- The video discusses the experience of setbacks in startups and how founders often face challenges and punches along the way.
- Fundraising and dealing with investors is highlighted as a common area for setbacks, with founders often feeling wronged or disappointed.
- The perception that everyone else is successful in fundraising can create a warped reality for founders.
- Co-founder disputes are mentioned as particularly difficult setbacks, as they can rock the core of a startup and strain relationships.
- The concept of the "magical deal" is discussed, where founders believe one particular deal will solve all their problems, but often it doesn't turn out as expected.
- The video emphasizes the importance of resilience and understanding that setbacks are a normal part of the startup journey.

- The video discusses the misconception that getting into YC (a startup accelerator) automatically leads to success and wealth.
- It emphasizes that running a startup is still hard and founders often face setbacks and challenges.
- The launch of a startup is often not as glamorous as portrayed in movies, and most people don't care initially.
- The video highlights the importance of learning to deal with setbacks and reactions to them, as it can influence others in the company.
- It concludes by suggesting that taking a positive and productive approach to setbacks can lead to growth and success.

- The speaker advises people to do an inventory to assess their situation.
- They suggest checking if there is a shortage of money, legal trouble, or any other major issues.
- The speaker emphasizes the importance of evaluating the worst-case scenario and realizing that it may not be as bad as initially thought.
- They encourage learning how to handle difficult situations and becoming resilient.
- The speaker highlights the value of having someone who can remain calm and assess the situation in a setback.
- They conclude by stating that bad things will happen, but one's reaction is within their control and can be used as an opportunity for personal growth and to inspire others.

The video discusses the experience of setbacks in startups and emphasizes the importance of resilience. It highlights common setbacks such as fundraising challenges, co-founder disputes, and the misconception that success automatically follows joining a startup accelerator. The video encourages founders to take a positive and productive approach to setbacks, assess their situation, and learn how to handle difficult situations. It concludes by stating that setbacks can be opportunities for personal growth and inspiration for others.

Dalton Caldwell and Michael Seibel discuss the best approaches to managing the many setbacks startup founders can face over the lifetime of starting and running a business.

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Chapters (Powered by https://bit.ly/chapterme-yc) - 
00:00 - Introduction
00:26 - Punches that land
01:04 - The setback cycle
02:05 - Fundraising
04:27 - YC - No for now
05:42 - Survivorship bias
06:28 - Co-founders
08:02 - The magical deal
09:15 - After the deal, credits don't roll
11:21 - A bad launch
13:28 - Movie mess us up
15:27 - Getting sued
16:51 - Silver linings
18:44 - You are the example
20:00 - Taking stock
20:50 - Worst case analysis
22:00 - Wrap up

Oh, it's like saying that you want to be a boxer, but like after you get really good at boxing, you'll never have to take a punch again.

It's like, no, the sport people, that's the sport.

All right, this is Michael Seibel with Dalton Caldwell.

And today we're gonna talk about dealing with setbacks.

Needless to say, in both of our startups, we experienced a wide variety of setbacks.

And I think working with so many startups over the last 10 years, what's probably become most obvious to us is how I don't think I've ever seen founders who don't get hit with a lot of punches.

Like even, I'll phrase it another way, you might dodge some of the punches but some of the punches are going to land.

So this is going to be a bit of a talk about what types of punches land and what you might have to deal with if you're in this game for a long time.

Did y'all have a couple punches land over the years.

I mean, that was my experience as a founder was taking punches constantly.

And I think what comes up in office hours with me a lot, man, is I think people want to talk to me about 1 specific thing and asking for advice about that thing.

But a lot of what I want to encourage them to think about is the meta thing, which is that the thing will keep happening over and over again.

And so developing a set of skills of identifying a situation of like, oh, this is 1 of these where like something bad happened and approaching it as part of like the sunrises, the sunsets, bad things happen.

You know, like it's, This is as much a part of being a startup founder as literally anything else.

Versus thinking you're never gonna have them or that each setback is different.

They're not, they just come, just like every sunrise comes, right?

So, Let's jump into the first area that produces setbacks, investors and fundraising, the classic, the classic.

I went in fundraise with this expectation, I came out with a bloody nose and a black eye.

I thought they liked me, I thought they were my friends, I thought I was special, I thought everyone else is raising, you know, everyone else is this.

Like it's some version of, I believed with good reason X was going to happen.

Or the universe, like you end up like going kind of nuts on feeling wronged by a person or a system or whatever you want to call it, like someone did you wrong, right?

What I think the scary thing about fundraising is that 1 fundraising process can produce so many of these experiences.

And you know, I remember personally, the first full partnership meeting, like we were raising a round, like from a real investor and I had my first full partnership meeting and I remember thinking like this is it.

Like this is destiny, like this is gonna happen.

It's taken me so many meetings to get here.

And I remember in front of everyone, 1 of the VCs in the meeting eviscerated me for 45 minutes and everyone else was quiet.

And the person who invited me to the meeting was quiet.

And I just watched that person very logically take apart my entire startup almost in a way that I would have had our roles been reversed.

It was like – Well, they were probably right, right?

I mean our company did well in the end, but yeah, you could take apart any startup Logically at that stage like where there's no defense and I just remember leaving that meeting being like oh shit like I can't imagine how I felt an hour ago compared to how I feel now.

Like, I can't, literally, those seem like 2 different years of my life.

We see this at YC where like, you know, statistically most folks don't get into YC.

And you see the way folks react to it in very different ways.

When we deal with in the context of YC founders, the best people who don't get in realize this isn't a 1 shot game.

Yeah, they apply again, they make progress to their company.

Like, you know, we send the reject email to every company and like the best people will be like, you know, you're making good points.

We're going to we're going to improve on those things and we'll we'll apply again.

And I think that they realize that that's a plus what, like you've earned some respect in that moment.

Like put another way, there's an opportunity to get an advantage even when you feel like you just failed.

Whereas almost the worst founders feel like, oh, now the game is off.

If I curse, it won't be counted because the time is over, right?

Nothing's counted after the clock runs to 0.

And we see this all the time with series A's, where, man, I talk about this so much.

No 1 puts out a press release when they fail to raise an A.

But no 1 ever tells anyone, but everyone tells everybody when it succeeds.

And so it creates this warped reality that everyone thinks everyone is raising A's and everyone has an easy time.

Like, I think it's just the virtue by which this information is shared.

And so people have this warped view of reality that causes everyone to think that they are personally, you know, everything bad has happened to them and to no 1 else.

Well, and this touches on the next subject, which is co-founders.

Because, you know, this is something that I definitely experienced.

My co-founders are reading TechCrunch, watching idiots raise tens of millions of dollars every day, and then looking at me as the fundraiser being like, hey Mike, what's going on?

Like, there's a couple of idiots with no products just raised 10 million from, you know, da da da famous fund.

You know, co-founder disputes, they are the, in some ways I think it rocks you to your core more than investor issues because that's your home.

When your home feels broken, ugh, it feels bad.

At YC, we encourage people to do startups with their friends.

And I think that a lot of people think about that and they say, well, that seems so risky.

Like if my startup doesn't work, won't my friendship break?

And you know, we always talk about the other side of that.

We're just like, if you don't have a strong relationship with this person, when things go bad, it's guaranteed to break.

At least if you have a friendship, there's a fighting chance.

Every co-founder relationship is always tested, right?

And so you want to have enough connective tissue that you can survive the inevitable friction.

And to think that there will never be friction, that's not, again, not realistic.

And so you actually wanna have enough of a relationship so when the inevitable friction happens, there's still a relationship and it's not just like, boom.

So the other thing that comes up a lot is this concept of the magical deal.

And I always love the magical deal because like the magical deal can punch you in the face when it doesn't happen.

And the magical deal can punch you in the face when it does happen.

Because It turns out it's not as magical as you thought.

Our first six-figure advertising contract with Microsoft, which we were like, oh man, this is it.

Like this is, this breaks open our entry into the monetization game, which required us to redesign our entire site, go to LA and produce a live television show, lose way more than $100,000 of money.

The show wasn't very good and complete waste of time and effort, Like literally 3 months of our lives, like down the drain.

And if we think about the burn we had during that period of time, like let alone we didn't make money on the advertising, like the burn in the wasted opportunity.

And to me it's like, wow, but at the moment, we were like, these are the deals that will save the company.

Like, this is the most important thing happening.

The founder is like, this is the magical, here's the potion.

Yeah, I think it's that you reduce your entire startup to you just need 1 thing to happen, and then you're on easy street.

I always picture, you know at the end of the movie when they roll credits, you know, like something happens, and then like the music plays, and they, you know, roll credits, like we won.

Like I think people think that's how life actually is.

And they're like, yeah, well, once I get this deal, you know, roll credits.

And what's funny, working with a lot of startups and when I was a founder is sometimes you'd get the deal and the credits don't roll.

I guess, I guess we actually have to like run a startup still.

We got into YC, Michael, like, where are we rich?

We have to, We have to break this news to people all the time to get into YCU that like, it's still hard.

I love that too, because I think founders have this thought in their head that that moment is gonna be in the first 2 and a half years.

Like, the play the credits off, it's all inevitable from here, will be in the first 2 and a half years.

And we talked to so many alums who are like 8 to 10 years to their ridiculously successful companies.

Nope, they're still doing it, and it's still the same problem.

I think, like it's no fun, Like these people have a hard time.

It's like saying that you want to be a boxer, but like after you get really good at boxing, you'll never have to take a punch again.

It's like, no, the sport, people, that's the sport.

If you want to reach that, like retire, stop.

If you don't want to take punches, stop playing this game.

You had some thoughts on when a launch goes bad.

Yeah, I mean, I think a lot of folks think that launches will be like the movie.

Again, I think we can't help but be influenced by television and movie and books where, you know, an actual realistic movie that showed a startup would just be people sitting at their keyboard typing all day and not talking probably would be with lots of that punctuated by pretty boring conversations.

So anyway, I think this translates to how people thinks a launch will go where they think they're going to launch and everyone's going to care and things will happen to them.

They have a movie in their head of all these like amazing things happening and all these users signing up.

And the reason it's really good to launch fast is to get that shit out of your head as fast as you can and realize you put it out and no 1 cares.

Whatever you thought, like you, this movie that you had is not realistic and what actually happens is like no 1 cares and sometimes they care a little and sometimes they care but in a bad way and they they're like you're bad and this idea is bad and you suck like and you're like you're like but I launched and everyone's like this is bad and you should feel bad.

This isn't the movie, I was promised a movie here.

I love that because it's like 2 levels worse than you can imagine.

People on Hacker News are like, you should be ashamed of yourself.

And you're bad and all of your ideas are bad.

Startups are dumb and you're wasting your time.

Again, the good thing about launching is you flush this out of your system.

Here in real life, you put out a launch and most people don't care most of the time.

And you just have to keep launching over and over and over again.

Well, the movie analogy is so perfect because when you think about the launches that most people experience, I think 1 of the most famous types of launch that you would see in the world is a movie launch, right?

That gives you the exact opposite of impression of how a startup is, right?

It's like whole bunch of press, whole bunch of hoopla, a whole bunch of people watching that movie quickly and then it fading to nothing over the course of like a month or 2.

Whereas a startup is the exact opposite of that.

It's like a whole bunch of nobody gives a shit for a really long time And then some point 10 years from now, everyone really cares.

But I don't know that people experience those.

Can you imagine actual time lapse of the Facebook story?

Like if some if there was a camera mounted on Mark Zuckerberg's head for like the first 10 years, what that would actually be versus what people think it was from watching the freaking movie.

Again, it was a lot of someone sitting at a keyboard, writing code, and staring at graphs a lot, and it wasn't that interesting.

Well, and especially in the early days where it was exciting to move to another school.

Like getting another population of 5,000 users was like, was a big moment inside of the company.

Yeah, Well, and again, if the actual movie would be them sitting at their desk in the house being like typing some stuff into a terminal being like, okay, we just launched New School.

They're just kind of sitting there staring at a screen and be like, OK,

I guess they're good because they inspire us.

But I think movies mess people up a lot of what they think normal is.

Well, the other thing that I think movies screw up is legal.

So I remember getting our first angry letter.

And like during my startup career, I went from angry letter from law firm, getting sued by the company owned by the Prime Minister of Italy, getting sued by the UFC, getting very aggressively invited to testify in front of Congress about sports piracy issue.

Like it was like, that first letter, I thought was a disaster.

And if only it described all the other shit that was gonna happen.

And like, I remember having this conversation with YC founders now, cause it'll always be like, oh god, we got sued.

Like, There's not a universe where you could do big things and not have these setbacks where folks will tell you you're over, folks will tell you you're bad and you should feel bad.

– maybe those are the 2 kind of silver linings, right?

I think that the 2 silver linings, like 1, everyone you respect out there who's doing great things is dealing with all this stuff.

Like Every single person you respect who's done something hard has dealt with all this crap and 10x more.

you're gonna every day have to deal with things that feel like setbacks.

Well, and you can get, I think that's the second silver lining here is you can get good at this, right?

Like you can get good at dealing with these setbacks.

You can't control whether or not you're going to have setbacks.

But you can completely control your reaction.

That's a hundred percent, like what happens in your brain after a setback happens is within your control.

Yeah, some bad stuff's going to happen and I can't fix it.

But man, you have a lot of choices in how you deal with setbacks.

And it could be anger, it could be fear, it could be bartering, it could be denial.

But this is something that you can practice and get good at, and the folks that are great at whatever their thing is.

Again, whether it's athletes or whether it's people putting out music or making movies, how do they...

You can get better at dealing with criticism or people not caring, and you can just do that.

There's no structural reason you can't have a better or more productive reaction to the setback, right?

1, this is the only thing that I would add to that, is that you're the example.

Like, in so many things in startups, the punch in the face is the moment where you can still win points.

How you react influences how your co-founders react, how your employees react, influences how they will react when bad things happen to them.

And so like the victory you can rescue out of the jaws of defeat for any of these setbacks is reacting in the way that you'd want everyone else around you to react.

And like in some fun ways, it's like if people see you taking punches, well, they'll learn how to take punches well.

And 1 day you're gonna have a large organization and you're not gonna be there to cover everyone.

They'll learn the good from you or the bad from you.

You know, sometimes this kind of stuff happens at YC and it's I actually like I love it.

Like I love when people are freaking out and I'm like, oh, it's going to be fine.

Because it's like, it turns out freaking out doesn't help anyone.

And it turns out if someone in the room is like, ah, it's going to be fine.

Everyone like pauses for moments like, well, fuck, maybe it will be fine.

To be really tactical, what I, what I tell people to do is you do an inventory.

And you're like, okay, are we running out of money?

You know, okay, well, could things have been worse?

Like, you kind of just do an inventory where you check in, you go, you know, reboot the whole machine.

But a lot of the times you do this inventory, and you're like, okay, well, we have 3 years of runway, and we can do this, okay.

And that inventory, I like to call that the worst case analysis.

Like I actually like to like, okay, this bad thing happens, what are the 5 things we're most afraid of now?

And like when we say them out loud, do they just sound less scary?

It's like, oh, all of our customers are gonna leave.

Learn how to get better at this, because this is the game.

Learn how to get good at doing hard things.

And it's weird because it's a superpower, right?

Like in some weird way, the coolest thing about a startup is that like, if you, Even if the company fails, you can get this superpower.

Like, this is a great person to have in your family.

This is a great person to have in your friend.

Like, I could see why this is a setback, but you know, seems like everything else is going okay, so, like that's a valuable person to have around.

Oh man, all right, well, to wrap this up, bad things are going to happen, your reaction is completely under your control, use it as an opportunity to get better at taking punches and be the example for the people around you.

By uploading yourself, you can uplevel your team too.

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How To Deal With Setbacks