Elad Gil is an entrepreneur, operator, and investor. He cofounded Color Genomics and Mixer Labs. Worked at Google and Twitter. And has invested in companies including Airbnb, Coinbase, and Stripe.

He just released the High Growth Handbook, which is a guide to scaling startups published by Stripe Press.

It contains tactical advice on key issues for post product-market fit companies such as the role of the CEO, hiring executives, late stage fundraising, M&A, and other topics. It also includes interviews with people in tech, including Sam Altman, President of YC Group.

You can find the High Growth Handbook on Amazon.

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Topics

00:14 – Why should an entrepreneur read the High Growth Handbook?

4:45 – On Marc Andreessen’s comment, “The companies that charge more tend to grow faster.”

6:00 – Myths about startups

7:00 – Leon Coe asks – What types of businesses do you avoid investing in?

8:30 – Things to just say ‘no’ to

11:50 – Companies that may be too early

14:02 – On Naval Ravikant’s comment, “The most successful class of people in silicon valley on a consistent basis are either the venture capitalists, or people who are very good at identifying companies that have just hit product/market fit. They have the background, expertise, and references that those companies really want to help them scale.”

16:51 – On Claire Hughes Johnson’s “Guide to Working with Claire”

18:50 – Masud Hossain asks – How did most of the companies you interviewed get their first 10 customers?

20:05 – Masud Hossain asks – Is content really king?

22:00 – Narayan Mallapur asks – Where do founders make the most mistakes? Is it on hiring? What steps should they take to avoid these pitfalls?

24:05 – Brianne Kimmel asks – What are some lessons learned in highly regulated sectors? When should you hire a General Counsel? How do you prioritize public policy and lobbying efforts?

28:15 – Media cycles

30:05 – Marius Chawa asks – What are the top three things a startup “must” achieve before VC firms would line up to fund them?

33:55 – Taylor Caforio asks – My company is at our early MVP stage. What is he best way to find a balance between giving our earliest customers the 6 star treatment while also having swift and exponential growth in the back of our minds.

36:04 – Tanmay Khandelwal asks – When you are sprinting in growth stage, how do you predict engineers required and hire accordingly?

37:51 – TD Bryant II asks – When your organization is experiencing exponential growth, how do you choose which functions to outsource vs build/hire?

41:00 – Andrew Pikul asks – Who is your favorite Dragon Ball (Z/GT/Super) villain?

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Transcript

Craig Cannon [00:00] – Hey, how’s it going? This is Craig Cannon and you’re listening to Y Combinator’s Podcast. Applications for the winter 2019 YC batch are now open. You can learn more at ycombinator.com/apply. Today’s episode is with Elad Gil. Elad is an entrepreneur, operator and investor. He co-founded Color Genomics and Mixer Labs, worked at Google and Twitter and has invested in companies including Airbnb, Coinbase, and Stripe. He just released the High Growth Handbook which is a guide to scaling startups, published by Stripe Press. The book contains tactical advice on key issues for post product-market fit companies, such as the role of the CEO, hiring executives, late stage fundraising, M&A and other topics. It also includes interviews with people in tech including YC’s own, Sam Altman. You can find the book on Amazon and I’ll link it up in the description. Alright, here we go. The first question I wanted to ask you, the book is called High Growth Handbook, not The High Growth Handbook, but just High Growth Handbook. Given that so few companies ever make it to high growth, thousands of employees, why should an average entrepreneur read this book?

Elad Gil [01:07] – The book contains some more universal principles. So things like how do you go about hiring people and what should you look for when you hire people including executives? If somebody’s trying to buy your company, you may actually want to read the section on M&A because it’ll basically reveal how the company that’s trying to buy you is actually thinking about it. There’s also product management, best practices in there and how do you think about product management. So I do think that there’s a variety of other sections, there’s also a section on PR, comms, and marketing. What’s the difference between those different disciplines and how should you think about them.There are areas of the book that touch upon things that are universal, but ultimately it was geared for either employees who are going through high growth or executives or founders who are going through high growth and in part, simply because there wasn’t any information out there in my opinion that was really pulled together and codified around that.

Craig Cannon [02:00] – What inspired you to shift this into a book rather than your own personal blog site, SEO targeted content?

Elad Gil [02:08] – I originally was thinking of doing it as a website and John Collison one of the cofounders of Stripe saw the the content and got excited about it and thought it would be really relevant to other founders who were working on high-growth but also sort of the broader community of developers and company builders that Stripe serves. That led to the genesis of Stripe publishing it.

Craig Cannon [02:30] – Okay, gotcha. I have a question about, before even page one, maybe it is counted as a page, the dedication. I was just curious what you meant. Yhe first line is, “To my lovely wife Jennifer and suddenly everything is possible again,” what does that mean?

Elad Gil [02:49] – There’s a great book from Jonathan Safran Foer called, I think it’s called Eating Animals. It’s sort of a mixed book but it talks a little bit about his own son. He says that, when he had a kid, somebody sent him a card that said, suddenly everything is possible again about his son. Really what that means is when you look at your child, you realize that every possibility is suddenly ahead of them and there’s a reinvention of life through that child. In other words, they could go and become an Olympic skater, they could become the next Mark Zuckerberg or they could have a terrible life. But really all the possibilities in the world in some sense are available to them. That’s really what that means.

Craig Cannon [03:31] – And do you take it to heart for you as well?

Elad Gil [03:35] – I’m too old for that, so I think the next generation is, everything is possible for them, barring some breakthrough in anti-aging or something. My path is reasonably clear.

Craig Cannon [03:46] – Alright, fine. With all of these interviews, I know they were edited and kind of, they’re transcribed and then edited, were there any large arguments you got into when you’re doing the interviews before you compiled them for the book?

Elad Gil [04:01] – There’s no arguments and the interviews are actually very close to the actual conversation. The editing was very light and it was more for clarity or to rearrange a section so it went together better. But there weren’t big chunks taken out unless it was a side conversation that was unrelated to the interview. There are areas where I’ve disagreed with some of the things that people said, and that’s one of the reasons I wanted to make sure it was in the book. Because ultimately, I think the only good generic startup advice is that there’s no good generic startup advice. Ultimately, it’s all about context. Each person who I interviewed came from a very different set of experiences, and very different context. And that’s one of the reasons I wanted to include those discussions in the book ’cause they provided a different viewpoint from my own.

Craig Cannon [04:40] – What are good examples of that?

Elad Gil [04:44] – Honestly, almost every interview there may have been one or two things that I would have nitpicked and I’m sure that as people read my book, they’ll feel the same way or they’re like well, in my case it really wasn’t like that or, the advice I give is a little bit different from that. That’s actually great. It’s almost like you’re baking a cake and you can get into a philosophical argument about the right way to bake a cake, and when all said and done, there’s a few core components you always need when making a cake, but there’s lots of different ways to do it. That’s true of startups as well. There’s a few fundamental things you absolutely have to do, otherwise it’s not really a cake or not a start-up. But besides that, go at it, there’s all sorts of ways to do things.

Craig Cannon [05:20] – I was rewatching your investor school talk this morning and you were talking about how you pick companies based on market and then market again. And then the third was maybe team or something like that.

Elad Gil [05:31] – Yeah, that’s right.

Craig Cannon [05:33] – I think you got into it with Marc Andreessen a little bit in the same topic, right? And what he said, I found was interesting, he said the companies that charge more tend to grow faster. Do you believe that too?

Elad Gil [05:44] – If you can get away with charging more, then it means that you have a product that people truly want which means that you can grow faster in part because people truly want your product, and in part because the capital leverage that Marc talks about is actually crucial. In other words, and he makes this point I think really well in the book, which is that if you have higher margins or pricing power, you can reinvest that money in hiring additional engineers, your sales team can actually afford to go and sell or whatever customer acquisition method you have, you can scale it up more because you have more margin to give away. Actually being able to raise prices is a very powerful tool for growth. One of the big fallacies in Silicon Valley is everybody thinks that they’re Amazon, and they basically say every business model should be Amazon which is, I’m going to charge as low of a price as possible so I can get as much market share as possible. Actually, it’s possible that you’d get to more market share if you charged more for your products versus less. That’s actually a point that I agreed with him quite strongly.

Craig Cannon [06:38] – Right, and it’s also, you talked about this in relation to investing or not investing in Lyft, that not all markets are winner-take-all Amazon type situations. Most founders assume with any network effect they win.

Elad Gil [06:51] – In general, there’s a set of myths that have built up over time in Silicon Valley around what is a great startup. And in the social networking era, things really were winner-take-all because they were social networks, and they were almost definitionally, they were winner-take-all. There’s lots and lots and lots of businesses all over the world that exists in markets that aren’t winner-take-all and there’s actually a great book called, The Rule of Three, I think is what it’s called and it basically talks about how many industries collapse into oligopoly markets, where there’s two to three dominant companies and then that’s the stable point in the industry. The market structure really matters and one of the things that people in Silicon Valley don’t think about very much is what’s the actual market structure and does that mean it’s a good opportunity or a bad opportunity to actually start a company? A great example would be EdTech, where I think that’s a terrible market, it’s a really tough one. It’s very impactful so I’m really glad that people are working on it, but there’s all sorts of structural issues in the market that make it a really hard one to be successful in. Therefore, it’s really hard to start a company in that market.

Craig Cannon [07:51] – There was a related question that came in from Twitter. @LeonKoh asked, what types of businesses do you avoid investing in, and what “good businesses” do you have no interest in? Are there other markets that have a negative signal to you in that way?

Elad Gil [08:07] – Yeah, EdTech is definitely one. I’ve never invested in a EdTech company and again, I think the social impact is massive. I just think it’s very hard to succeed. In part, because there’s nobody who is able or willing to pay in the US for the product. In certain parts of Asia actually, Edtech is a great market to be in, but I just don’t invest very much outside of the US. But if you think about it, teachers either can afford or don’t have the wherewithal to buy certain products. Parents often don’t want to actually buy extra products for their kids. Children obviously can’t afford it. School districts are often cash strapped and can’t afford it and so there’s just not a payer in the education market. There’s also markets where it’s better for a large incumbent to do it versus a small startup. Internet of Things is a great example where most of the interesting things in that market will come from large electronics players who can just integrate it into something and then distribute it, versus a new sort of one-off company that’s just making a smart lightbulb or just making a smart door lock, or just making a smart, you name it.

Craig Cannon [09:08] – Those companies have really struggled after their first Kickstarter, like to launch again. It seems like unless you’re selling like a smart backpack, you’re going to…. You mentioned Asia and I want to jump from the beginning to the very end of your book, because I thought that was funny. You have a page that says things to just say no to. I’ll go through that list, but I do want to talk about Asia. One, envelopes full of cash. Two, China. Three, giant chrome pandas and four, pool tables. Could you explain?

Elad Gil [09:41] – That part was very much meant as a joke and it was kind of thrown in last minute. Basically, I’ve been in Silicon Valley for the last decade plus. There have been a variety of different things that seem like great ideas at the time, and then in hindsight maybe weren’t as good. The envelopes full of cash for example, when I was at Google at Christmas time, the company used to give out literally an envelope with I think it was ten $100 bills as sort of an annual bonus for everybody. And the urban myth around it, I don’t know that it was actually true but the urban myth was that, as people would get off the Google shuttle or the bus in San Francisco with their envelope full of cash, they’d get mugged. I don’t think that really happened but it was more, maybe distributing millions of dollars in cash is a bad idea to your employees, it sounds almost like the mob or something. China, is just most companies that have tried to enter the China market have failed. There’s always counter examples of that. I actually think Uber’s strategy in China was quite smart in terms of their eventual merger with Didi, and I think they own 15 to 20% of Didi which in and of itself is going to be a $100 billion plus company so I actually think that worked out really well for them. And similarly, Airbnb, it appears to be doing very well in China as well, so I do think it can be done, but most companies try to enter China, they don’t have a real strategy to it, they don’t understand the local presence, they don’t understand the competition

Elad Gil [10:59] – and they kind of get quashed. It’s hard to do business there in part because of government controls around, the ability for foreign countries to enter the market. That’s China. The chrome pandas, Dropbox, not a giant chrome panda and then later they used it as a symbol for frugality and so I think that was a very smart approach by them to basically say, “Hey, let’s take something and turn it into a symbol of how we should act as a company.” I thought that was a very smart cultural move by them. And then lastly, pool tables was, I moved out here right after the last sort of bubble collapsed. And I was working at the startup where I joined, it had 120 people and it grew to 160 and then it shrank to 15 people or so after five rounds of layoffs. After the second round of layoffs, it was probably like 60, 70 people and the founders bought a pool table to try and increase morale. After all these layoffs were happening in a collapsing industry and I don’t know that pool how you increase morale but that’s what they decided to do and it was a nice gesture. But what would happen is, the people who had time to play pool obviously were an essential to the operations of a company that was in freefall, which meant that the people who’d play pool would suddenly disappear within a couple of weeks because they’d get laid off. The pool table became the symbol of like, don’t go play pool because you’re going to be the next person to get fired.

Craig Cannon [12:12] – I have never lived through one of those but it sounds terrible.

Elad Gil [12:16] – I don’t think anybody in Silicon Valley in this era has because we’ve been in an eight-year bull market, so obviously companies have gone under and that’s been painful but we haven’t seen the systemic raising of an entire sector at once. It’s inevitable that at some point that’ll happen again and I think that will cause an enormous sea change in terms of how people do things.

Craig Cannon [12:36] – Timing the market is impossible though. Related to that, are there any ideas right now that you think might, they’re being raised on but are potentially too early. In other words, like ideas from the ’99, 2001 like bubble that later turned into big companies now. Do you think any of those ideas in existence now are actually going to be part of the next cycle?

Elad Gil [13:02] – There’s two big areas where that’s definitely true. One is AR/VR which I think most of it is too early, and I do think it’ll eventually happen. The other area is actually in crypto. There’s a great analogy between the cryptocurrency world today and the internet world in the late 90s. In the late 90s there was a handful of things that truly became massive franchises; PayPal and Google and Amazon and etc. were all from that first era. Then there was a bunch of stuff that didn’t even exist at that point that became massive like Facebook. But there also are a lot of companies that people started then that ended up failing and were pointed out as these stupid ideas, but are now actually giant companies in their own right. For example Webvan raised over a billion dollars and failed and now we have Instacart which is sort of a reinvention of that concept. There was pets.com which was broadly derided, why would you ship pet food online? That became Chewy which was acquired for I think $3 billion. There was this whole wave of companies that were just too early or in the wrong format in the late 90s that have now become major franchises. The same thing is true in the crypto world where there’s still a real lack of infrastructure in crypto, and so there’s all sorts of really interesting ideas of how you decentralize different services and I think many of those things will fail. Then in 10, 15 years, a new form of that idea will exist and be successful.

Elad Gil [14:23] – Then in parallel I think there’s things that exist today that are sort of the Amazon’s of crypto that are going to be massive in their own right and already exists. Maybe it’s Bitcoin, maybe it’s Ethereum, maybe it’s a privacy token like but I do think that a subset of the, of the crypto world from today will also continue to just be massive.

Craig Cannon [14:41] – A certain percentage of people out there as employees will be able to pick those companies. Which is a, that’s a Naval quote I really liked. I don’t know if it was in the first or the second interview. It must be the second, it’s on page 311. Naval says, Naval Ravikant, “The most successful class of people in Silicon Valley on a consistent basis are either venture capitalists or people who are very good at identifying companies that have just hit product-market fit. They have the background expertise and references that those companies really want to help them scale.” The question is, how do you find those companies?

Elad Gil [15:16] – There’s a few signals that a company is breaking out, to the point of, from Naval, there’s a few people who have been very good at that. For example, Matt Kohler was early at LinkedIn and then he was at Facebook, and then of course he eventually joined Benchmark. That’s a great example of a career where somebody just sort of identified a few sequential really interesting things. The three key signs of something really breaking out really has to do with number one, just anecdotal customer traction. You can just ask people what they’re using for different companies or you can, try to pick up on market signals. One is just what is being adopted by the market and how rapidly is it being adopted. There’s certain metrics you can look at in terms of turn and recurrence and a few other things. The second thing is, what’s the network of people around it? In general, you’re only able to pull in certain people to help with something if that thing is really working. Then lastly, sometimes fundraising is a signal, sometimes it’s not. But in general, the best companies that are breaking out if they want the capital or they need the capital will be raising new rounds of capital every nine to 18 months.

Elad Gil [16:28] – In some cases given by the fact that we’re running out of money but for the best companies it’s often a sign of people just coming in preemptively and giving them a very high valuation. Sometimes that’s a way to track it too. In general, if you want to do best from a career perspective and you didn’t join in the very very early days, the best time to join is when a company is probably on the order of 40, 50 people and is worth somewhere between 50 and $500 million as long as it can turn into a 10, $20 billion company. It’s really hard to know which companies will do that but usually that’s when a company goes from 50 people to 1000 people or 50 people to 5000 people, and that’s when you have the most growth opportunities as somebody joining one of those companies but also you have the biggest financial upside, because your option package will go up in value between 20 and 100X which can be quite significant.

Craig Cannon [17:17] – Would you be willing to call someone out and say, what are those companies right now?

Elad Gil [17:22] – It’s always hard to know exactly which companies are going to be the biggest. Some that are really promising right now are Airtable, Checkr and Front, in terms of three companies that I’m involved with that I just think are amazing founders, great traction, and doing really interesting things.

Craig Cannon [17:40] – We should talk about best practices a little bit. We don’t want to just talk about founder mistakes. One thing I really thought was cool which I hadn’t heard about before was Stripe’s COO, Claire Hughes Johnson, issued this letter out to the company when she started about how to work well with her. I’m curious, have you done this before? Do other people do it now, what’s the story?

Elad Gil [18:03] – Yeah, I haven’t done it before. When she told me about it I thought it was brilliant. Each person as they join a company, especially if they’re in a leadership role, will have a certain set of ways that they like to be interacted with. Often it takes the company six months or 12 months or a year or longer to figure it out, and especially if you’re growing really fast, each incremental hire two years later has to figure it out as well. By publishing this letter, she basically spelt out what are the best ways to work with her. Is it better to send her emails or to catch her live for five minutes? Is it better to communicate via data or are other mechanisms that really resonate with her in terms of the things that grab her attention? I thought that was just a brilliant onboarding tool that perhaps any executive joining a high-growth company or any manager joining a high-growth company should issue, so that people just understand, this is the fastest best way to interact with me and just ramp up on how to be effective in the organization.

Craig Cannon [18:58] – I think everyone should do it at every company. It’s such a great idea. You can’t, well, it’s not totally fair to rely on everyone to be able to read everyone else, because some people can just put on a good face and others can’t and it’s some struggle.

Elad Gil [19:13] – Also people have their own quirks. Being explicit about the quirk actually helps a lot. When I worked at Twitter, I used to do a lot of yoga and so I’d literally sit in Lotus on the floor in the middle of executive team meetings, and I was the only person on the floor in board meetings. Then people eventually were like, “Okay, fine, that’s his quirk,” right? Being upfront about those actually gets rid of a bunch of stuff.

Craig Cannon [19:35] – Yeah, I think it’s such a great idea. Alright, let’s go into some Twitter questions for you. Massoud Hussain asks, he actually asked three questions. How did most of the companies you interview get their first 10 customers?

Elad Gil [19:50] – Okay, sure. First 10 differs a lot by company. So some companies will literally go and just handrecruit those first 10 people to use their product. The founders of Stripe were famous for, anytime they’d meet with somebody they’d try and show them Stripe and get them to use it–

Craig Cannon [20:06] – The Collison install.

Elad Gil [20:07] – Yeah, the Collison install. There’s other companies where honestly, they just put up a product online and it just starts working and spreading. That’s sort of the rumor about how Facebook got started was Zuck just kind of put it up and told his friends about it and just started spreading because there was a bit of virality built into it. Each product is different. On average though, you kind of have to grind it out. You have to find your first few customers. If you’re building an enterprise focused application, you probably want to find early test customers or partners that you work with who are, what people would call design partners. They’ll give you feedback as you build it and you can kind of steer the product based on their feedback, so you’re actually building something that people want. It really depends a lot on the type of product, if it is, is a consumer versus enterprise and then how you want to go about getting the first few people.

Craig Cannon [20:55] – What about going to a thousand? Because Massoud asked a question related, is content really king? Meaning is content the way for infinite growth?

Elad Gil [21:06] – Not always, it depends on what you’re doing. If you’re building a consumer social product, then there’s probably mechanics built into the product itself that cause it to spread. Sometimes things spread a bit organically and then you kind of juice it through different tactics. With Facebook, that was the email scrapers and it was, they were literally running ads against people’s names in Europe to try and acquire European users for example. The best companies actually focus on aggressive distribution early and often you see a company that taps out and market cap or market size because the founders weren’t aggressive early about distribution and then later, other companies caught up to them. Examples where people were very aggressive about distribution with things like Google, where they were spending hundreds of millions of dollars a year on things like Firefox having Google prominently displayed on its homepage. They literally paid for, they used to have this client application called their toolbar that would, install against a browser in terms of being effectively like a browser client. They were paying hundreds of millions of dollars a year to co-install that with different apps that you’d download. You’d download Adobe and suddenly you’d install the Google toolbar. Those stories are never told, people always say, “Oh, these things just grew organically and isn’t it amazing?” But almost every company that’s ended up tens of billions or hundreds of billions in market cap

Elad Gil [22:25] – have been very aggressive about distribution often from their earliest days.

Craig Cannon [22:28] – A lot of people create, in the content category they’re often playing the game that whatever system they’re on wants them to play. That’s good to a point, but it’s hard to achieve outside rewards in any of these categories by just playing by the exact rules. I’m not saying break the rules, but be a little more creative with your strategy. Alright, next question. Narian Malapa asks, where do founders make the most mistakes, is it on hiring? And whatever mistake that might be, what steps should they avoid to avoid these pitfalls?

Elad Gil [23:04] – Yeah, it depends a lot on the stage of a company. For an early company, people make mistakes around how much money to raise. They raise too little and they run out of cash before they can hit a milestone to raise more money. It could be hiring mistakes, it could be firing, it could be fighting with their co-founder. Early on I think there’s all sorts of mistakes that you can make. The single biggest common issue to the point of the question probably is around hiring either in terms of not having a very good selection process or alternatively not getting, letting go of people who didn’t work out. There’s an old saying that people either hire well or fire well. If you at least do one of those, then you can build a really good organization. Fundamentally, most companies are kind of bad at both and that really ends up biting them because they’re just desperate to get people in instead of saying you know what, it’s painful but we’ll wait to find the right people.

Craig Cannon [23:55] – Right, the company has a thousand people and you’re like, wait a second, aren’t we like 500 jobs right now? It’s tough. Do you have like a ballpark number for how many employees end up working out percentage-wise?

Elad Gil [24:11] – It varies a lot. Again, it depends on your hiring practices and so, Google was an example of a company that hired extremely well. They had a minimum for a while of eight interviews per person, literally. And if you didn’t do all the eight, you wouldn’t be able to get in kind of thing. And they were terrible at firing in their early days. They were absolutely awful at letting people go once they made it in, but they just let in so few bad people that it worked for them for a while. Other companies like Facebook were known as not as good at hiring early on although they gotten much better over time. But in the very early days they were known as not great at hiring but they were very good at actually letting people go if they didn’t work out. Both companies ended up I think eventually very good spots. It really depends on the practices of the company.

Craig Cannon [24:54] – Okay, Breann Kimmel asked a question around regulation. You’ve worked with Stripe, like Biotech. You’re kind of aware of these regulated sectors. What are some lessons learned in highly regulated sectors? When should you hire a general counsel for example, and how do you prioritize public policy in lobbying efforts?

Elad Gil [25:17] – It depends a lot on the sector that you’re in. So some companies will actually hire a compliance person or a general counsel very early. Coinbase is an example of that where they hired somebody of that profile, in the first ten people or so and so they were always focused on being regulatory compliant. You can also do it through hiring things like external consultants or you can get very good lawyers for certain areas. For example, the biotech or healthcare sphere, if you’re six scientists working on a problem, you probably don’t need a full-time compliance person but you probably want to start thinking about FDA and how you think about regulations. That could be done through a consultant for example. I think you should think about it early but it shouldn’t get in the way of you just doing core things that you need to build a product, because if you don’t have a product and you’re not on the market, it really doesn’t matter. Because you’re not dealing with regulations as a non-launch thing. In terms of prioritizing public policy and lobbying, that tends to come later in the life of a company. Many companies in Silicon Valley wait way too long so they’ll sort of become huge and then they’ll realize in hindsight they should have been thinking about it. Really what it’s about is, view it less as lobbying and more about how can you educate people who are actually, who want to do the right thing but may only get one side of the story if the incumbents

Elad Gil [26:37] – are the only ones talking to them. How do you sort of share the story of what the industry is evolving to, what the company is about and who should you be educating. And that doesn’t necessarily mean you should be talking to politicians or maybe other stakeholders you should be talking to. Maybe you should be talking to certain medical groups if you’re in biotech or a teachers association if you’re an Edtech. I would just think more broadly about, who should I educate about, what I’m doing and how do I start those conversations early so that people are aware and in some cases can actually become supportive instead of antagonistic.

Craig Cannon [27:05] – Do you have opinions on the ad campaigns Facebook’s running right now, to kind of like say, “Hey, we’re sorry and we’re not about fake news?”

Elad Gil [27:13] – I haven’t seen those ads. A couple of people told me about them, they said that Silicon Valley is sort of running all these apologetic ad campaigns–

Craig Cannon [27:21] – They’re multiple, so Wells Fargo, Facebook and I think there’s another one, Uber–

Elad Gil [27:27] – One thing that has really changed a lot since I moved out here is there has been a real decrease in overall what I’d call like optimism about the future in Silicon Valley. That’s awful. Really the best people that I know who work in technology are doing it because they think they can use it truly as a force for good and to help change the world for the better. If you think about what technology has done in terms of basically putting a supercomputer in the pocket of a billion plus people, in terms of creating transparency into pricing and markets and other things for, so you’re a farmer somewhere, you’re able to sell your goods on the right day, in the right location. It’s really sort of transformed the world in really positive ways. Somehow I feel that people have really lost sight of it, and to me one of the saddest moments is when people write the blog post four years after leaving a company that they joined early where they self-flagellate and they talk about how terrible that company is and how ashamed they are and you’re like, “Oh my god, what are you talking about?” These companies have actually done really valuable things for the world and when they’ve made mistakes, they need to go and correct those mistakes rapidly. You need to early on think about how you avoid creating damage in the world. Fundamentally, technology is something that’s very powerful, very important and ultimately, has largely been a force for good in the world and we should not lose sight of that, and we should really emphasize it.

Elad Gil [28:45] – Because if you don’t think you’re doing great things, you’re not going to go and do great things.

Craig Cannon [28:49] – No, but being here I’m more optimistic than ever. There are so many cool things happening, it’s just tricky. I know it from talking to my family on the East Coast who isn’t connected in the same way and all they hear are horror stories from whatever it might be.

Elad Gil [29:06] – In general, what you find and this is, I’ve seen on the company level, when you work with different companies they always end up in some media cycle, where they get built up and then they get torn down and then later they get built up again as sort of a redemption story. Usually the story arc is, look at this amazing company, they’re changing the world, they’re doing good things and then there’s some minor crisis and it blows up in the press into, “Oh my god, this company is now doing bad things and they’re failing and they’re going to die and it’s awful.” Then the press writes a story a little bit later about, “Oh, the company is now redeemed and they’ve changed what they’re doing and look at the great things they’re doing again.” Silicon Valley may be in one of those cycles at a macro level where we had the upswing and the 2000s of, “Oh, look tech is so great and there’s the iPhone and all these other things and look at how Google’s helping people.” Now we’re in sort of, “Oh my gosh, tech is only bad and my hope is that we come back into the redemption period.”

Craig Cannon [29:59] – Technology is probably going to be whipped a little bit more in the next election cycle, because it’s like a very obvious target it seems, unfortunately. Especially when people are making such cool stuff.

Elad Gil [30:13] – Yeah, I know. One of the most telling moments for me was a founder that I started helping really early ping me and said, “Hey, I was at some dinner party with some friends and I brought up the fact that I’m really excited about what I’m doing and I hope I can change the world with it, and everybody started making fun of me at the dinner,” and I said, “Well, you should find better friends,” like… Ultimately, you should be surrounding yourself with differing opinions over time but you should also be surrounding yourself with positive voices, because ultimately I do think that there’s a lot left to be done and technology will continue to have this transformative impact on the world and people should be proud of what they’re working on.

Craig Cannon [30:48] – I’m all for talking shit and having fun but I think like penalizing people for being eager, it’s not a right thing to do. Alright, let’s go to another question. Marius Chawha asks, this is such a common question, what are the top three things a startup must achieve before VC firms or say an angel investor would line up to fund them?

Elad Gil [31:11] – There’s a huge range of answers to that. If I were to rank things in a hierarchy, I think the single biggest thing and this is going to be obvious and we’ll sort of work down the hierarchy. The single biggest thing would be to have a high margin, rapidly-growing, high traction product. In other words, you’re growing 30% month-over-month, you have 90% margins and everybody’s buying it. You have big brands buying it, you have small brands buying it or if it’s a consumer product, it’s just scaling like crazy with extremely high retention, and spread. The number one thing is traction. The second best thing to have is a product in a interesting or exciting or hot market that people want to fund or get involved with. Cryptocurrencies is one area that’s like that right now where all sort of things are getting funded simply because it’s in the cryptomarket versus because it’s good. Third thing would be great team and then last thing is none of those but a compelling story. That’s sort of a hierarchy, now the thing is that in Silicon Valley there’s different, or in general there’s different trends. People get excited about a specific area, they’ll fund anything in the area whether it has traction or not. Similarly, there may be teams or individuals that are very well regarded and they’ll just get funded no matter what. Sometimes you just need one of those things and it’s good enough.

Craig Cannon [32:31] – PG, they’ve talked about Airbnb as like cockroaches, like just staying alive. Because I assume the question is about like, getting your first funding. But if it’s not about that, just reaching profitability and being able to stay alive makes you much more attractive to a company, because that’s how you generate leverage. I don’t know, often times I’ve talked to a Michael Seibel who’s written a lot about this. Companies come to him and they’re like, “Oh, we need to raise a Series A right now.” And unfortunately, they have no leverage anymore.

Elad Gil [33:03] – To build on that point, VC funding isn’t the only way to build a business either. Bloomberg is, tens of billions of dollar company, private company that has only raised outside capital once and I think it was from Morgan Stanley, like Morgan Stanley or somebody bought, I don’t what it was, 10% say or 15% of the company. He basically bootstrapped it, and one of the things that people think about too little is other sources of funding. It could be your customers just paying you for a great product so that you’re profitable. Sometimes you can get what are known as NREs, non-recurring engineering charges where you charge upfront to develop something for somebody that you can then resell to everybody else. Microsoft actually used to do this in their early days and they similarly never had to raise funding. They took one round right before they went public because of a relationship, but fundamentally just bootstrapped. Too often people think that they should be on the VC train when really, there’s lots of different ways to build a business. Sometimes those are actually much better for founders in terms of where you end up.

Craig Cannon [34:05] – Oh, definitely. Way too few people think about what game they’re about to enter when they, even just start thinking about ideas because if you think about ideas with the framework of this has to be fundable in Silicon Valley, that like by nature constricts your ideas. People don’t consider what it means to be running a 1000-person company and what that trickles down to in your life.

Elad Gil [34:28] – Yeah, or you could be running a thousand-person company but you do it without ever having to raise external money.

Craig Cannon [34:32] – Totally, which is great. The value judgments are the hard part, because like whatever, whatever worked for you, that’s fine. Alright, let’s go to another question that’s on the first page. My company, so Taylor Kaforio asks, “My company’s at our early MVP stage, what is the best way to balance giving our earliest customers great treatment while also having, while also focusing on growth?”

Elad Gil [35:00] – Yeah, I’m going to give two things that are exactly opposite points of advice. The first point of advice is really what you want to do is delight a small number of customers for them to become your advocates and sort of scale on top of that word-of-mouth. It really depends on what business you’re in and whether that’s important or not to the business. It also depends on what the product is, what’s going to prevent growth or not, can you automate some of the things that are the six-star service, how long will it take you to automate it, so it’s a very actually, there’s a lot behind that question. The opposing piece of advice is look, if you have five customers and you screw up, it’s unfortunate and you should do what you can to remedy it but it’s only five customers. If you sort of screw up, as long as you do anything truly damaging to these people which you shouldn’t do, you can recover because your next 10,000 customers are the ones that are going to matter, so you should be willing to experiment and try things and fail at things. Reid Hoffman used to have this great quote that, “If you aren’t embarrassed by your first product, you waited too long to launch it.” Now, he qualifies that depending on what you’re building and everything else but that’s a great quote in terms of, often people wait too long to launch versus launching too soon. It’s okay to give yourself permission to screw up a little.

Craig Cannon [36:11] – Yeah, it’s too easy, especially for people who are compelled to be makers to get attached to your solution to the problem when in reality it’s about solving the problem.

Elad Gil [36:20] – The only place where I’d qualify that is if you’re doing something in healthcare, where you don’t want to sort of move fast and break things if you’re building a pacemaker. Again, this is back to the, if you’re actually going to hurt somebody, you shouldn’t do it. But if it’s a SaaS product, that is around a customer support tool, maybe it’s okay if it doesn’t quite work perfectly. The first time you should just be transparent with your customers that it’s a new product and it’s buggy and…

Craig Cannon [36:48] – It’s not cute if the wheels on your autonomous car fall off.

Elad Gil [36:50] – Exactly.

Craig Cannon [36:51] – Yeah, that’s not a good idea. Related to that, there’s a question about hiring from Timay Condowall, they ask, when you’re sprinting in growth stage, how do you predict the engineers required and hire accordingly?

Elad Gil [37:04] – Yeah, there’s sort of two things. The general philosophy should be, things should always feel tight. You should never feel like hey, I have too many people. You should always feel like you have too few people. In general, if you start to feel like hey, there’s a lot of people showing up and not enough to do, then you’ve definitely screwed up. From a planning process perspective, and this is actually something that the High Growth Handbook touches on with Claire Hughes Johnson and the conversation with her is, there are a set of simple planning processes that you can undergo where you basically start to ask, what do I want to build over what time frame? How many people do I need to actually do it? What’s the relative priorities of these things, and therefore you come up with a hiring plan and usually that hiring plan isn’t staggered over the course of a year. Even when you’re very early on and you’re three people or four people and you have to build a bunch of stuff, if you’ve just been funded. I would advocate that going into the fundraise, you actually have that hiring plan because it tells you what your burn is going to be, it tells you how much money you actually need to raise. Too often founders just say, oh, I’m going to raise, I’m making up a number, $2 million when maybe they should raise three or maybe they should raise less. But the number feels very arbitrary versus having an underlying plan which says, this is where we’re going to spend money, this is how we’re going to spend it,

Elad Gil [38:17] – this is how long it’ll last us. I actually think that’s a very useful exercise for anybody to go through and it also then informs what you’re actually going to build.

Craig Cannon [38:23] – Which is just like basic business fundamentals.

Elad Gil [38:27] – Yeah, but very few people, surprisingly few people do it like–

Craig Cannon [38:29] – I’m aware, yeah. I’m around it because it’s like, raising money has been turned into this game that people want to win and that in and of itself feels like an end to them but it’s not. Alright, we have a couple of more questions. TD Bryant II asks question, when your organization is experiencing exponential growth, how do you choose which functions to outsource or versus build, hire someone to build?

Elad Gil [38:55] – It depends on what you’re actually building. Instagram for example famously had, about a dozen employees when they were acquired by Facebook. They actually kept the team really lean because at the time they hadn’t quite gone into the phase of monetizing the product, building out ads, building out a bunch of other stuff. They really just kept it to engineering and maybe one or two other functions. It depends a little bit on your objective as a company. Do you want to sell, do you want to build out the whole thing, etc.? If your focus is on going for it, then there’s a few functions that you’re going to add and it really depends on the type of business you’re in when you add them. There’s an earlier question around, when should you add somebody as a general counsel or a compliance person. If you’re in a highly regulated industry, you may want to add that person quite early in the first 10 people or the first 50 people. But if you’re not a highly regulated industry, maybe you don’t add a GC until you’re much larger. It really depends a bit, when all is said and done, I can’t think of very many functions that you want to outsource. Yhere are aspects of functions that you want to outsource. For example, on the benefits side, you’re not going to come up with your own benefits plans. You’re going to go and you’re going to work with somebody and they’re going to say here’s your insurance policy and your 401k and all this stuff–

Craig Cannon [40:12] – That’s like a framework you use to invest, right?

Elad Gil [40:15] – In terms of what are the things–

Craig Cannon [40:16] – You personally. Yeah, like Stripe or Zenefits whatever.

Elad Gil [40:20] – Yeah, I view that less as outsourcing functions, unless I’m misunderstanding the question and more about outsourcing pieces of infrastructure that everybody keeps building. In my mind, function means HR or engineering or product or the functional org. If what you’re asking is what pieces of my IT stack I should, or my stack I should outsource then I would definitely try and use other party services for payments or for other things simply because it’s really onerous to rebuild those from scratch.

Craig Cannon [40:49] – Again, this maker mindset causes people to feel like they should innovate everything, and you don’t have to innovate everything.

Elad Gil [40:57] – There’s actually a great, I think a blog post or podcasts on the Andreessen site where they talked about how technical founders always want to reinvent sales. There’s a way to do sales, it’s worked for tens of years and you don’t need to necessarily hire technical people for every role and you don’t need to hire a PhD in engineering for sales unless it’s a very, very technical sale.

Craig Cannon [41:22] – I see it too, with like companies getting really creative with how their shares are issued or equity or whatever, it’s like dude, stop.

Elad Gil [41:29] – Yeah, there are things that are important to the company and its survival and things that really don’t matter. And sometimes it’s okay to do the things that don’t matter because it’s fun and it keeps the job interesting and exciting, and sometimes it’s just a waste of time.

Craig Cannon [41:40] – Agreed. Alright, so I want to get to the Dragon Ball Z question. I think that’s like obviously the most pressing and important one here. Alright, Andrew Pacool asks, who is your favorite Dragon Ball Z/GT/super villain and this is based on your avatar on Twitter?

Elad Gil [42:00] – Yeah, that’s right. I have Goku as my avatar on Twitter. Lately I’d say and this is still an old anime/manga, I’m more of a Naruto person and really what I would have wanted to have is, Itachi Uchiha as my avatar but it was just a little bit too gruesome for Twitter, and obviously as well, he’s a very misunderstood character in terms of really always focused on trying to do the right thing but then sort of taking the fall for the Hidden Leaf Village and everything else by joining the Akatsuki. I just thought that I’d keep it simple and have Goku and if people have any good anime or manga suggestions, please just hit me up on Twitter.

Craig Cannon [42:39] – Right on. If people want to reach out to you, if they want to buy the book, where should they go?

Elad Gil [42:43] – Yeah, for the book the best place is Amazon. Right now it says that it’s temporarily out of stock, you can ignore that. It just means that there’s a bunch of books that Stripe has that are just sort of piled up waiting to get processed or that are being shipped over. You can still just order and they’ll show up within a week or two.

Craig Cannon [43:01] – And your website is eladgil.com?

Elad Gil [43:03] – Correct.

Craig Cannon [43:04] – Cool, alright, thanks man.

Elad Gil [43:05] – Thanks for having me.

Craig Cannon [43:06] – Alright, thanks for listening. As always you can find the transcript and video at blog.ycombinator.com. If you have a second, it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.