Pixar’s Golden Age, Twitter through IPO, and Building YC’s Growth Fund | Ali Rowghani | Ep. 26

Transcript

We live in a world of hedging. We live in a world of thinking with bets, backup plans, contingencies, et cetera. And in a sense, that's very rational, okay? But what if you didn't live in that world? What if you positioned yourself against that? And what if you tortured everything you worked on to try to be great within the context of a company? And I think that is the core of a miracle factory. All right, I'm super excited to be here with Ali Raghani. He was the COO at Twitter in some of the most formative years. You had exec roles at Pixar, worked directly with Steve Jobs for many years. You started and ran the YC Growth Fund. You've been an angel investor in amazing current companies like Cursor, Decagon. You've got your own fund now. You've also been an advisor to a bunch of people in our ecosystem, like me, over the years, and so many others. And so you're just someone I've looked up to and wanted to talk to on the show for a long time. So thank you for doing this. Oh, it's a pleasure. I'm psyched to be here. The thing I want to start with that is so interesting to me is the Pixar experience. And you were there for 10 years, around 2000 to 2010, give or take. And what's shocking to me, above all, is it seems like year after year after year, they just released bangers, and every one was good. And most movie studios, I feel like some of the products are good, some are not. But here we had Monsters, Inc., Finding Nemo, The Incredibles, Cars, Ratatouille, Wall-E, Toy Story. It's just crazy. Yeah. And so I guess my first question is, and I don't think I skipped a bunch of misses or something, how did that happen? How was the quality bar? What went into making that happen time after time? You know, Pixar was a miracle factory. That's how I thought of it. You start with a blank sheet of paper, and then four years later, you have Finding Nemo. And then you start with another blank sheet of paper, and four years later, you have The Incredibles, Ratatouille, Up, and so on. So the interesting question is exactly what you asked. How is that possible? And I think, for me, I thought a lot about this question. I think, for me, it boils down to really three big things. One of them is we only made movies that the directors themselves felt really passionate about. It wasn't filmmaking by committee. It wasn't some executives ordering up a movie or, let's do a Mad Lib style with focus groups or whatever else. None of that. It was, what was the story that somebody who was really talented truly wanted to tell? And then we put all of our eggs in one basket. There was no thinking in bets. There was no hedging. Stuff wasn't getting killed along the way. No, no. And once we were committed to a director and to an idea, it was all in. And it was this focus, almost like it had to be great. The future of the studio depended on it. So it would be great. What percent of the studio would work on a given movie while it was being worked on? At the beginning, before we could have multiple films going at the same time, 100% of the studio worked on one film. So I would say for the first three movies or so, 100% of the studio worked on the film. And that started to change with Toy Story 2, which I think is the seminal movie in Pixar history. Because Toy Story 2, it was a new creative team, not the creative team that made the first couple of movies. A new creative team made that movie. And when the creative team finished up on Bug's Life, which was the second movie, they turned their attention to Toy Story 2, which was supposed to come out just one year later. And they looked at it, and they were like, this isn't good enough. And so they replaced the creative team. They took over the movie nine months before it was supposed to come out. And if you know anything about animated filmmaking, nine months before the movie comes out is not when you start over. These films take multiple years to make. And they rewrote and remade the movie from scratch. And it almost killed the studio to do that. But Ed Catmull talks about that was the moment in Pixar history. Faced with a choice of, do we release something we're not proud of? Or do we kill ourselves to release something we're really proud of? The studio made the choice to stop everything and focus on making it great. And that established a culture, a set of norms, and this notion of, we don't think in bets. We're all in, no hedging. And I think that really means something. So that's the foundation of it. And then there are two other things in terms of the process that I think are super important. One is the Pixar films were made and remade and made and remade a dozen times before the audience ever saw them. And not many people know that. But what we would do is we'd have this process called story reels, and we would expect the directors to write essentially a moving comic strip version of their movie, a temporary version of the movie, and produce that three to four times a year. And it was shown in public within the studio. And we'd get the brain trust of the studio, the creative brain trust, together, and they'd give a bunch of notes on this thing. So there was a rapid prototyping process. And the thing that was important was not how bad the movies were when they started, but that they were showing improvement from screening to screening to screening. And so this making and remaking, making and remaking process was really important. So that's two. The last thing is there was an incredible sort of open feedback on the films, meaning you were expected, as a director, to hear the feedback of other filmmakers on your movie. The decisions were yours in terms of what to do, but you had to hear it. And so we built this sort of culture of it being safe and okay to show work that wasn't finished, to show imperfect work. And that just meant that the work in process always got better, as opposed to someone working for two years and finally showing you something, and you saying, okay, that's crap. If it's that kind of a culture, then the feedback is shattering and it's not sought. But if it's feedback where it's okay to show incomplete work, and the leaders of the studio, when they're making films, are showing their work when they know it's not very good, then it, I think, breeds this culture of always getting better. Yeah. That decade, the 2000s, I guess Apple was and is also very much like that. You go back and you think about going all in on the iPod and then the iPhone. That also couldn't have been a thinking-in-bets culture there either, right? Certainly in terms of the quality bar, that everything they release to the public has to be great, and that you take the time to make sure it's great. I think in that sense, probably. I don't know if Apple had, I think from just hearing from the outside, there were lots of things they were working on that they killed along the way that they just didn't think were good enough. Or there were rumors about a television set and all this other stuff that you and I have heard about. So I think there probably are some similarities, but different businesses, different process. I think I didn't fully realize this until we were chatting before, but Steve Jobs was CEO of both, right? He was running Apple through this turnaround and getting the iPod and iPhone and everything else in those years. But he was CEO of Pixar during that same time. Yep. And for at least some number of those years, you worked directly with him. So I guess I don't know other people who have worked directly with Steve. So I kind of want to ask a few questions about that. What was, I guess, just to start, what was he like? What was working with him, in a regular cadence business, like? What was that like? You know, he was the most impressive business creature I've ever been around in a room. And it wasn't because he was famous or it was like, oh, there's Steve, or anything like that. At the end of the day, for me, it boiled down to a set of basic skills that he had. His ability to break down a problem in real time, his ability to communicate really clearly, his ability to inject urgency and cadence and urgency and importance to everything that we did. Yep. And for at least some number of those years, you worked directly with him. So I guess I don't know other people who have worked directly with Steve. So I want to ask a few questions about that. What was, I guess, just to start, what was he like? What was working with him like in a regular cadence business? What was that like? He was the most impressive business creature I've ever been around in a room. And it wasn't because he was famous or it was like, oh, there's Steve, or anything like that. At the end of the day, for me, it boiled down to a set of basic skills that he had. His ability to break down a problem in real time, his ability to communicate really clearly, his ability to inject urgency and cadence and importance to everything that we did. All of this stuff was in service of trying to create, as fast as possible, a map of the world, a map of reality, in every discussion. That would help guide the discussion and help us get to the truth. And so he was so good at developing this, generating a map of the world. And even if he was wrong about certain things, you fed him new data and he would recalculate it. And you always had the feeling being around him that, wow, I thought this game we were playing was level one to three, but then you saw somebody that was at level 20. And it was incredibly inspiring, just the way he did the basic stuff. So what are some of those basics, like communication and understanding and pulling things out of people? What specific things stuck out to you there? Can you share more of those basics done really well? Because I feel like I can't remember where I saw this recently, but someone was talking about if you don't know what your equivalent of practicing scales is, you need to figure that out. And I feel like when you're talking about basics, that's something that doesn't get discussed enough in business. Yeah. Because especially as a CEO or an executive or an investor, you don't even know what your basics are a lot of times. What were those? Yeah. So, I mean, it was really some of the things I mentioned. And I think what happens with most of us, certainly with me, is you get pretty good at communicating. You get pretty good at exchanging ideas or trying to decipher something or developing your own mental map of the universe, or a mental map of a particular problem, particular discussion. Yeah. And then you feel like you don't need to refine it more. Yeah. And you don't even think about it anymore. You just take it for granted. I'm pretty good at this. And it reminds me of, I was a German student. I went to Germany and for the first six months I was there, my German was terrible. And every day I would come home and I would work and work and work and work to get my German better. And I got to a certain place where I could no longer embarrass myself, and I stopped working. And the thing with Steve was, you got the impression that he was always sharpening the saw. He was always, it could be better with everything. It could be better. I could communicate better. My email could be better. I could motivate better. I could communicate. It just felt like he really worked at it. And I've been asked a lot over the years, what was it like to work with Steve, et cetera. And I would say some version of this, talk about basic skills, not knowing if it really landed or people understood. And then on the 10th anniversary of his passing, I read an obituary that was written for him in the Wall Street Journal by Johnny Ive, who was obviously the famous head of design. He worked probably more closely with Steve than anyone. And there was a line in that obituary that really stuck with me. It said something like, Steve was obsessed with the nature and quality of his own thinking. And he worked so hard at it to be able to always think with a rare elegance, vitality, and discipline, or something like that. Yeah. And when I read that, I was like, that's what I meant. That's it. That he worked on his own thinking. So he was not just thinking about the business, the products, his team. He was thinking about his own thinking as the generator function of everything he did and everyone he interacted with and every idea that he critiqued. Do you think that was an internal process, or did he practice that with others somehow? Did he let other people in to give him feedback on his thinking, and that's how he did it? Or was he just so reflective and so focused on it? And I guess the reason I'm asking is, if somebody else wanted to do that, if I wanted to try to be better at that, what's the path to improving my own thinking? The honest answer is, I don't know. He may have had, certainly early in his life, people who mentored him or that he learned a lot from. But I think honestly, it's mostly a solitary thing for all of us. And the nice thing, in a way, is we live in a world where a lot of our communication now is recorded. If you think about all the meeting recorders on Zoom, and you give a talk in front of a big group, or this podcast. You can go watch this. Yeah. Yeah, you can watch it. And then you can always ask yourself, how could I have been clearer? How could I have asked this better? How could I have been more motivating? How could I have injected more urgency into it? And the important thing is recognizing that there are 20 levels to the game. They're not just three. And don't be satisfied with getting to level three and you're pretty good, because Steve was at level 20. And when you were so good at the basic stuff, the stuff you use every single day to generate your mental model of reality and find the path, the strategic path forward, those basic skills over a career compound more than anything else, because these are skills you use every single day. It's funny that you say that about it being solitary. One of the things that I feel sad about for myself, and I think this is probably true for everybody, is I think people don't think enough. I think people don't just quietly think very often. Yeah. And any downtime we have, we're on our screen. And people just rarely do. I think this is why walks are powerful, honestly. It's one of the easiest ways to just go think. Right. Yeah. I mean, another thing about Steve is, he thought really quickly on his feet for sure. But whenever he had big presentations to give for Apple or whatever, he would spend two months preparing. He would go into this hermit phase, and we would rarely see him during that phase at Pixar. He would come around less, and he would just be working on this presentation. And so I think there are a bunch of lessons. By himself. Well, no, I'm sure he had a team, but it was primarily a lot of focused attention on his presentation and rehearsing and rehearsing it and making it better. Look, I think the lesson for all of us, and especially the lesson for anyone trying to get something off the ground or an early-stage founder or whatever, is just always focus on sharpening the saw. Always focus on that. Don't assume you're good enough, ever. There's always better. And if you focus on the basic stuff like that, that really compounds. So I guess think about your own thinking, because if you can make that better, the downstream impact of it is really profound. What did you learn that you can share about Ed Catmull or John Lasseter, who are the other leaders? I think Ed Catmull was the architect of the Miracle Factory, in my view. And he, this idea that we have to make everything great. Which, by the way, if you think about it, again, applying it to, I mean, what greater aspiration would anyone trying to start anything have than to try to build a Miracle Factory of their own? And so I think really for Ed, it started with having an extremely high bar for what was great, and always trying to, you perform to your own expectations or you perform down to your own expectations. So I guess think about your own thinking, because if you can make that better, the downstream impact of it is really profound. What did you learn that you can share about Ed Catmull or John Lasseter, who are the other leaders? I think Ed Catmull was the architect of the Miracle Factory, in my view. And this idea that we have to make everything great. Which, by the way, if you think about it, again, applying it to what greater aspiration would anyone trying to start anything have than to try to build a Miracle Factory of their own? And so I think really for Ed, it started with having an extremely high bar for what was great and always trying to. You perform to your own expectations, or you perform down to your own expectations. And he helped. He and John both, who was the chief creative officer at Pixar, held the studio to an incredibly high bar about what was good. And they were willing to pay the costs of whatever cost was necessary to maintain that bar. I think that's the key. It's easy to say, but there's costs associated. And they're personal and emotional, financial. There's a lot of costs associated with maintaining a high standard. That's right. So I mentioned the Toy Story 2 story. The other story at Pixar was Ratatouille, where the film wasn't coming together and the director of the film was replaced. Another director was put on the film, and then they delayed the release of the film by, I think, six or nine months or maybe a year. I don't know, some period of time, which in animation time is a big deal and it makes the movie a lot more expensive. Yeah. But then Ratatouille becomes one of these incredible members of the canon of Pixar. There was this great tweet from John Collison, and it ended with the world's a museum of passion projects or something like that. Just that every good thing you see in the world, somebody had to sacrifice a lot to produce anything at a high standard. Yeah. That sticks with me. That's right. And it hurts. Yeah. Yeah. And we live in this world where, particularly investors, and look, investing isn't like Pixar in a lot of ways, but we live in a world of hedging. We live in a world of thinking with bets, backup plans, contingencies, et cetera. And in a sense, that's very rational. Okay. But what if you didn't live in that world? What if you positioned yourself against that? And what if you tortured everything you worked on to try to be great within the context of a company? And I think that is the core of a miracle factory, because what you say about how did they repeatedly produce success with no flops? Yeah. It's because they had that mentality. Everything had to be great. It's funny. The thinking in bets mentality is not discussed that much, but it's extremely central in tech, to how startups think, to how investors operate, to even how people working at startups manage their careers. I think people think in bets in a real way. Yeah. And you're kind of describing the extreme opposite. Yeah. And I personally don't think startup founders should think in bets. There's an argument for investors thinking in bets. It's just a different game. But startup founders thinking in bets, I don't think is the right thing. You have to choose the quest that you have extreme conviction in, and you'll die trying to make this thing work because it's so hard. And if you're not committed, pot committed, then it's just that much harder. Okay. I want to move over to Twitter. Yeah. Now X, you were COO there from 2010 to 14. Yeah. And obviously those were crazy years. I guess on some level, it seems like for the company, all the years are crazy years, but there was a lot going on then. Can you just tell me about what was happening at a leadership founder level? What were the big chess pieces moving around at that time? So when I joined Twitter, we had less than a hundred employees. We had no revenue. We didn't have a business model. We weren't sure we were going to make money with ads or some other charge memberships. There were all sorts of things. The site was going down all the time? The site was going down all the time. The fail whale. The fail whale. Yeah. There was a logo, for those who don't remember. The company built its own logo for the site crashing and the site going down, which was the fail whale. It's funny. It was a bit of a laughingstock company. It had clearly touched a certain cultural zeitgeist. It had about 15 million users. We just ran Twitter.com. We didn't have any mobile apps. We didn't have any mobile engineers at the company. About eight months or so after I joined, there had been a lot of founder turmoil between Jack and Ev. Ev was the CEO when I joined, and he was out. Biz kind of walked out with him. So we were sort of founder-less about eight months into the tenure. It was both a hyper-scaling challenge because the opportunity was so large and effectively a turnaround because all the leadership was pushed out. There were a lot of wrong people in various positions. It's a very interesting case study because it seems like it had unstoppable product-market fit and then was just not run well. That's largely right. It's better than the inverse, I guess. Yeah. Yeah. Sometimes product-market fit is so powerful that it allows you to make a lot of mistakes at the top. Reddit had this for a long time. Yep. Yeah. That's right. Yeah. Yeah. That's right. So we had a lot of revenue to $2 billion in revenue. We'd gone from 50 million users to 300 million users. We'd gone from just one office in San Francisco to 23 offices in 14 countries. And when I look back, I think there are a couple of things we did great and a couple things I wish I could have over again. I think the two things that we did great: one is I think we got monetization right. And the core of it was, I think we figured out before any social platform that if you can make the ad unit and the content unit the same, in our case, tweets, then you have the ability to make ads feel more like content, and you can judge them based on relevance, and you give advertisers the ability to participate in a conversation. And my favorite example of this, you may remember, the year when the lights went out at the Super Bowl, Oreo, which was Oreo cookies, which was an advertiser on Twitter, right at that time when the lights are out, sends out this promoted tweet that talks about dunk after dark. That's good. So, dunk your Oreo cookie in milk in the dark or whatever. Yeah. Right when the thing, so, and it got a lot of attention and a lot of buzz, and it was just clever. It was content, or was it an ad? I don't know. It made people laugh, right? So, I think we got that notion of the ad unit and the content unit being the same right. And the nice thing was it was graceful as the platform shifted from desktop to mobile. Facebook at the time, you may remember, kind of stumbled because its ad units were built for desktop, which is the majority of the users. That's how they interfaced with Facebook until that changed. And so they kind of had to figure out what their ad units would look like in a mobile world. I think Twitter kind of nailed that. The second thing is we scaled the company globally really fast and generally pretty well. And as a result, there was a big global audience, and we built a global business quickly. I think those were the things I got right. Yeah. I think the things that I regret, or big learnings for me, were probably the biggest one is the company never showed enough curiosity about its own users. And we had a mental model of who a Twitter user was that way lagged the reality of what Twitter users were across all these countries, across all these devices, using it in a myriad way. Oh yeah. I can imagine that the early adopters and the middle of the pack of the curve are completely different. Yeah. And this is an interesting thing in any business, which is your mental model of your customer naturally lags. There's inertia in how that model moves relative to reality. And if you're going to kind of keep up with who your users actually are and what their needs are, you have to actually develop a ton of discipline and a ton of rituals and processes to keep up. Yeah. Yeah. I think the things that I regret, or big learnings for me, were probably the biggest one is the company never showed enough curiosity about its own users. And we had a mental model of who a Twitter user was that lagged the reality of what Twitter users were across all these countries, across all these devices, using it in a meritive way. Oh yeah. I can imagine that the early adopters and the middle of the pack of the curve are completely different. Yeah. And this is an interesting thing for any business, which is your mental model of your customer naturally lags. There's inertia in how that model moves relative to reality. And you have to, if you're going to keep up with who your users actually are and what their needs are, you have to actually develop a ton of discipline and a ton of rituals and processes to keep up. Yeah. I remember Patrick Cawson asked me years ago to attend one of their all-hands. And this is all I talked about. All I talked about was, hey, your platform is starting to take off. And let's talk about the ways in which your views of your users are maybe outdated to who your users actually are today and what they're doing. Yeah. So that was a huge thing at Twitter. And, unfortunately, there were big product launches that we had. One of them was the conversations feature. You remember the blue line? I do remember that. It was so hard to use. Yeah. Yeah. Well, what happened was there were probably our most engaged users of Twitter were people who were using the platform to subtweet their friends, often with false identities, kids usually. And that feature broke Twitter for them. So our most engaged users in the United States, we launched a feature that broke Twitter for them. And that was simply because we didn't really understand who they were. We were building for ourselves. That seemed nifty. And so that's a really dangerous thing to do. Yeah. Yeah. The other learning for me was we were too precious. I mean, we were too precious about 140 characters. Yeah. We were too precious about the reverse chronological timeline. And I think one of the things I give Elon credit for is he started experimenting. Sacrificed all the sacred cows. Et cetera. He trusted that the network was strong enough that he was free to experiment. Yeah. Yeah. Whereas I guess old Twitter was afraid of breaking the golden goose. Yeah. Or there was definitely part fear, but part, I think, there was a belief that our differentiation was in making the product exceedingly real time, and shorter tweets that are reverse chronological make it more like the pulse of the planet, more real time. Yeah. But I think the mistake was that actually wasn't what the majority of humans wanted. Yeah. It was just what a subset of humans wanted. And also, of course, you can design the algorithm to make it so that when important stuff is happening, it comes to the top. Comes to the top. Which is how I think it basically seems to work now. Yeah. Yeah. That's right. It must be interesting for you to watch Elon do what he's been doing with it, which is so different from what you were doing. And I'm sure there must be a lot of things that he's doing that you think are really good. I'm sure there's some things where you're just like, what are we doing? I'm curious to hear your observations. Look, I think he made a bunch of unforced errors. I think the check marks thing, I think it was really poorly handled. You're saying? Letting people buy the check marks and then obviously— Shouldn't have done that. Shouldn't have been handled the way it was handled, where the thing that verified your identity was suddenly for sale. Yeah. And, of course, somebody bought the drug maker's handle, the check mark, and then tweeted and their stock dropped. It did feel like the blue checks thing was driving a lot of people. Like it made this multi-class system and a thing that I think didn't feel good. So I actually think what you're saying is it wasn't necessarily a bad idea. It was just the way that it went down was nothing. The rollout was bad. Yeah. It wasn't as thoughtful. But look, I never expected him to change the name. You know? Yeah. That was surprising. Yeah. Yeah. I mean, I think, in a sense, it indicates that he has something bigger in mind, and maybe that's cool. He took a lot of costs out of the business. I also wonder if it was just a sign to say, nothing sacred. Even without a big plan, to just pick, I'll change the name. Yeah. Like says something, I guess. Oh yeah, for sure. For sure. Yeah. Yeah. Yeah. But I think— Took a ton of costs out. Yeah. Yeah. Yeah. But I think you're right. I think the powerful thing is the network is so durable, and we can debate whether we like Twitter more now or before or whatever, whatever, whatever. But I think one of the things I'm proud of is I got to work on something that I think is going to be around when my kids grow up, probably. It doesn't seem like it's going to have a chance to go away. Yeah. Which I'm happy about. I think it's really good. Yeah. Me too. Yeah. Okay. So you had those experiences, and then you went into venture, right? So talk about that. Well, I joined YC. You joined YC. Yeah. Is that venture? Is that now venture? But yes. Yes. You had a large venture fund at YC, but really you were at YC. Yeah. But so that was the beginning of the growth fund, right? There wasn't one. That was right at the beginning of it. And obviously you invested in a ton of great companies and you learned a lot from it. So I guess, can you share maybe, I want to spend more time talking about what you're doing now, but can you share a little bit about that? Yeah. So I feel like everything happened serendipitously. I joined Pixar because I was in awe of how could anyone make Toy Story 2. Yeah. And they were a public company at the time. And it was kind of this, as we said, Miracle Factory that attracted me, and I was there for a decade. And then I went and joined Twitter. And what I learned there was an experience, services, hyper-scaling thing and taking something from zero revenue through IPO. And YC was another serendipitous thing. And I was approached by Sam and he said, hey, would you join YC initially just as a visiting partner and hang out with some of the growing companies at YC? And how can I turn that down? Yeah. It sounded like a blast. Yeah. And then a few months later, he said, hey, we're going to raise a fund. Would you lead it for us? And so it was like, wow, start a fund from scratch. And I've never been an investor, on top of this amazing platform in the world's great university. It also one of the only strong network effects. Yeah. Which you obviously learned from Twitter is extremely durable. Exactly. Yeah, exactly. So how could I say no to that? And so it was a bunch of serendipity. But the thing that I really, what YC really taught or showed me was it exposed me to early-stage startups at massive scale. I mean, I was at YC almost 10 years, and I think close to 4,000 companies went through the batch program during those 10 years. And there were probably 200 to 300 Series A rounds every year. There were more than 100 Series B rounds every year. Yeah. And my team wasn't involved in admissions to the batch or really the batch program, which is YC's bread and butter and what they're best at in the world. But what we did is we helped founders after demo day with a whole series of stuff like their Series As and helping with their decks and feedback and all that. And we ran all these programs and so on, so forth, so forth. But the thing that I take away from it now, a few years later, is wow, I got to see a lot of stuff at the very beginning. And the influence has influenced both what I do now, but also the way I just think about the stages of life. And I kind of think of the beginning as, and what YC does so well is, they're the, they plant seeds. I mean, Justin Kahn used to work at YC said, we're not hunters like VCs, we're farmers. And they plant seeds and try to get everyone from seed to sapling. Yeah. Right. their series A's and helping with their decks and feedback and all that. And we ran all these programs and so on, so forth, so forth. But the thing that I take away from it now, a few years later, is, wow, I got to see a lot of stuff at the very beginning. And the influence has influenced both what I do now, but also the way I just think about the stages of life. And I think of the beginning as, and what YC does so well is, they're, they plant seeds. Justin Kahn used to work at YC and said, we're not hunters like VCs, we're farmers, and they plant seeds and try to get everyone from seed to sapling. Yeah. Right. So hopefully work on the right idea. Hopefully launch your product, have a successful demo day, raise money, and get a few customers. Yeah. Right. And that gets you to this sapling phase. And then at the sapling phase, that's actually interesting. So we talk about zero to one. Maybe that's zero to 0.2 or 0.4 or something. And then there's a phase in the sapling phase before the tree phase. And the tree phase for me is when you scale a company. In the sapling phase, which is actually where all the death lurks. Yes. That's where startups die. I did a program with you in 2019, I think it was, with the growth program. And then I did YC in 2016, but we didn't have product market fit when we left YC. We were a 0.2 sapling still. So it was very much about getting the DNA and the mindset right and learning stuff. Yeah. So I'm fascinated by this sapling phase of what actually happens here. Yeah. Because it's actually hard to support founders here because the great thing about the seed stage, and I think in many ways the scale stage, seeds and trees, is that there are a set of common things that, if you really do well for founders as support to founders, it helps all of them or almost all of them. Some of the basic lessons of YC, some of the basic writings of PG, et cetera, they're gold. Yeah. And at the scaling or building-a-company phase, same thing. There are a set of things about how to hire executives, what is the job of the CEO, how to manage, how to develop strategy, communicate more broadly, figure out HR, all that stuff. There are a lot of commonalities across companies. Very common. But at this sapling stage, everything is much more bespoke. It's not really about hiring. It's not really about, it's really about trying to find the right customer, find the right problem, solve it really well, and then figure out a way to do it again and again and again, repeatability, at that phase. And I think to help founders at this phase, I personally, I mean, the whole industry, as you and I have talked about, has gone to much more scale. YC is a lot bigger than it used to be. All of the venture funds are way, way bigger than they used to be in terms of capital and investments made and so on. And I think there are aspects of this industry that scale works really well for. And there are aspects of this industry or the journey of a startup where I don't think it's the ends where it works. YC, I think, can actually scale more if they wanted to, where you can plant as many of these seeds. And what's interesting with YC is they don't just invest, a lot of times they create the conditions for somebody to start a company that wouldn't have otherwise. Oh, absolutely. So you could have as many of those as you wanted. Yeah. Yeah. And then at the far other end of the bell curve, where you can just put tons of money into these companies, billions of dollars, in the companies that are scaling, that obviously goes. But even at the phase where, okay, we're now starting to hire a bunch of executives and we need intros to Fortune 500 companies, and there's this, it's not just very, very late-stage capital. You're talking like series B and C type of stage. Is that what you're doing? Yeah. I think, to me, there's pre-traction and post-traction. And so the question is, where's the line? Right. And to me, it's like five or $10 million of revenue is the line. It's not a million. Yeah. It's definitely not 500K. Why do you say it's not a million? Because a lot of times people are like, oh, a million dollars, that's product market fit. That's the A. There's no repeatability at a million dollars. You haven't proven repeatability. You've just proven that you can get someone to pay you or get five people to pay you or seven people or whatever it is. And to get to one, you have to prove repeatability in my mind, which means that you found a problem that enough people have, and you found a way to be able to convince people to buy it. Right. And the other thing, obviously, you have to prove in that phase is not only do you convince them to buy it, but they use it. They like it. They like it and they want to buy it again. Yeah. Or renew or buy more. Or if you're in a consumer business, the cohort stick. Yeah. Or similarly in a B2B business, the renewals and expansion are happening. Yes. And renewals and expansion are probably the best metric for product-market fit. It's a lagging metric. Right. And you don't know right away. Yeah. You don't know. You got to get good at figuring out the leading indicators of it, but you don't know. Yeah. So I think scale works at the two ends, and I don't think scale works at the sapling phase. And so what I'm trying to do now is I saw a bunch of patterns of where things went wrong at this phase for companies and how certain founders find their way through the maze and swim through. And I think the hardest one, it's a simple, slippery problem that I saw people encounter over and over again, which was, who should my initial customer be? And the tendency was, because founders face so much pressure to grow quickly, the tendency was to try to define the customer really broadly, that anyone who's willing to pay me is a good customer. And so founders would let customers choose them instead of being extremely selective and choosing customers. Yeah. And that requires some degree of courage to turn down some growth, because you're looking for someone that you can deeply satisfy. Yeah. And the broader, more diverse your customer set is with a small team and an immature product, the harder it is to keep them all happy. I think that this exact phase is one of the most psychologically demanding for founders because you so badly want things to be moving, and you want to just grow. You want to tell people you're growing. You want to take customers. You don't want to think that you need to pivot or adjust your product because then you have to feel like you're admitting defeat somehow. I think this phase is so mentally difficult. Yeah. Yeah. So for me, it's the funnest time in a startup. And I think it's where all the death lurks, where the death zone is, whether someone raises an A or not. That's kind of irrelevant. This is like the pre-series A. It's definitely pre-series A, but I think a lot of times it's post-series A too. I mean, who raises a series A at $10 million? I'm saying it's through at least five, until you've proven this. Yeah. And so you're talking, what's interesting to me is I think different than in a lot of conversations where people would say three to five million, you're on your way, and you're talking about, no, that's still fragile. It's still a little fire that needs to be tended to. Yeah. I think that until you've proven retention and expansion, and until you've proven repeatability, which I think happens somewhere around five and maybe as far as 10, depending on the business and stuff like that, a certain amount of time has to elapse, It's definitely pre-series A, but I think a lot of times it's post-series A too. Who raises a series A at $10 million? I'm saying it's through at least five, until you've proven this. Yeah. And so you're talking, what's interesting to me is I think different than in a lot of conversations where people would say three to five million, you're on your way, and you're talking about, no, that's still fragile. It's still a little fire that needs to be tended to. Yeah. I think that until you've proven retention and expansion, and until you've proven repeatability, which I think happens somewhere around five and maybe as far as 10, depending on the business and stuff like that, a certain amount of time has to elapse to be able to really judge it. And so I think there's a pre-traction phase and a post-traction phase. And I think there's an inception stage, which is where YC lives, and they do the best job in the world. And as you say, they both cause there to be more startups and help promising founders work on better ideas. We all owe them a big debt of gratitude for that. And then there's a sapling phase where I think all the death lurks, whether it's pre- or post-day. And then there's a tree phase where, hey, you're at five or 10 million of revenue. Your bark is now hard. A rain's not going to wash you away. You've got roots. And now it's about company building. And I think VCs are great at that. Actually, can you talk for a second? I have shared your blog post a ton of times about the second stage of second phase of second job. I'll link it, because I think it's an extremely good post. But can you talk about that transition for the CEO and what that post was about? Yeah. So the interesting thing is, I think that if you like this analogy of the three phases, seed and sapling and tree, the CEO founder, CEO's job changes a lot between sapling and tree. And because the job becomes, at the beginning, the job is just about build a great product and find customers and keep those customers happy and get them to renew, et cetera. So it's about product and customer, product and customer, right? Yeah. Once you get to this place where, oh, I'm now a tree that is taking root, I have a business, it's repeatable, I know, I have some foundation, at that point then the job of the CEO changes big time from building the product and selling the product to building the company. You become the, you need to build a machine that builds the machine. You become the PM of the company, not so much the PM of the product. And so that means you've got to find people to do all that. You've got to get yourself out of these vital things you were doing before. And that's super hard, so that you can focus on the second job, which is company building. Yeah. Yeah. That's the basic point of the book. Yeah. So when you thought about putting your firm together, you also are doing a program. How did you decide what structure of firm and approach you wanted to do? Yeah. So what I'm interested in doing is I'm interested in working very intensely with a very small group of these sapling kinds of companies, and really on either side of a series. I'm a little bit indifferent about that, but people who have launched their product, they've got some traction, they're committed to what they're doing. There's some beginnings of something. I don't think I'm very good at the seed stage. I did a lot of the growth stage, and I know that pretty well. But this sapling stage is, I think, where founders need the most help. And in order to help them, you have to do it almost subscale. You have to do it really, really intimately and closely. And so I want to work with a very small group of folks and try to make a contribution there. And so, yeah, that's basically my hope. That's great. One of the things that you've talked to me about before is that you think, I don't want to put words in your mouth, but I think you said the series A is often a bit of a ripoff and that people take way more dilution than they need, that the rounds are bigger than they have to be. Is that still something that you feel, or was that an accurate thing you at least felt at one time? Do you feel that way now? Well, I think that what's happening, and I expect it to continue, is that the traditional ownership that a traditional series A investor would get in the series A has degraded and will continue to degrade. Yeah. Because it used to be like 25%. Even more. Yeah. But yes. Yeah. Yeah. And that's just driven by the supply and demand of capital and the burgeoning nature of the seed ecosystem. And I think that, I also think you have a dynamic where there's not just the availability of capital or the prices are low, but it's like the venture firms are winning and they're pushing the founder to take more money than the founder even thinks they need. And they're like, okay, but I want to work with whoever. Yeah. Yeah. So that's right. Yeah. So I think that the nature of the series A is changing, and I think largely to the benefit of founders. But the other thing that's fascinating that's happened, I think, over the last five, seven years, especially as more capital has flooded into the system, deals are getting done in a blink of an eye, and founders don't fundraise anymore. They just get preempted, the good ones, or the promising ones. And so their plan is to do it, and I think that's correct, but the plan is to say, I'm going to fundraise at this time, and they have a couple of conversations and they let the round happen before it's going to happen. Yeah. Sometimes the founders encourage, or they make themselves available to get preempted. Yeah. But sometimes it comes out of the blue. I mean, you see that too. So in this world of super rapid fundraising where founders aren't generally fundraising, they're just getting preempted, I think that obviously there's a lot of convenience there for a good founder. But on the other hand, I think what happens, I don't think I've seen a single fundraise in the last five or seven years, tell me if you disagree, where there was actually any urgency to fundraise at that time. This preemption mentality, the founders aren't driving the timeline. No. And they're actually like, when should I raise so that I don't need the money? I mean, people plan to raise, which again they should. It makes things easier. Yeah. As I'm thinking out loud, I do actually think, I think you're right that a lot of the strong companies go for the preemption. There actually might be, on the far other side of the very, very outlier companies, they actually do run a process because they're so confident that it's going to work that they basically are like, we're going to get a true market price here. Yeah. Definitely. I think it definitely happens. I think on farther. Yeah. Or they get preempted and they use that to trigger something, but again, over three days, right? Not like, yeah. Yeah. And so, which I think is in some cases a shame. If you're going to spot-pick a board member in three days, I don't know if that's all it, as long as you've got enough trust in your cap table to know what you're getting, it's good. But I don't know. I think sometimes it's worth a little more time to get to know people. I tend to agree with you. I think it really depends where you are in this journey. I think if you're already a tree and it's now primarily about terms and maybe who you want or prestige of a particular name or ability of a certain investor to open some doors or whatever, I think that maybe makes sense. You're also usually dealing with very known quantities at that point. Yeah. And for companies that are trees and have been around five years, you've had a chance to hobnob with investors over that long period of time. It's only for companies that are like one in your cap table to know what you're getting, it's good. But I don't know. I think sometimes it's worth a little more time to get to know people. I tend to agree with you. I think it really depends where you are in this journey. I think if you're already a tree and it's now primarily about terms and maybe who you want or prestige of a particular name or ability of a certain investor to open some doors or whatever, I think that maybe makes sense. You're also usually dealing with very known quantities at that point. Yeah. And for companies that are trees and have been around five years, you've had a chance to hobnob with investors over that long period of time. It's only for companies that are one or two or three years old and haven't, I've just met someone or that someone heard about something and they swooped in and now you're in a conversation for the first time with some famous investor. I think those are the ones where maybe slowing down is beneficial. To me, especially if you're in the sapling phase, I think it really pays to slow down enough to be able to ideally simulate what it would be like to work with someone and then make your decision, and just know that you actually control the timeline and don't necessarily cede that to an investor. Investors, I think, are extremely good at hijacking the timeline of a fundraise because they practice it so much, and sometimes that's fine. I'm not saying in all cases, hey, raise money. It's easy. It's there, et cetera. You love the investor. You know the investor. But I don't think in all cases it makes sense to do that. Are there any other structure of the way you're doing things aside? Are there any other ideas or beliefs you're operating against right now that are driving the way that you work? Well, it's funny, and this may be a wrong strategy. It's certainly contrarian, but I want to try to get to know the founders and businesses that I invest in deeply. And in some cases, that's related to working with me on something, or in some cases, relationships I've had before or whatever else. Yeah. But as I said, more capital has meant that deals happen in two days, and it's become this first-person shooter video game. And I don't want to play that game. I also guess the nature of the way you're doing this is with your program where you're trying to help before you have any equity in people, which is, I guess on some level, fundamentally unscalable because you can only help so many people where you're not in business with them at a time, but the advantage of that is this. Yes, that's right. Yeah. And look, something I learned at YC, I mean, YC was obviously an insider on all the companies within YC, but our growth fund wasn't. Yeah. And we helped tons and tons of founders that we never invested in. I mean, it was good for YC to do that, of course, but that mentality of, hey, the more help you provide, it finds its way back to you. Just like karmic thought and just my own personal belief, that's how I'm wired. I just think, hey, you help people without expectation of return, and it pays it back in one way or another. It's something I believe and just how I want to work, so we'll see how it goes. All right. Well, Ali, this was awesome. Thank you so much for making the time. I really enjoyed it. It was a pleasure, Jack. Thanks for having me. it's about company building. And I think VCs are great at that. Actually, can you talk about for a second, I have shared your blog post a ton of times about the like second stage of second phase of second job? I'll link it. Cause I think it's an extremely good post, but like, can you talk about that transition for the CEO and like what that post was about? Yeah. So the interesting thing is like, I think that if you, if you like this analogy of the three, three phases, you know, seed and sapling and tree, the CEO founder, CEO's job changes a lot between sapling and tree. And because the job becomes at the beginning of the job is just like about build a great product and find customers and keep those customers happy and get them to renew, et cetera. So it's about product and customer, product and customer, right? Yeah. Once you get to this place where like, Oh, I'm now a tree that is taking root. I have a business it's repeatable. I know like, you know, I have some foundation at that point, then the job of the CEO changes big time from building the product and selling the product to building the company. You become the like, you need to build a machine that builds the machine. You become the PM of the company, not so much the PM of the product. And so that means you got to find people to do all that, you got to get yourself out of these vital things you were doing before. And that's super hard. And so that you can focus on, you know, the second job, which is like company building. Yeah. Yeah. That's the basic point of the book was. Yeah. So when you thought about putting your firm together, you also are doing like a program, like how did you, I guess, just how did you decide what structure of firm and approach you wanted to do? Yeah. So what I'm interested in doing is I'm interested in working very intensely with a very small group of these sapling kinds of companies. And really on either side of a series, I'm a little bit indifferent about that, but people who have launched their product, they've got some traction, they've got, they're committed to what they're doing. There's some beginnings of, you know, something like, I don't think I'm very good at the seed stage. I did a lot of the growth stage and I know that, know that pretty well. But this sapling stage is, I think where founders need the most help. And in order to help them, you have to do it almost subscale. Like you have to do it really, really intimately and closely. And so I want to work with a very small group of folks and try to make a contribution there. And so, yeah, so that's basically my hope. That's great. One of the things that you've talked to me about before is that you think, I don't want to put words in your mouth, but I think you said like the series A is often like a bit of a ripoff and that people take way more dilution than they need, that it's like the rounds are bigger than they have to be. Is that still something that you feel or have you, you know, was, is that an accurate thing you at least felt at one time? Do you feel that way now? Well, I think that what's happening and I expect it to continue is that the traditional ownership that a traditional series A investor would get in the series A has degraded and will continue to degrade. Yeah. Because it used to be like 25%. Even more. Yeah. But yes. Yeah. Yeah. And so, and that's just driven by the supply and demand of capital and the like, you know, like very sort of burgeoning nature of the seed ecosystem. And I think that, I also think you have a dynamic where there's not just the availability of capital or the prices are low, but it's like the venture firms are winning and they're pushing the founder to take more money than the founder even thinks they need. And they're like, okay, but I want to work with whoever. Yeah. Yeah. So that's right. Yeah. So I think that like the nature of like the series A is changing and I think the nature, and I think largely to the benefit of founders. But the other thing that's kind of fascinating that's, that's happened, I think over the last five, seven years, especially as more capital is flooded into the system, you know, deals are getting done in a blink of an eye and founders don't fundraise anymore. They just get preempted the good ones and, or the promising ones. And so, I mean, their plan is to do it. I mean, and I think that's correct, but the plan is to say, I'm going to fundraise at this time and they have a couple of conversations and they let the round happen before it's going to happen. Yeah. Sometimes like the founders encourage or, they make themselves available to get preempted. Yeah. But, but sometimes it comes out of the blue. I mean, you see that too. So, so in this world of like super rapid fundraising where founders aren't generally fundraising, they're just getting preempted. I think that obviously there's a lot of convenience there for, for a good founder. But on the other hand, I think what, what happens, what I don't think I've seen a single fundraise in the last five or seven years, tell me if you disagree, where there was actually any urgency to fundraise at that time, you know, this preemption mentality, it's not, the founders aren't driving the timeline. No. And they're actually like, when should I raise so that I don't need the money? I mean, people plan to raise, which again, they should, it makes things easier. Yeah. As I'm thinking out loud, I, I do actually think, so I think you're right that a lot of the strong companies go for the preemption. There actually might be on the far other side of like the very, very outlier companies, they actually do run a process because they're so confident that it's going to work that they basically are like, we're going to get a true market price here. Yeah. Definitely. I think it definitely happens. I think on farther. Yeah. Or, or, or they get preempted and they use that to like trigger something, you know, but again, over three days, right. You know, not, not like, yeah. Yeah. And so, which I think is in some cases a shame, like if you're going to like spot pick a board member in three days, I don't, I don't know if that's all it, as long as you've got enough trust in your cap table to know what you're getting, it's good. But I don't know. I think sometimes it's like worth a little more time to get to know people. I, I tend to agree with you. I think it really depends where you are in this journey. Like, I think if you're already a tree and like, it's now, you know, primarily about, you know, terms and maybe who you want or like prestige of a particular name or ability of a certain investor, open some doors or whatever. I think that maybe make, you're also usually dealing with very known quantities at that point. Yeah. And, and, you know, for companies that are trees and have been around five years, you know, you've had a chance to hobnob with investors over that long period of time. It's only for companies that are like one or two or three years old and haven't, I've just met someone or, you know, that someone heard about something and they swooped in and now you're in a conversation for the first time with some famous investor. I think those are the ones where maybe slowing down is, is, is beneficial. Like to me, I look, if, especially if you're in the sapling phase, I think it really pays to slow down enough to be able to, I don't know, ideally simulate like what it would be like to work with someone and then make your decision, you know, and just know that you actually control the timeline and don't necessarily cede that to an investor. Investors, I think are extremely good at hijacking the timeline of a fundraise, you know, because they practice it so much, you know, and sometimes that's fine. You know, I'm not saying in all cases, like, Hey, raise money. It's easy. It's there, et cetera. You love the investor. You know, the investor, but I don't think in all cases, it makes sense to do that. Are there any other structure of the way you're doing things aside? Are there any other like ideas or beliefs you're sort of operating against right now that are sort of driving the way that you work? Well, I just, you know, it's, it's funny and this may be a wrong strategy. You know, it's certainly contrarian, but like, I don't really, I want to try to get to know the founders and businesses that I invest in like deeply. And in some cases, that's related to working with me on something, or in some cases, relationships I've had before or whatever else. Yeah. But like, you know, as I said, more capital is meant that deals happen in two days and it's become kind of like this first person shooter video game. And I don't want to play that game. I also guess the nature of the way you're doing this is with your program where you're, you know, you're trying to help before you have any equity in people, which is, I guess on some level, fundamentally unscalable because you can only help so many people where you're not in business with them at a time, but like the advantage of that is this. Yes, that's right. Yeah. I mean, and look, I, something I learned at YC, I mean, we, YC was obviously an insider on all the companies within YC, but our growth fund wasn't. Yeah. And we helped tons and tons of founders that we never invested in. I mean, it was good for YC to do that, of course, but like that mentality of like, hey, the more help you provide, it finds its way back to you. Just like, like karmic thought and just my own personal belief, that's how I'm wired. I just think like, hey, you help people without, you know, expectation of return and it pays it back in one way or another. It's something I believe and just how I want to work, you know, so we'll see how it goes. All right. Well, Ali, this was awesome. Thank you so much for making the time. I really enjoyed it. It was a pleasure, Jack. Thanks for having me.