amounts of money.
- The speaker shares examples of YC companies that were able to generate more value by working the room or doing stunts at events rather than paying for sponsorships or booths.
- They also share their own experience of hiring a PR agency and realizing that it was a waste of money, as they were not able to deliver on their promises.
- The speaker advises founders to build relationships with journalists themselves and not rely on PR agencies.
- They also discuss the mistake of spending excessive amounts of money on lawyers, particularly for customizing employment agreements, and suggest getting quotes and specs before spending money.
- The speaker recommends using payment plans offered by large law firms to spread out legal fees and extend runway.
- They caution against customizing legal matters that are not the focus of the startup and suggest working with law firms that specialize in startups.

- The speaker advises against investing in funds or lawyers associated with private equity funds.
- Larger funds are more likely to offer payment plans and take a long-term view.
- Spending money on advisors is often not beneficial for startups.
- Successful startups rarely attribute their success to a paid advisor.
- Valuable advice often comes from domain experts or investors who offer it for free.
- Startups should be cautious of advisors who seek equity or large percentages of the company.
- Pushing back on advisors can lead to significant equity savings for founders.
- Instead of paying advisors, founders can ask them to invest in the company.
- Founders should only spend money on hiring once they have achieved product-market fit and have a growing, profitable product.
- Startups should earn the right to spend money by being creative and finding low-cost or no-cost solutions.
- The average startup now has more money to spend, so founders need to be cautious about wasting it.
- Post-product market fit, founders can spend money more freely, but should still be mindful of wasteful spending.

The video discusses the top things that early stage founders waste money on, including hiring expensive employees, contractors, and marketing expenses. It emphasizes the importance of being scrappy and finding creative ways to market and get press without spending excessive amounts of money. The speaker advises against spending excessive amounts of money on lawyers and recommends using payment plans offered by large law firms. They caution against investing in funds or lawyers associated with private equity funds. Spending money on advisors is also often not beneficial for startups, and founders should only spend money on hiring once they have achieved product-market fit. Startups should earn the right to spend money by being creative and finding low-cost or no-cost solutions.

Step inside the Group Partner Lounge to hear Y Combinator Group Partners Harj Taggar, Michael Seibel and Brad Flora discuss what startups waste money on—from marketing and sales to legal and hiring.

Chapters (Powered by https://bit.ly/chapterme-yc) - 
00:00 - Introduction
02:19 - Hiring lies
04:50 - Contractors
06:51 - Marketing spend
09:53 - Brand advertising
11:02 - Approach events like a startup founder
12:20 - PR
16:01 - Lawyers
20:22 - Advisors
24:39 - Devil's advocate


Apply to Y Combinator: https://www.ycombinator.com/apply/
Work at a startup: https://www.workatastartup.com/

#startups #money #tech #business

I'll say this if you want to get really good at firing vendors Hiring a PR agency is a great way to get your feet wet Right because I don't know anyone that's ever hired a PR agency that hasn't fired PR agencies

Hello, this is Michael with Harge & Brad.

Welcome to Inside the Group Partner Lounge.

So as Y Combinator Group Partners, we find ourselves repeating the same, often seemingly obvious advice to startups many, many times.

Before COVID, we would gather together in the group partner lounge at the YC office to try to figure out why this was the case and how we could help startups figure it out faster.

Today, we're going to talk about the top things early stage founders waste money on.

So I love this topic because it's tricky.

In the next few minutes, we're going to talk about exactly what you said, Michael, the top things early stage founders waste money on.

But in my experience, even though we're going to list this stuff out and we're going to tell you why you're wasting your money on it.

Founders are still going to go and do this stuff.

Everyone makes these mistakes the first time.

And no matter what we say, like maybe we'll be able to change half of these things for you.

But just about everyone still gives it a try and spends money on these things.

And so it's a funny topic, because we know what you're going to do listeners out there.

But we're going to do our best to try to explain why you're wasting your money on this stuff and equity sometimes too.

Yeah, I don't know a single founder who looks back at their startup expenses for the first year and can't think of a good chunk of it they could have trimmed.

Literally, Justin and I in the early days of Twitch had this on a whiteboard and we would list the money we've wasted.

And the problem, speaking of advisors, is that I once paid an advisor in equity and so I won this game because that equity ended up being worth a fuck ton of money.

Like Brad said, maybe if we can get these lists halfway to where we got these lists when we were doing our companies, you will benefit.

I think the first lies are always around hiring.

Like why will hiring not help me succeed early days?

Yeah, we've talked about why hiring in general doesn't mean you move faster, but I think there's specific types of hiring that companies and founders are going to waste money on.

I'll start with 1, 1 that I know that I was super tempted by this as well.

It's when you finally convince someone who's working at a big fan company and is on a big fat salary to join your startup.

And they're super qualified and you're like, oh man, this is a dream hire.

It's going to be awesome when I tell everyone that I hired this Google engineer or something.

The only catch is they're making a million dollars a year between like salary and equity at Google.

And so they kind of need me to give them like close to that in order to join.

Like, have you guys experienced that or talked to founders who are like desperate to hire the like FANG engineer who needs a giant salary?

I think Part of this undergirding the hiring waste money fallacy is The the psychology of it is tricky ever I think it's really hard to not think that somewhere out there there's someone that can come in and make a huge leap forward in your productivity and fix all these problems that you have.

If you look, there's a Portuguese myth that the King Sebastian will return after being lost in battle hundreds of years ago to save and solve all the problems in the country.

And this is the same thinking the startups have.

That somewhere out there, there's this mythical Fang engineer or Fang salesperson that's gonna come and make everything work.

Yeah, the thing that frustrates me about it the most is that FANG companies are huge now.

And so the workflow, the decision making, the tools, the support that a FANG engineer has, Needless to say, they have none of that when they come to your startup.

And so you might be seeing someone who's extremely talented, but extremely talented in that system.

And they might not be able to bring the same level of productivity, while they certainly are bringing the same level of cost.

So that seems like a killer, a killer one-two punch.

Like all these people are expensive, but if I just have an army of contractors, I can get so much done and pay rock bottom prices.

You know, I think every 1 of us has a story of either working with a company or from our own startups where we tried to replace 1 person with 5 contractors and it just doesn't go well, right?

There's something about not having skin in the game.

There's something about not having taken the time to get caught up with the system, just having a different set of incentives in an agenda from you, just bringing out a bunch of contractors isn't gonna do it either.

Yeah, the way I see this come up with founders, it always almost starts as like, hey, we know that we need to build an iPhone app and like, you know, we're going to hire a contractor.

And we know we have to eventually just like bring this in house.

But like, we'd like we haven't got any time to lose.

But then the problem is like, you never rip the bandaid off, Like it's always more pain to go out and find a great person to join your team and do the work versus just to keep paying this person in cash, even though they're like crazy expensive on like a per hour basis and they're not really like part of the company.

Also sometimes I feel as though people don't understand that they might have to learn something new when doing their startup.

Like you, maybe you need to learn how to build an iOS app.

Like There was a day not too long ago when no 1 had iOS experience.

And if you wanted to build an iOS app, you had to learn.

So many of our early office hours are people asking us, like, who's going to do X?

What game did you think you were playing?

I don't have time to do the work and run the company.

The next biggest place where people throw away money is marketing.

It's like a one-two punch between hiring and marketing.

You can really spend every dollar you've raised.

What do y'all think about marketing spend?

So this is a subject near and dear to my heart as someone that ran a ad tech company where it was literally my job to go around and get people to give me $10,000 test budgets.

The reality is that it's really dangerous because the potential scale that you can get from advertising on Facebook and Google, etc.

You can potentially get millions of customers, thousands of users, all this stuff from spending on these platforms.

However, you're not gonna learn very much while you do this.

And they will gladly take infinite dollars, right?

There's like no limit to how much you could spend on ads.

There's the salespeople at those companies are incredible at their jobs.

The UIs make you feel really smart when you figure stuff out, but you're not going to learn that much from just plowing a bunch of money into ads early on into your company.

So with TripleByte when I started up, we ramped up to a pretty big ad budget.

We were bumping up against almost like a million bucks a month on just Facebook ads.

It was actually for a long, long time, profitable for us.

And the way it started was exactly what Brad was saying.

So hey, I just wanna learn some messaging.

We're gonna run some Facebook ads so we can try out some target, different copy and words and all those kinds of things.

We're like, damn, I think we might come under our growth numbers next month.

Like, all right, let's just like, let's just a little bit more just like we'll just ramp up the ad spend a little bit, right?

And then you like, but we know we can't get dependent on that.

So we got to grow, we can't grow just by ads.

But like you get towards the end of the month, you're not growing and you're like, maybe if I just like spend another 10% on ads, like, and that that kept going for about 3 years.

And what ended up happening is sooner or later, you hit a point where the ads are no longer profitable.

And sometimes, honestly, that can hit you all at once.

And then we were like, Oh, like, ads is declining.

And then we went through like, a painful process of we're gonna have to like cut the ad budget and figure out ways to grow.

And like, it ended up like we launched a new product that now drives our growth and has driven the acquisition cost down to close to 0.

But we should have done that in year 2, not year 6.

And if it weren't for ads, we would have done it.

Yeah, ads are too often used as a substitute for building.

And if you're not building stuff, then you're not creating value.

Anything else in the marketing area that people throw money away on?

I think there's a broad bucket of stuff that's hard to track.

Things like events and sponsorships, like brand advertising.

And I think those things are really tempting because you can almost always think of an example of another startup that succeeded by spending money on those sorts of things.

You're like, oh, yeah, I should just do the same thing.

Blah, blah, blah, company is like, I don't know, you're like, oh, Twilio has got this massive developer conference.

Salesforce has like, you know, like sales call or whatever that they dream force.

Like, like I want to be as big as Salesforce.

And again, it's like the classic, like pre product market versus post product market fit thing, right?

Like dropping a lot of money on a huge event once you already have a brand, maybe, but like it's not gonna create a brand for you.

Yeah, there are a lot of fun stories from YC companies where they would basically go to an event and either do a stunt or really work the room and get 10 times more value than the person who had the booth or who like sponsored the thing or did the talk in some side room that cost $20,000 and no 1 attended.

Like I really wish people would approach events like a startup founder, like a scrappy startup founder.

Was it WePay with the block of ice at the PayPal conference?

I'm going to totally butcher it here, but there was some PayPal conference and WePay didn't want to spend money marketing at this conference and so they made a huge block of ice with I think money frozen inside of it and dumped it out in front of the conference because PayPal freezes your funds and everyone was talking about it.

Yeah, we had another 1 where the conference had entered out all the hotel rooms.

So a founder snuck into the hotel and just slip flyers under everyone's door.

And like if they had paid to have their flyer in the like bag, it would have cost, you know, 100000 dollars or something.

There's another 1 where somebody created like, like they figured out how to work with the hotel separately for almost no money to create a little place where people could do phone calls.

And then it was like, oh, you need like a quiet place to do phone calls.

And because they weren't going through the conference, they didn't pay stupid amounts of money for some big sponsorship.

And then they got to talk to everyone who needed to do a phone call.

So there's so many ways to hack these things.

How am I supposed to get press without paying a PR agency?

Like, guys, this is like obvious, you know, like, of course, you have to do this.

This is the 1, folks, listening at home, you're going to do this.

We're going to tell you not to, but you're going to do this.

You know, the typical founder does not have like a media background and a ton of friends that work at publications.

A lot of founders are all fueled up on having read a ton of startup media.

And so these bylines and the people on Twitter with the big audiences, it all seems very distant.

And so it's so tempting when someone comes along and says, well, I'm actually friends with these people and I know them.

And if you pay me a $10,000 a month retainer, I'll get your stories in front of them.

I did it with my startup in the ad industry.

I felt, oh, I don't know these little ad tech blogs and stuff, and we paid these guys in New York that knew all these folks, and they'd get us some media placements in these blogs.

But at the end of the day, it's kind of your job to build those relationships.

Guess what the journalists, they want to get to know you.

They want to have a direct relationship with you so they can get scoops about what you're doing.

Yeah, so I spent years at YC the first time like telling startups not to spend money, not to waste money on PR agencies.

And then with Triple Buy, when we closed our series B, I was like, man, I really want some great press for this B.

And I was like, you know, I know that I've just told about a hundred founders not to do PR agencies, but I'm the extent, I'm going to be different.

Like I'm going to, I'm going to be able to like actually make this work.

I spent like, I don't know, I put like a 50k or 10k or something stupid on this fancy San Francisco PR agency, right?

And I meet with someone important at the PR agency.

And then 2 weeks before we were scheduled to launch, I announced the Series B.

I check in, I'm like, hey, so how are we going?

What are we, like, New York Times interviewing yet?

And they're like, oh yeah, hang on, we're just going to send you the concept pitch or something." It was a document that it was clear they didn't even understand what TripleByte did.

They just handed off to a bunch of junior people who I'd never met, who had just Googled our company and put together a pitch talk that no 1 had responded to.

So I had to like fire this agency and then spend like the week before we'd announced that we were like doing our series B announcement, calling a whole bunch of journalists myself.

And I ended up getting a much better like launch press or announcement press than like this fancy PR agency I would have done.

I'll say this, if you want to get really good at firing vendors, hiring a PR agency is a great way to get your feet wet, right?

Because I don't know anyone that's ever hired a PR agency that hasn't fired PR agencies.

And the only mistake we made was we bought it with some equity.

So we basically paid for our person with some equity and that was such a bad, such a bad thing.

Ugh, so PR agencies, we're all agree, definitely the best way to spend money.

So I remember I spent $50,000 with my law firm within the first month because I thought that it would be interesting to try to customize our employment agreements.

Because hey, we're signing these employment agreements with these new employees and I wanna get in there.

I wanna, this is where I'm adding value, right?

And just like the PR agency, I was attached to some literally first year in the law firm, just graduated from law school, lawyer, and he just billed me at $500 an hour and he learned about all the employment stuff too.

And we learned together, only I paid for that learning.

And at some point, I forgot who set me aside and was like, Michael, this is not where innovation is happening.

And if you have to innovate on the employment contract for your employees, You probably don't have a company.

But unfortunately, I'd spent a ton of money.

And then I would say that the other thing that people kept on telling me that I didn't quite understand was that you need to be able to get your lawyers to spec their work before they do it.

And if the lawyer basically says, oh, I don't know, every incorporation's different, That's kind of not true in most cases.

There are edge cases, but in most cases, if a lawyer can't tell you approximately how much something costs, that probably means they haven't done it a lot of times, and that's a bad sign.

Like, you want lawyers who've done it so many times that they can actually be very upfront with you.

I think the other trick with lawyers that I learned, a lot of people said, oh, I negotiate my legal bills and I get them to take things off my legal bills.

I once had a lawyer who was like, so you don't want to pay me for my work.

Because like, tell me which of these hours I didn't work and I'm happy to remove it from the bill.

But what a lot of large law firms are willing to do is give you what's called a payment plan.

So it's like, oh we just did a financing and we did a Series A and it cost $50,000.

You don't have to pay the $50,000 right away.

Oftentimes if you work with an established large law firm you can spread that payment out over 12 months.

And so a lot of times we would use that because legal fees can be spiky.

A lot of times we would use that trick to kind of smooth out legal fees, extend our runways, so on and so forth.

So I think the thing with lawyers, the big trick is don't customize shit that you shouldn't be customizing.

Get quotes, get specs, figure out how much you're gonna spend before you spend it, not afterwards.

And if you get big bills, you can always spread them out with payment plans to kind of help you through the way.

Any other tips on interacting with the lawyers you guys have come across to not waste all your money?

Yeah, I just, if you're doing something weird with lawyers, it should literally be the focus of your startup.

That's like the only time it's a good idea.

And if that's not the focus of your startup, like the weird thing that you're talking to your lawyers about, then you probably shouldn't be doing it.

I mean, a big optimization is just the firms.

I think like, 1 thing that's cool about Silicon Valley firms is they're not perfect, but they kind of, they want to play the long-term game, right?

They're not trying to like squeeze you on the easy stuff because they're hoping that 1 day you're going to go public and they'll make lots of fees on you at the IPO.

And like that works for you on just a startup.

So kind of don't go with sort of weird, like, you know, funds that work with, lawyers that work with like private equity funds or something.

And to Harjit's point, the largest ones are usually the most willing to do payment plans and things like that because they take that long view.

All right, the last area where people spend money, And this money tends to be bad if you're successful because it's almost always equity.

We've all seen pitches where someone's like, hey, and let me introduce you to my board of advisors.

Investors don't invest in companies without advisors.

Or like this advisor can help me get in here, can help me do that, or it's gonna do 1 call with me a month and it's gonna change my life.

What have y'all seen on the advisor front?

And when have you seen the advisor make the difference?

I'm curious if you've seen, have you've ever seen the advisor, the paid compensated advisor make the difference?

What I see is a lot of times YC founders come in under considerable stress and agony almost because there's some person that they really respect or admire or they've long wanted a relationship with or they feel some sort of obligation to for some reason.

They've helped them in the past And they're basically saying, all right, now's the time, you're NYC or whatever, you're doing a startup, you gotta give me 3% of this company or something like that.

And so A lot of my advisory discussions with founders are about trying to help them like chill out and understand, A, they don't have to do anything.

And then to your question, Michael, pointing out that I've never heard of a startup that is successful.

Oh, we sold the company, we went public, whatever, That said, you know, it was that advisor.

Advice definitely makes a difference, right?

Like getting advice from people definitely makes a difference, but almost always the advice comes from someone who isn't a specialist advisor.

Like it's like, it's someone who's like an investor in your company.

It's someone who just like, it's someone who you were introduced to as a domain expert who just gave you the advice for free.

Like, I got lots of valuable advice on like building a company from various people, like executives at other companies, and like, they always just volunteered it for free.

Like I never had to give them equity, they just wanted to help out.

And I think people don't know about that.

Like if you're in that, this ecosystem, there's a whole bunch of people who try to monetize startups by trying to sell them advice or try to collect percentages.

But the people who are really successful, like they just don't have the time for that bullet.

Like, Harjit, even if those people who did a call with you wanted to charge you, like the amount of time it would take them to figure that out and

Like, for some startup that's gonna make no money, It's like, no, no, it's easier for me to give this away for free.

See all Y Combinator transcripts on Youtube

Top Ways Startups Waste Money