- The speaker introduces Elad Gil, a successful investor, startup founder, and author.
- Elad shares his journey of starting in Silicon Valley during the internet bubble collapse and networking his way into a job in technology.
- He worked at Google and Twitter before starting his own companies and eventually becoming an investor.
- Elad discusses the shift in perception of founder CEOs and the importance of product-market fit in early-stage companies.
- He provides examples of signs of product-market fit, such as high user retention, major brands using and paying for the product, and strong customer feedback.

- Color started off providing information about hereditary risk of genetically driven cancers
- Strong customer feedback and retention were early signs of product market fit
- Small organic growth can be a sign of product market fit
- Many things can go wrong during the phase of finding product market fit
- Hiring the right people and making quick decisions on bad hires is important
- Focusing on customers' needs and building something immediately are key factors in successful companies
- Iterating quickly and focusing on team velocity can make a team more productive
- CEOs should focus on making the team effective, finding product market fit, and avoiding conflicts with co-founders
- Late stage companies require more focus on scaling, processes, hiring executives, internationalizing, launching new products, and managing a team effectively
- It is difficult to know when to pivot, but waiting too long can be detrimental to a startup's success.

- The European GPS company TomTom took a long time to find success and pivot to GPS devices.
- In today's environment, companies may wait too long to pivot or shut down because they can keep raising money.
- The market is the most important factor in startup success, not the strength of the team.
- Many teams choose bad markets for their startups due to lack of research or unrealistic expectations.
- Startups should focus on one miracle rather than trying to achieve multiple miracles for their success.
- The choice of CEO depends on the specific skills and expertise needed for the company.
- Fundraising strategies can vary, and it is important to be cautious of bad investors.

- The speaker had a bad experience with an investor who tried to take more value during the company's exit.
- They advise being careful when choosing investors and asking founders about their experiences with them.
- Being nice is important, but not always effective in dealing with investors.
- Investors who question and push founders can be valuable, but there is a difference between that and investors who act badly.
- Raising money for the speaker's first company took about 2-3 months and required networking for introductions.
- Most investors are fear-driven rather than ambition-driven, and high conviction investors are rare.
- Paul Graham's idea of doing things that don't scale applies to finding the right investors as well.
- The speaker's decision process for investments includes evaluating the market, the caliber of the team, and whether they would enjoy working with the founders.
- Companies often make the mistake of not getting to the point quickly and efficiently during meetings with investors.

- The speaker was researching funding for anti-aging technologies and met with a founder who impressed them with their efficiency and follow-through.
- The speaker has written a book called "The High Growth Handbook" which provides tactical advice for startups.
- The book includes interviews with successful individuals in the industry.
- The speaker recommends monthly investor updates, including asks, metrics, burn rate, team updates, market updates, product updates, and press updates.
- The speaker invested in Airbnb's Series A round and was convinced by their growth and personal experience with a similar service.
- Due diligence on investors can be done by looking at their past investments and talking to companies they have worked with.
- Pricing advice includes raising prices, starting on the high end, experimenting with small customer bases, and considering good, better, best pricing strategies.

- It can be difficult to determine if a product has a good marketing strategy or if the content is not appealing to consumers.
- Different factors need to be considered depending on the type of consumer product.
- For e-commerce sites, it is important to analyze the cost of customer acquisition and the lifetime value of customers.
- Social networks should focus on growth rates and churn to evaluate product market fit.
- There are different signs that indicate a product is working, but founders often overlook them.
- The success of a startup often involves breaking through perceived "walls" or limitations.
- Growth rate and market size can be indicators of a product's potential success.
- The example of Airbnb's growth from a small team to a large corporation is given as evidence of a successful product.

Elad Gil, a successful investor and startup founder, shares his journey in Silicon Valley and discusses the importance of product-market fit in early-stage companies. He emphasizes the need for strong customer feedback, retention, and organic growth as signs of product-market fit. Gil also highlights the significance of hiring the right people and making quick decisions on bad hires. He advises CEOs to focus on team effectiveness, finding product-market fit, and avoiding conflicts with co-founders. Late-stage companies require a focus on scaling, processes, hiring executives, internationalizing, launching new products, and managing teams effectively. Gil warns about the dangers of waiting too long to pivot or shut down and emphasizes the importance of choosing the right market for a startup. He discusses fundraising strategies and the importance of being cautious with investors. Gil shares his decision process for investments, which includes evaluating the market, the caliber of the team, and compatibility with the founders. He recommends monthly investor updates and provides pricing advice. Gil also discusses the importance of analyzing customer acquisition costs and lifetime value for e-commerce sites and growth rates and churn for social networks. He highlights the signs that indicate a product is working and the importance of breaking through perceived limitations for startup success. The example of Airbnb's growth is given as evidence of a successful product.

Serial entrepreneur and angel investor Elad Gil sits down with YC Partner Geoff Ralston to discuss startups.

Learn more at https://startupschool.org.

I am very happy to have my friend, Elad Gil, here.

You saw, some of you, or all of you, if you looked online, a talk yesterday about how to get meetings with investors and raise money.

If you would be so lucky as to get a meeting with this investor and even more lucky to raise money from him, that would be a really good thing for your company.

He's not only a fantastic investor who's invested in a lot of YC companies.

Like, it seems like all the successful ones.

And someday you have to tell me how you figured out how to do that.

And he is increasingly known as an author.

He claims it's not his career, but he is an author of High Growth Handbook, which is a very cool book.

I recommend you all read it, but not maybe right while you're starting your startup, maybe as your startup gets going, because a lot of the topics in there will be relevant for you, hopefully, in the future.

So maybe you can start off the conversation by telling us a little bit about how you got to where you are today.

What's your journey to Epic Investor and startup founder and I guess

So first of all, thanks for having me here and really excited to be here for startup school.

So I moved out here right after graduate school.

Many of my friends decided to stay on the East Coast.

And so I was sort of starting fresh when I first came out here.

And I had terrible market timing in that I moved out here right as the entire internet bubble was collapsing.

And so I went into an environment where a year after I got here, most people were getting laid off and most people were sort of desperately looking for jobs.

And so somebody who was a vice president of product management was suddenly trying to get any product manager job they could get at any level at any company.

And this was before things like YC existed.

There was no online content around starting companies.

There was no content about basically doing anything.

And so what you had to do is really sort of hand-to-hand combat in terms of networking, meeting people, and sort of, I basically talked my way into a job by offering to work for free at a startup, and that was my entree.

It was basically an unpaid laborer on behalf of a company as a way to get my foot in the door and get my foot into technology.

That's sort of a good lesson for how, even in today's world where there's many more resources for how you have to really pound the pavement and you have to, it's elbow grease to get started lots of times, right?

And I think what happened is after, so I got a PhD in biology, so it's completely irrelevant to software and technology, but I wanted to go into software and technology.

Well, completely irrelevant at the time to software and technology.

And so basically my first software startup job allowed me then to be a software person.

And that was the thing that allowed me to do a transition.

Actually moved out here to join a telecom equipment startup as a product manager, so I worked on hardware.

And I had to leave that company and then I talked my way into working for free at a software company and then I was suddenly a software person and that's what sort of led to me then eventually ending up at Google and other places.

But let's talk a little bit about, because you ended up working at Google and Twitter, but you started companies in between.

And in the end, sort of transitioned into becoming an investor.

in 2004 and effectively started the mobile team there.

So I helped buy Android and pulled together their early teams for Google Mobile Maps and mobile Gmail, each of which have hundreds of millions of users, but I had nothing to do with that since I left before that massive growth.

And I left Google to start a very early data infrastructure company that was called Mixer Labs was a company name, GeoAPI was a product name, and that was acquired by Twitter.

And Twitter bought us when Twitter was about 90 people.

And then my job quickly became 1 of helping the company scale from 90 people to 1,500 people over 2 and a half years.

And so the prior sort of super growth journey I had before that was actually joined Google at around 1,500 to 2,000 people and it hit 15,000 people over 3 and a half years.

So, very rapid growth when something's actually working.

And then I left Twitter to start another company called Color Genomics, which is a big data meets genomics company that's raised about $150 million in venture capital and is up and running still here in Birmingham.

And finally made use of your PhD in biology, thankfully.

So you're an interesting mix of big company guy and small company guy.

Yeah, I guess I think of myself as somebody who is good at operating teams or driving efforts, and it could be a five-person team or it could be a multi-hundred person team.

So that's my self-actualization of what I do.

I actually think there's a lot of people who drop in and out of big companies and startups in terms of they start a company, maybe it gets acquired, they run a division, they maybe go and start another company or they become an investor.

And so if you look at Silicon Valley, it's sort of littered with people who've done this sort of back and forth.

Ben Horowitz would be a good example of, you know, joined a company which was Netscape, it went public, he then started a company, it got acquired by HP, ran a big division at HP, and then, you know, co-founded Andreessen Horowitz, but that was, you know, a related career path in terms of somebody who bounced between the 2.

Yeah, it kind of puts the lie to the trope that you have to fire the entrepreneur.

You're either an entrepreneur or you're a big company person, but it's not quite so simple, is it?

Yeah, I think it's a good point because I think there was a real shift when Mark Zuckerberg hired Sheryl Sandberg as COO into people saying that founders can keep going because what happened in the 90s was founders were quickly replaced by professional CEOs if they raised any venture capital, because often the venture capitalists would take over the board pretty quickly, often at the series A.

And what that meant is that founders were often demoted, and they'd bring in sort of an old gray-haired person to run the thing.

And I think that really shifted in the era of Zuckerberg where suddenly people said, wow, you can build massive companies with the founder CEO still driving it.

And if you actually looked at the history of the biggest technology companies, that was always true.

Microsoft was always driven by its founders, at least early on, first 10, 20 years.

Dell was driven by its founder, and so anecdotally actually, founder CEOs worked really well, especially if they're able to main control and not raise external capital.

Or if they raise it on very good terms where they didn't give up control, but the second they give up control in the 90s, they'd be out.

Steve Jobs, the founders of Yahoo didn't run the company, the founders of eBay didn't run the company.

You can go through all the major companies of the 90s.

Founders of Google had Eric Schmidt come in.

So up until the Zuck moment, I think, it wasn't a very common practice.

So, most of the folks here in startup school are in very, very early stage companies.

Let's talk about what it's like in the early stage, if you can think back to Mixer Labs and even Color.

How did you think, you were the CEO of both those companies, how did you think about what should have most of your attention during that time?

I think the singular thing that really matters is product market fit.

So building something that customers then want.

And that's really honestly the only thing that truly, truly matters.

Now to get there it means you have to hire people unless you can build it all yourself and sell it all yourself.

It means that you have to raise money if you can't fund it off of your customers or if you can't just bootstrap it.

But when all is said and done, you need to build and sell product.

In the very early days, that's really the core thing.

We've talked a lot about product market fit and finding product market fit in startup school.

And 1 of the most common questions that everyone asks is how do you know when you have it?

Yeah, I think it's obvious if you think about it the right way, but I think it's very hard otherwise.

So I'll give you 3 examples of signs that you have product market fit from 3 different companies.

You know, if your product is broken and people are still using it very actively, or you have high retention on a broken product, that's a clear sign of product market fit.

When Twitter was constantly going down in the fail whale days and yet nobody moved off of Twitter, that was a sign of just raw market adoption.

A second sign is if you're a SaaS company and you have major brands finding and using you organically and paying for your product, that's a sign of product market fit.

So examples of that would be PagerDuty which had I think Apple as an early customer.

There's Zeppelin which had I think Facebook using them very early.

Airtable has all sorts of brands that have just sort of adopted it.

So I think there's a number of sort of more recent breakout-y companies where big brands are just showing up and starting to pay.

And I think that's a clear sign of product market fit.

The last 1 is just, you know, whether you have very strong customer feedback, even from a small group of people.

So at Color, for example, very early on, we were getting effectively love letters from our customers.

The company Color started off focused on providing people with information about their hereditary risk of certain genetically driven cancers.

And we were getting emails from people where they were saying, thank you so much for helping me, for making this affordable.

You know, they felt that the color would help with that.

And so, you know, we got very strong customer feedback very early on it.

Yeah, so it seems like it's some mix of, and again, I think some of this is intuition, but some mix of retention, customer feedback, and maybe you should break your product and see if people keep on using it.

So for example, people tend to discount growth off of small bases even though the growth is compounding.

So if you're growing organically 20% a month, even if you're going from 100 to 120 users, that is a real sign of product market fit that a lot of people tend to ignore or not believe because they're like, oh, the numbers are so small, it doesn't matter.

But if you're consistently adding 20 people and then 30 people and then 40 people month after month, that's usually a sign that a thing is really gonna work.

This is a while ago, but what went wrong or what goes wrong for companies during this phase when they're trying to find product market fit?

Yeah, I think Almost everything you can imagine can go wrong.

And so if you don't have product market fit, that may or may not derail the company if you have product market fit, then it kinda matters less, although you still wanna correct those things.

You know, I think, for example, at Mixer Labs, the very first product was a wrong product.

So we initially started off building almost like content aggregation sites or wikis for locations, and then we quickly morphed it into an infrastructure product where we were selling infrastructure to enable geolocation applications.

So this was Before there was a big wave of API companies and so it was 1 of the first alongside things like Twilio or some of the really early developer tool companies.

But the starting point for the product was much more of a consumer site that allowed you to aggregate content and we'd built out very deep infrastructure for that and then we decided that really what we should be doing is selling the infrastructure.

So that was a good example of us changing direction as a startup.

What else have you seen go wrong at this early stage that might be instructive?

Whether around product market fit, the folks you hire,

even the business moves, the marketing moves you might make early on.

Yeah, I think on the hiring side, a lot of people will let not great people stick around for far too long.

And so, at my first startup, we actually let somebody go within the first month, 1 of our first 6 or 7 employees.

And the person was great and they did well in their career after, but it just wasn't a good fit relative to what we were looking for as a company at the time.

So I think there's an old adage that you should either hire extremely well or fire very well.

And I think a lot of people tolerate a bad hire for way too long.

They'll wait 678 months and say, hey, we have to give them another chance, another chance.

But really, you want to have an initial feedback conversation, see if they react, maybe have 1 more, and then you have to take action.

And I think the way you should think about your startup from a hiring perspective is it's almost like a life raft.

You know, your boat is sinking and you're on this little raft and there's 5 spots.

And if the people on the raft aren't the 5 people that you should have on the raft, you should find the 5 people because you can only support so much from a burn perspective or a productivity perspective or a coordination perspective.

So I think that's a very important mindset to be in in terms of who's on your team.

this might be a hard question to answer, but I was thinking about, you know, a lot of times we focus on what goes wrong.

You guys have seen out there things go wrong.

You've invested in so many epic companies and your companies have done great.

What goes right in those, like what stands out as the set of things that people are doing or steps they're taking that kind of gives you that clue that this might be 1 of those great companies.

Yeah, I think the focus on customers and what customers need very early is an important signal.

And then I think building something immediately is really important too.

Now, that doesn't mean you shouldn't be doing analysis.

You should absolutely be thinking about the market.

You should be thinking about your market strategy.

You should be asking who your customers are and defining out your segments.

But you should also just build stuff and try it and start to see reactions rapidly.

And I think where I've seen a lot of people fail is they wait and wait and wait in terms of actually building something and sometimes they just wait too long.

Or you see these companies that stay in stealth mode for 3, 4 years and you're like, that's a terrible sign because you're not actually getting real customer feedback potentially.

It seems like there's also something about iterating fast in these great companies where there's always something new and better and it's always better too.

The other thing I've seen some people do, which I think actually helps a lot, is from day 1 they focus on the velocity of the team, and so they maybe focus on the build environment early and making it so that anybody can run a full instance of the product with a single line of code just to set it up right.

There are actually things that you can do to make your team dramatically more productive that a lot of people don't do.

And so anytime they onboard somebody, it takes them 2 weeks to get the damn thing running on their laptop instead of actually saying how do we make it so that any incremental person who hires or anytime we push a change we can instantly see its effect.

So I think there's almost like little things you can do along the way there too.

Yeah, since almost all of the companies that we're talking to are driven by human capital, people don't pay enough attention to making that human capital as effective and efficient as possible.

So speaking of human capital, you were CEO in both your companies and in fact you've given a lot of advice to CEOs, both as an investor and in High Growth Handbook, but later on you're advising CEOs and other executives how to be most effective.

How do you think about that for early stage startups?

Yeah, I think for an early stage startup, ultimately the focus should be on how do you make your team as effective as possible if you have a team?

1 is people are all moving in the same direction and there's clear goals and there's clear sense of what you're actually building and why.

But also, you know, it means, to your point, iterating quickly, it means talking to customers early, it means, again, focusing on product market fit.

Because I think the mistake that people make is you could have the happiest, most wonderful group of people in the world, but if you never find product market fit, your company is gonna die because you're just not gonna have the revenue to support it or the cash to support it or you won't be able to raise more money.

And so, whether you have kombucha or not is secondary to just like building something that people really want.

And I think people get distracted along the entrepreneurial journey, either in terms of eventually if they get funded and they get invited to all these events and all these other things start to distract them.

You know, there's a lot of sort of entrepreneurial distractions that could get your attention when really the core thing is, are people buying your product?

Now, that's if you're on the venture track and you want truly a high-growth sort of breakout company.

There's all sorts of other startups you could start.

You could start a lifestyle business and that could be great.

There's a variety of different reasons to do a startup and so part of it too is asking yourself what do you actually care about as a founder and what's your objective?

And then are your actions actually mapping against those objectives?

I think too many people just go on a default path that isn't the right path for them.

What should a CEO be spending most of their time doing?

For an early company, it's gonna be building.

So are you actually helping to build the product?

And you may not be the person that should be building the product.

I'm just saying if it's 1 or 2 of you, you're probably building or selling.

Second is hiring and making sure that the team is productive and focused in the right direction.

And then third, making sure that you don't run out of money.

Lastly, it's avoiding fights with your co-founders and things like that.

Like I often say that an early stage startup largely fails for 3 reasons, or only has to do 3 things.

You know, 1 is you need to find product market fit, which is incredibly hard.

You need to make sure that you have the money to survive, and you need to not fight with your co-founder because that'll slow everything down.

And for an early stage startup, that's ultimately everything you need to do.

I mean, you need to hire, and there's different aspects of selling that you really need to focus on.

Selling investors, selling customers, selling hires.

For a late stage company, it gets way more complicated.

You're still selling for all sorts of reasons, but then you're also much more focused on how do I enable this thing to scale in terms of processes, in terms of people, how do I hire executives, how do I internationalize, how do I launch new products, how do I buy companies, And then you realize quickly that that has to be a team effort.

Because no 1 person can do all those things.

And so then you really start asking, okay, how do I build out and manage a really effective team?

1 of the hard rules that a CEO has, I suppose, is to figure out when you don't have product market fit, whether you need to tweak the product or you need to do more of a pivot.

And you mentioned that at Mixture labs, you guys had to do a pivot.

A lot of people ask that question, like how do you know, like, when do you know that you've hit the wall with what you're doing and you need to do a more significant shift?

Yeah, it's really hard because you, most startups build something for 6 months to a year.

And then the question is, is that a real wall or is that a fake wall?

And I think it's incredibly hard to know.

I think if you're 3, 4 years into something and you're just not seeing any traction or momentum, you've clearly waited too long.

There's counter examples to that and there are always gonna be counter examples.

So for example, TomTom, the European GPS company that ended up for a while being 1 of the most valuable companies in Europe, I think it was literally 4 people in a room for like 6 years iterating through different ideas until they came up with the concept of doing GPSs, which of course now are subsumed by phones.

But they took a really long time to get there.

Most of the companies that I've seen work tend to work early, at least in terms of adoption, or at least in terms of some core metrics.

And so I think it's possible that in today's environment where capital is really loose, people actually wait too long to pivot or to shut down because they can keep raising more money.

And I actually think that's a bad thing because it's locking up great people at the height of their creative point in their lives and preventing them from going and doing something else.

So I do think at some point, you need to have that really frank assessment.

And maybe you do it periodically, but should we really keep going?

And then if we're gonna keep going, I think the key question is when you pivot, the 1 thing I would advocate is being willing to restart completely.

Because typically when people pivot, they pivot within the same market versus across markets.

And if you're in a bad market, that means you're gonna die.

Because you're just gonna go on to the next thing.

You say, hey, we have all this sunk cost, and you start iterating on that new thing, and it doesn't work either.

So sort of a decision between, or an evaluation of the market being bad versus it's just you have the wrong product.

Yeah, you should assess it from first principles and then if you decide that you're done with the business, you have 3 options.

You shut it down, you sell, or you pivot.

If you sell, my suggestion would be sell to somebody that's clearly breaking out.

I think I've heard you say before that, speaking of being at

a great market, that that's sort of your fundamental test.

If you believe that there's this incredible market opportunity, you wanna be in there, you wanna be fighting that fight, and even if you don't have the right product at first, you can find it.

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A Conversation with Elad Gil