Is My Startup Growing Fast Enough? transcript

the number of founders I've talked to who basically said some version of we're not growing as fast as cursor so therefore we should pivot or do another idea and when you look you're like you have the best product in your category like for some reason I feel like sometimes founders kind of think startups are just kind of fungeible you know it's like oh I could make Door Dash or I could make like GitLab and it's like that's not been my experience like this is Dalton Puss Michael today we're going to talk about a topic on every founder's mind.

So, Dalton, I'm not growing 10x year-over-year. That means I should shut my company down and go get a job at Google, right? Because I saw in Twitter that investors will only invest in me if I get you. >> Yeah, I think Andrees put out a video saying if you don't have that, your company is bad or I forget what they said. >> If I were to parody it, cuz I don't remember it exactly. It's like if I don't have a millionaire or R in the first week, it's just like it's over for me and like my life prospects are bad now.

I'm like married or have kids. I felt like that was great marketing by the way. Like as an aside, like ragebait marketing in practice, everyone's talking about E16Z now, right? I was like, I don't know if that's the Hey, >> look, all media is good media, right? Okay, >> so anyways, let's try to unpack this a little bit. What's going on? Companies are growing faster >> than we've seen in the B2B SAS era, for sure. Maybe not faster than we saw in the consumer era, but we can that aside a little bit, but certainly um that's happening.

What What What's going on? I think we should try to steal man um both extremes here. So, let's talk about the growth is real side of the coin. Well, >> if you go look at the app store, OpenAI has been number one in the app store for the past couple years. Right now, I think Sora is number one, which is also OpenAI. >> And holy cow is the revenue growth real and the consumer growth real of AI tools. >> Yeah. >> And B2B tools that are using the APIs.

Yeah. >> Is real. Well, and and and you're saying from the revenue side, from the product side, the OpenAI product is 10x better than anything that existed remotely similar to it 5 years ago. >> Imagine if you imagine you had a time machine. >> Yeah. >> And you gave someone access to this. >> Yeah. >> And they would just be like cooking, right? >> It's like pretty good, right? It's like now everyone has it. >> Like giving someone Google in like the late 80s. >> Yeah. >> So that's on the plus side. on the minus side, what what's going like I'm quoting someone, I forgot where I read it, but it's sort of like these days annual recurring revenue is often >> not annual nor recur recurring nor revenue. >> So every aspect of the term is wrong.

So basically you see a lot of creative accounting. >> Yes. >> Where people are, you know, reselling API calls to Anthropic. They're upside down on it. They're multiplying the numbers by 12 to make an annual number. Have it be non-recurring. It's actually just run rate revenue. There's all this like creative accounting going on. >> Let's let's go down in that like so much deeper. Okay. Right. So it's like all right, I'm running a service that has a monthly subscription.

Annualizing that is an estimate because I could cancel it any >> that is correct. >> I'm running a service that has like a usage rate like AWS. We're like I can pull all of my files from S3 tomorrow and never pay Amazon another cent. Turn that into AR is a little hokey. I don't want to name names, but there are a large number of products that YC founders use that I've spoken about, and they say things like, if I were to pay for the tokens to do this directly with OpenAI or Claude, it would cost this.

This product charged me this divided by two. I like using AI, but why not get a 50% discount per token? So point being, there's a lot of creative accounting for how you define growth rates. Yes. Um there's people that are, you know, maybe you have an LOI, maybe you have like a email, oh we're going to definitely use your thing and then you count that as ARR. Y >> big pilots. I've definitely seen like impressive logo on website.

Dig in and it's like it's a big pilot. It's a million-dollar pilot. >> Yeah. >> But like I've seen situations where they're doing pilots with six companies. So their logo's on six different and it's like is that an enterprise deal? Is is that like a locked in scalable thing or was that just kind of we're demoing it and seeing what's going on? >> Yeah. And so the point is the following. Are there startups that are actually growing at 5x or 10x, you know, greater than 5x year, 10x year?

Yes. >> Especially at small scale. >> Definitely. >> Yes. >> Are there startups that go from zero to a million ARR in some form or another faster than we've seen in the past? Yeah. >> Yes. And I think partially, we've talked about this before, but it's because big companies are willing to purchase the stuff >> and it used that used to be really hard to get a big logo >> and and they don't mind spending money. If they can see value, they don't mind spending money. >> Yeah.

So that that's real. >> Yes. >> Um but I think if you're a founder and you're depressed and you're like ready to shut down your company because you're only growing 6x year over year, don't do it. >> No, that's or like just like a 16Z. That's just like self-defeating bad memes. Um, >> I think the best way to think about this from an investor perspective >> is that you're going to be judged relative to your direct peers. >> And so, let's say that you're doing voice AI, vertical voice AI, >> you are going to be judged based on how fast the other vertical voice AI companies are growing.

Because if you're an investor like, right, like I'm I'm running a series A firm. >> You're picking them a lot. I'm looking at a lot of companies that are building in the space. Maybe not competitors, but >> they're comparables. Yeah. >> And yeah, I am looking on a relative basis. Yes. >> How the companies are doing compared to each other, but I'm also taking the time to dig into how real the contracts are. I'm digging into if the product is good.

Like there's all this nuance that as an investor that I would dig into. >> Yes. >> And so the way I would extrapolate this as a founder is realize who your comparables are. >> Realize who you're going to be judged against. Yes. And if you want to be able to keep raising, be better than average. >> I love that you're talking about these comps because the number of founders I've talked to who basically said some version of we're not growing as fast as cursor.

So therefore, we should pivot or do another idea. And when you look, you're like, you're not even in a space that could support this level. Like, you know, like you sell enterprise software, it's not self-s served. Like, yep. How would you be able to grow as f like or you're growing you have the best product in your category like why would you care about cursor? It's a completely different category and for some reason I feel like sometimes founders kind of think startups are just kind of funible you know it's like oh I could make Door Dash or I could make like GitLab and it's like that's not been my experience like you you probably couldn't have made either but like it's probably much more likely you would have made one than both.

And so, um, I think when people don't look at the comps, that's when they can psych themselves out. >> Yep. >> I also think that there's a bit of a question about what phase are we in. I think you and I have this kind of really interesting perspective because we've seen multiple cycles now because we're old as And like I think that we just experienced very latestage B2B SAS, which I would argue is like at least I found fairly depressing.

But like, you know, it was he the technology hasn't changed for years, right? And now we're in this kind of probably a cycle that to us would feel like early web apps or early mobile apps. And I think sometimes people don't understand like how little things have firmed up yet. Like when the game's early like >> Yeah. >> Like it's hard to predict what will have stay power. >> Hard to predict what will have network effects. >> Yes.

And I am fully expecting to be surprised. I know that's a weird way to think about it. >> Yeah. I don't trust my ability to predict >> no >> what is enduring and what isn't. It's kind of like do do you remember the vet that Sam made >> where he was like these YC companies together will be worth like X billion dollars. >> And if you look at the list of companies, there's some really good stuff in there. I think Stripe was on the list.

But then there was like Teespring. >> Yeah. Yeah. >> And like it's because at the I remember at the time it was taking off. Stripe and Teespring seems like equally good startups to me. >> And so even when you're completely in the no >> Yeah. >> It's hard to to predict what's going to be sticky and what's going to be the enduring company. >> I love that you said expect to be surprised because like if we think back through 20 25 years in tech, how many name brands have we seen just remember Palm?

Yeah. Yahoo is one of the biggest companies in the world and now it's just like this like ad tech stuff. >> No, it's a different thing. >> Yeah. AOL, Netscape, like there's so many examples. And what's funny is it's like when you think about some of those examples, it wasn't they're going to win. >> It was like the game was declared over. >> Yeah. >> Like by the time Google was going, Yahoo was already declared the winner. >> Yep.

And >> it was like the biggest and most important internet company >> literally. Yeah. And then somehow it un won. There is no kind of like permanent winner. >> Yeah. >> Uh except Microsoft that >> but um I think this is what when founders discourage themselves like man just take a look at some of the like dinosaurs and like you might realize something that looks great today. You have no idea what the shelf life is. >> Yeah.

And and again to for the record I have no idea how sticky cursor is versus cloud code and stuff. I mean, again, we'll make investments on stuff like this, but if you feel like, "Okay, Dalton, bet your life on what's going to happen and what's sticky." I don't know. >> At this phase, >> I have no idea. >> It's like the dumbest moment to >> I don't know what's going to stick. I to me, I think like the lesson I learned from YC in these phase, fun smart people and just see what happens. >> Yeah.

Smart people will figure out. >> Yeah. And like lean back. And like maybe my take away from more later shade shots was like the variance is a little bit less um can't predict necessarily who's going to win, but the variance in outcomes is way way less. Whereas now I don't know that we know how to even use the tools we have right now. You know, it's like the I always talk about this example of like how long did it take us to squeeze the most out of a mobile phone?

How long did it take us to squeeze the most out of a web browser? Like the idea that a new model drops and we know the best way to extract value out of it is like the biggest joke I've ever experienced. And maybe the most positive or actionable thing from hearing this like, oh, everyone's growing faster than me is I did see a couple of companies apply to Standard Capital at our last funding cycle >> where it was a company that had been around two or three years >> and it wasn't really growing fast and so they did like a crazy pivot nine months ago and it totally worked.

Okay, that was pretty smart. Yep. >> Does that make sense? Like I saw people do >> AI pivots that were well thought through even though they're >> two or three years in their startup. >> Yes. >> And I and I asked them, well, why why did you do this? And like, well, we weren't growing fast enough. Yeah. >> Okay, that's that's fair game. >> I think this has been a bit of a and and we'll see how it works out. But I've definitely seen people who like I would describe as had some interesting insights but poor tools as the B2B SAS thing kind of came to a close where like with AI they can actually do they can create way more value for the customer.

So like oh like yeah we got this contract with the customer and like we can do this much and then we wake up and it's like oh it turns out we can do this much for our customer. Oh now they want to talk to us more. Like oh we're get we're getting meetings we weren't getting before. Oh, we're making them more money. Like, and it's like, yeah, you got better tools. Like, get back in the game. You got better tools, right?

It's like, you got better pads. Go hit hard. Now, I think that um anyone who's discouraged. It's like, man, better tools are coming out every day. This is a great time to be doing it. Don't get discouraged by someone. Make it a >> Don't be discouraged and don't be accepting of slow growth. >> Exactly. Be inspired. With great tools, you should be able to go faster than before. All right. Great chat. All right. Thanks, Michael.

Thank you.