Letter to myself in late 2008
[I originally wrote and distributed this post to Y Combinator founders and have been encouraged to share it publicly, so here it is.]
For context: in 2008 I was the founder/CEO of a company called imeem, which at the time had ~90 employees, good metrics, but high burn. I don’t think the 2020 crisis happening now is the same as what happened in 2008. But maybe the advice I wish I would have listened to in 2008 can help someone today.
Dear Dalton in 2008,
Hi, it’s me, your future self in 2020. I remember exactly what it felt like to be you. You have a brand new baby at home and things are seeming crazy out in the world. This is a hard time for you… the sleep deprivation sure doesn’t help. The things you are hearing and seeing in the news seem almost unreal.
But they are real. And it’s up to you to be a leader. Unfortunately I am writing you this letter because you are about to make a bunch of mistakes.
The following is the truth you need to hear:
You have a fair amount of cash in the bank. You were counting on a fundraise soon, and so it doesn’t feel like you have that much cash on hand. You are wrong. You have plenty of cash. Get this new reality into your head.
Stop thinking or talking about future fundraising. This entire line of thinking will lead to lots of wasted cycles. Use all of these cycles you are about to waste on botched fundraising plans instead on getting real and making the most of the cash you have in the bank.
Renegotiate all of your contracts with the music industry. You will figure this out eventually, but much too late. Contact them right away. They will threaten you, but this is the business you chose to be in.
Renegotiate all of your contracts in general. Do this today. There is a lot you can renegotiate that you don’t currently realize. You figure this out eventually, but much too late. For example, startups today can renegotiate their AWS costs by ~50% if they push.
Doing multiple small layoffs is a form of cascading failure. Do one layoff, but much much deeper than seems correct. Do it decisively. Do it so that you get profitable. In your case that is something like a 70% cut, not a 5-10% cut. Yes you read that right: a 70% cut. Cutting once and cutting hard allows you to reassure the people that are still here that you are truly profitable and won’t need to do it again. Doing a layoff and remaining unprofitable and counting on fundraising to save you is a stupid plan.
Some people in your immediate circle are giving you good advice and counsel, but many are not. You are going to fall into a trap of averaging the advice that you are hearing. That is a mistake. You should be decisive and make your own decisions even though they will not be popular. Some people will get angry and upset with you for being too “paranoid”.
At this point, no one is going to buy your company. You know this, but a lot of smart seeming people keep saying this might happen and so they say “don’t take too drastic of measures to get profitable because then you won’t be able to sell the company”. Definitely ignore those people and this garbage advice.
It’s a better tradeoff to overreact to market conditions that lead to company survival than to have people say that you overreacted after the fact. People are counting on you to do the right thing.
I also want you to know you will be OK.
Amazing advice. As always. Sorry you learned from experience but thank you for sharing; I hope people listen. Honestly this perspective is why I love YC. There is a culture that focuses on the importance of being profitable, and screams about the freedom and flexibility it affords. I have seen it frequently emphasized by YC partners and together with the lack of celebration about fundraising (indeed the view that fundraising is really failure to be profitable). This culture is so valuable in helping founders focus on execution rather than hype.
Thank you Dalton. So timely! Our circumstances have quite a bit of parallels between your 2008 and my 2020. I also have a newborn. I also run a startup. In fact, we launched this March LOL! Hey, at least we will get the credit for "great timing".