Pod Insights Y Combinator Podcast Stop Innovating (On The Wrong Things) | Dalton & Michael Podcast About this episode Startups need to innovate to succeed. But not all innovation is made equal and reinventing some common best practices could actually hinder your company. In this episode, Dalton Caldwell and Michael Seibel discuss the common innovation pitfalls founders should avoid so they can better focus on their product and their customers.
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Transcript 0:00 Speaker 00 Headline rip from the news is people looking at the corporate structure of OpenAI and being like, oh.
0:07 Speaker 01 This is an interesting innovation.
0:08 Speaker 00 This is an instruction manual.
0:12 Speaker 01 All right, welcome to Dalton Plus Michael. Today, we're going to talk about how do you avoid innovating on the wrong things? So to set this up, right, we're in the innovation economy.
0:26 Speaker 00 Oh, definitely.
0:26 Speaker 01 Right, this is definitely.
0:27 Speaker 00 Major innovation.
0:28 Speaker 01 It's right here, innovation economy.
0:30 Speaker 00 That's what's happening.
0:30 Speaker 01 We encounter a lot of founders who believe that they need to take what I call innovation juice and spread it across.
0:40 Speaker 00 That's what you call it, innovation juice?
0:41 Speaker 01 Innovation juice, when I'm trying to insult it. And they have to spread it across every frickin' problem they encounter. And I think that there's only a limited amount of innovation energy that any company can have.
0:53 Speaker 00 There's only so much juice, is what you're saying.
0:55 Speaker 01 It's like I set that up.
0:59 Speaker 01 And we have maybe encountered some places where you should maybe just use the best practices.
1:07 Speaker 00 Yeah, here's what I think about this. Making a startup work is a miracle.
1:13 Speaker 01 Yes, yes.
1:14 Speaker 00 And the fact that you got product market fit and made something people want, you literally performed a miracle to do that. It is amazing.
1:22 Speaker 01 Yes.
1:22 Speaker 00 People would are so, you know, people would die to get where you got.
1:26 Speaker 01 Yep.
1:27 Speaker 00 Now, the odds that you are going to be able to perform five miracles at once is much, much, much lower.
1:34 Speaker 01 Much lower.
1:34 Speaker 00 And so you want to focus the miracle juice on the single miracle, which is making something people want and making a product, right?
1:43 Speaker 01 Yes.
1:43 Speaker 00 You guys see what I'm saying?
1:44 Speaker 01 And so solving a real customer problem.
1:45 Speaker 00 And then all this other stuff.
1:47 Speaker 01 Yes.
1:48 Speaker 00 Yeah, just do best practices. Please don't innovate.
1:50 Speaker 01 Yes.
1:50 Speaker 00 Like, you don't need to have a low likelihood of success miracle. Like, you don't want to have to be right on these long shot bets.
1:59 Speaker 01 Yes.
1:59 Speaker 00 In five different ways.
2:01 Speaker 01 Yes. And I think it's interesting because I think that I encounter some people who somehow are more religious about these side bets, right? It's like, well, I'll only do a startup if I can locate it in Bumblefuck Nowhere. Or I'll only do a startup if I get to do this weird corporate governance thing. And I'm like. What you're really saying is like, I'll only serve my customer and help them with a really important problem in their life. If I get this other random thing that the customer doesn't give two shits about, right? And that always kind of blows my mind. It's like, it's, it's, in some ways, business is really about being selfless and like putting your customer first.
2:45 Speaker 01 But it's like, I'll only put my customer first if I get to like get this startup in New York. And I'm like, that's obviously putting yourself first.
2:52 Speaker 00 I think, let's start with the most common anti-patterns we see.
2:57 Speaker 01 Sure.
2:58 Speaker 00 Right? Like, what is the, what are the ones you see the most, man? What's offender number one of where people are trying to innovate where they probably shouldn't be?
3:05 Speaker 01 I would say, one that I see on the YC application that I love is when it's like some kind of weird incorporation.
3:11 Speaker 00 Yes.
3:12 Speaker 01 So, you know, we incorporated as a Wyoming LLC. And I'm like, this was a voluntary red flag. Like, this is like,
3:21 Speaker 00 Yeah.
3:21 Speaker 01 Why would you do that? And like, sometimes they'll even write, well, because like, da, da, da, da. And you're just like,
3:28 Speaker 00 Well, I think, my theory is there's a lot of smart people, again, they want to innovate in different ways.
3:33 Speaker 01 Sure.
3:33 Speaker 00 And they'll look at something like corporate law and the existence of the Delaware C corp. And be like, I, someone that knows nothing about this, could do better.
3:43 Speaker 01 Yes, yes, obviously so.
3:45 Speaker 00 And everyone else is doing Delaware C corps.
3:47 Speaker 01 Yes.
3:47 Speaker 00 That's not for me. I'm gonna do a, and then crazy things happen.
3:51 Speaker 01 Yes.
3:52 Speaker 00 Right? And so, probably corporate governance is not the best place to innovate. One thing that's been funny, headline ripped from the news is,
4:00 Speaker 01 Yes.
4:01 Speaker 00 People looking at the corporate structure of OpenAI.
4:04 Speaker 01 Yep.
4:04 Speaker 00 And being like, oh.
4:06 Speaker 01 This is an interesting innovation.
4:07 Speaker 00 This is an instruction manual.
4:10 Speaker 01 A nonprofit that owns a for-profit.
4:12 Speaker 00 Would not recommend that strategy, even the people that are working there. I mean, even Sam himself has suggested that that was perhaps not the wisest choice. And so, again, the point here is the miracle of making something people want is the hard part.
4:26 Speaker 01 Yeah.
4:27 Speaker 00 But if you're just doing like a startup, you know, Delaware C corps are pretty good.
4:30 Speaker 01 Yeah. You know, I see another one, because you know, corporate governance, that covers, you know, your investment docs and where you're incorporating and all that kind of stuff. Your vesting, blah, blah, blah, your, your classes of shares. Like, I sometimes see founders doing crazy stuff. I see another one that you brought up, though, which I really love, is the like, "I'm gonna make this startup, but I'm also gonna disprove every piece of startup advice." Like, I love this. Like, "I'm only willing to help my customer if I can simultaneously prove that all of the startup advice is incorrect."
5:02 Speaker 00 Yes.
5:03 Speaker 01 And it's like, "What?"
5:05 Speaker 00 And so, yeah, so the example of that is just to take something that is like widely considered useful or true.
5:12 Speaker 01 Yeah.
5:12 Speaker 00 And try to prove the opposite of it.
5:14 Speaker 01 Yes.
5:15 Speaker 00 You know, like, "My thing will be reliant upon making the small town that I live in the center of the startup ecosystem," or something.
5:23 Speaker 01 Yes.
5:24 Speaker 00 Like, somehow there'll be other, some other bet they're making.
5:26 Speaker 01 Yes.
5:26 Speaker 00 That involves a super contrarian thing.
5:29 Speaker 01 Yes.
5:29 Speaker 00 That has nothing to do, actually, I can think of an example of these, by the way.
5:32 Speaker 01 Yes.
5:32 Speaker 00 One of these was, I remember a founder doing something unrelated, you know, keep this anonymous.
5:37 Speaker 01 Yeah.
5:37 Speaker 00 But they were like, "The real thing, the real bet we're trying to make is the hydrogen economy, and that no one will use gasoline, or solar, or wind, or, or, or, but then in the future, we're gonna use hydrogen everywhere."
5:53 Speaker 01 There you go.
5:53 Speaker 00 And I was like, "Hmm. Hey, man, maybe don't mention that." Like, "We'll keep this between us."
6:01 Speaker 00 Maybe when you're...
6:02 Speaker 01 That's the real secret sauce.
6:03 Speaker 00 Maybe you should keep that, maybe you should keep that on the, on the down low. Again, like, and the case was, like, maybe he's right, but it had nothing to do with the actual bet of the startup.
6:13 Speaker 01 No.
6:14 Speaker 00 And to try to throw in this long-shot bet that we're all gonna be using hydrogen for everything, again, maybe he's right, I don't know.
6:20 Speaker 01 I don't know.
6:20 Speaker 00 That seemed like a completely unnecessary risk or thing to innovate on.
6:24 Speaker 01 Yeah, and I, and I think that what's so sad about these things is that, um...
6:30 Speaker 01 I think there's a misunderstanding of how hard it is to make something that people want, where people think that they have these extra points, this extra juice to spread, to do other things with. And I just, I always like to tell people, it's like, this game is so hard without this stuff. Like, why do you want the game to be harder? Like, I never understood that. Is it fun?
6:52 Speaker 00 Yeah, okay, let me give you an example of something that's fun.
6:54 Speaker 01 Okay, sure.
6:55 Speaker 00 Like nerd bait kind of stuff.
6:56 Speaker 01 Sure.
6:57 Speaker 00 Again, I, this is my recollection. My recollection is that when, I believe it was Asana, when they started, they wrote their own programming language.
7:05 Speaker 01 Of course.
7:06 Speaker 00 First.
7:06 Speaker 01 Of course.
7:07 Speaker 00 And why would you do that? Because it's fun. I believe they backed that out. Again, someone will correct me if I'm wrong on this, but a lot of times choosing very idiosyncratic programming languages or text acts, people choose to do it because it's fun. And who am I to fault for that? But like, that's, like, it's like they're optimizing for like, wouldn't it be cool if we wrote our entire thing in this new idiosyncratic programming language?
7:34 Speaker 01 Yeah, that's such a weird, it's like, I get it on one hand, and your startup should be fun, right? Like, you're gonna be doing it for a while. I get it on one hand, but I've never seen a founder who didn't have the most fun by helping their customer.
7:49 Speaker 00 Do you remember in the Reddit versus Dig wars? Dig made a lot of technical bets along these lines, like, meaning like, they made a lot of very high-risk technology choices, while Reddit was just like, nah.
8:03 Speaker 01 Let's make a social news site.
8:05 Speaker 00 Well, I don't think they were taking any high-risk technical choices. And so this, again, is an example where Dig was taking on all this extra risk on something that had nothing to do with dig.com loading news stories. It was, it was literally about the technologies they were choosing to power the website.
8:19 Speaker 01 Yes. Well, and the one I remember was when they did the revision and they couldn't roll it back when their site didn't work.
8:25 Speaker 00 Yes, that is correct. Yeah, they redesigned everything all the time.
8:29 Speaker 01 It was really impressive. I think the other thing that comes up a lot around innovation is business model and pricing.
8:35 Speaker 00 Yep.
8:35 Speaker 01 I think this, once again, Is not putting the customer first, you know. Hey, let's say you're selling cloud compute, right? Your customers have probably bought AWS before. Maybe you should charge like AWS does, right? Because maybe your customers will recognize that and that will give them comfort. Yep. No, that's wrong. We hate AWS. We can't do anything like AWS, including pricing. So now your customer looks at this pricing thing and they're like, well, I really like your product, but I don't, I don't understand. Understand. Your pricing page doesn't make sense. Yeah. It's not even that they don't want to pay. Yeah. It's that they, they're like, I don't understand what you're saying or how this works. No.
9:19 Speaker 01 I have to buy floozles and then I get credits for floozles and then I transfer them into the, like, like super. Yes. And by the time I'm at that page, I just want to know what it costs. And if I can't figure out what it costs, like, how, how do I? You, you, I'm walking, you invited me in your home and then you shot me in the leg. No, you invited me to your home and I can't open the front door. Yeah. Like the door handle. Like I don't, I don't know how to use your door handle. And I really wanted to come in. I did, I was, I was game. I had my, my money. I was ready to buy something. So I think that like so much of this kind of pop entrepreneur, shark tanky advice, right?
10:04 Speaker 01 I actually think comes from a different place. I think it actually comes from like weird branding. And like, I think that like in the branding world, like being different, being unique, like, like that is like a very, very important thing. And like a lot of the examples in the branding world are people who did things like radically different and then like became successful. What I find funny is that a lot of the examples in the technology world are people who did things 80% the same. And 20% different.
10:35 Speaker 00 At least 80%.
10:36 Speaker 01 At least 80%. 80% was the was the minimum that they copied.
10:42 Speaker 00 Yeah.
10:42 Speaker 01 And so I think one of the things that founders screw up is when they take advice that might work in fashion and apply it to
10:50 Speaker 00 Yeah.
10:51 Speaker 01 software.
10:52 Speaker 00 Because yeah, this might be usability. If people can't use your thing, like I remember back in the day, people would try to innovate on the website design and how the cursor worked and like how you would even click buttons. And that was an example of probably not helpful innovation.
11:07 Speaker 01 No.
11:08 Speaker 00 And so watch out for unintentionally creating risk that you don't need to create.
11:15 Speaker 01 Yeah, and I think that if you put your first, your customer first, second, and third, you might look at some of these other things and say, do I really need to do them? Or better yet, let me do it on my second startup. Let's get, let's get one successful startup out of the way. And then I can make programming languages. I can hire people all around the world. I can do all kinds of crazy things.
11:35 Speaker 00 Create nonprofit.
11:36 Speaker 01 I can build rockets. I can do all kinds of cool things.
11:39 Speaker 00 Yeah.
11:40 Speaker 01 Startup number two.
11:43 Speaker 01 All right, Dalton, good chat.
11:44 Speaker 00 Thanks.
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