A Product Market Fit Show | Startup Podcast for Founders
00:19:18 · Pablo Srugo
[00:19:18] S1: It's totally case by case. A lot of this I do think is just straight up story in the sense that part of how you're going to outcompete is gonna be around capital and execution. So you gotta get the capital to get the Let's say you're selling something that people truly want, people are really buying it. Go to market is a matter of execution, doing it right and putting in the energy, and capital. The fact is if your competitor can go to 10 events and you can go to one, that's going to have an impact, even if you do much better at that one event. Same with search spend or whatever other channel that you're gonna drive at. So capital becomes part of that thing, then that creates a brand. And we're simplifying here because obviously you can be underfunded and still win, but I'm just kind of as a rule. So you almost have to find a way to be compelling enough as a storyteller, sell a vision that captivates the minds of VCs enough that by the way, they know is a story. They're not stupid, but they also think, well, if they can captivate my mind, then maybe they can captivate talent in the same way, and customers in the same way. So fine, I'll give you a bunch of money to go do that, which if you can kind of use that wisely, gets you to the next step. And if you're just like a couple of steps faster than the next person behind you, maybe that's enough. Right? And maybe it isn't, but like for many AI apps, you're not building your own model. Why would you? And the product we all know can be copied relatively easy in most cases. So what else do you really have?
00:20:49 · Peter Walker
[00:20:49] S0: I think it's a really deep question. And I think it's very hard for many founders to paint the right picture of expanded defensibility. The other thing that's happening very clearly is that a lot of these startups are expanding into use cases quicker than they used to. So like the product suites in a world where product is less than or you know, I wouldn't say trivial, but less difficult to build than it used to be. They just kind of overlap with each other again and again and again. And so it's more competitive, and the defensibility is lower. And like you said, maybe the premium to capital is higher. But you could also get to a point where it looked like you were on a hockey stick growth. You have one bad six month period, and you just kinda get wiped. Yeah. I am impressed with people building AI application companies and then choosing to take venture capital.
00:21:36 · Pablo Srugo
[00:21:36] S1: Well, yeah. But the thing is if you don't, then the risk is, like, if you're not the winner in that category, then you're kind of fighting for scraps. If you're fully bootstrapped, you can make a lot of money doing this too. So maybe it's fine and who cares? Yeah. They're a billion or 2,000,000,000 or 3, and I'm a $50,000,000 exit, but I own a 100% of it. I don't care. That's totally fine. But to the extent that you're trying to compete for that number one or two position, at some point, it's like, it's all relative. And you you might show up and be like, dude, I grew like one to four last year. Obviously, I'm raising. And then they're like, yeah, but your competitor's at 30. Right? And they grew 10 to 30. So actually, like, you're number two or maybe you're worse than number three. Why do you deserve to get funded? Like and and you just get caught in this vicious I guess that for me, that's the big thing is on that side, the competitive front, how do you get yourself into that virtuous cycle where you start winning, you leverage that to get more capital, get more talent, so you win more. At some point, it's this self fulfilling prophecy where you're just like the winner, versus you aren't able to kind of get that capital, which makes it harder to get the talent, which then puts you in a place where you're like, oh my product's so good, my customers love me, but I'm not signing the biggest enterprise, they're signing it. I'm not signing 10, I'm signing one for every nine that they sign, and then it just gets harder and harder. Not to say this is like the clown live the holy grail, but there's something to that mindset, I think, that can get you to be that category leader, and all of a sudden, you're out competing because you're out executing.
00:22:55 · Peter Walker, Pablo Srugo
[00:22:55] S0: Yeah. It's a good question as to whether or not the returns will flow to places two through five in a lot of these industries. I think historically, even though we said they were winner take all, we never actually believed it. Like, you can do pretty well as number two. Now I think that is an open question, especially at the scale that you need to like, back again to the Decacorn plus kind of scale. If you are not the clear market leader, the worries, like, compound on themselves a lot faster. [00:23:22] S1: And then you have data on the employee front, like team sizes. I know that's been a trend. Obviously, people talking a lot about, you know, the single person unicorn, which I know is more kind of story than reality. But what are you seeing in terms of team sizes, you know, ESOP, all these sort of things? [00:23:37] S0: Well, I don't know. Maybe, you know, the OpenClaw founder got there. We don't know. We don't know what the purchase was, but [00:23:43] S1: That's true. Perhaps? One out of 7,000,000,000 has accomplished it. Yes. Great. [00:23:48] S0: Right. Outlier case for sure. Team sizes are getting smaller. We're seeing, like, the median seed stage company on Carta has four employees, not counting the founders. The median series a company probably has between fifteen and seventeen, but probably closer to 12 to 15 by the end of the year. So definitely the case that they're doing this with fewer people. [00:24:09] S1: Do you know what it might have been, like, three, five years ago for median c, median median a?
00:24:09 · Pablo Srugo, Peter Walker
[00:24:09] S1: Do you know what it might have been, like, three, five years ago for median c, median median a? [00:24:13] S0: Yeah. Median c would have been more like six or seven. Median a would have been more like 45. [00:24:17] S1: Okay. [00:24:17] S0: Yep. [00:24:18] S1: Four is small. Like, and again, I think I think it's great if we end up with more seed companies, each one is smaller. Right? Like, that would that would be the best possible outcome in my opinion.
00:24:18 · Pablo Srugo, Peter Walker
[00:24:18] S1: Four is small. Like, and again, I think I think it's great if we end up with more seed companies, each one is smaller. Right? Like, that would that would be the best possible outcome in my opinion. [00:24:28] S0: I hope that's the case. I mean, the data from Stripe Atlas suggests that that is the case. Like, we're seeing it, you know, more and more companies are signing up for card at our launch stage where they're not you know, they're they're getting it for free until they raise a million bucks. I think it's a big question as to more companies are not being venture backed. Oh, interesting. So it's it's a question of do you just, like, is the thousand flowers blooming mostly bootstrapped angel funded companies, or is it gonna be VC backed companies as well? Because we really haven't seen the VC part of the market change all that much. It hasn't experienced the same sort of rapid growth that the Bootstrap side of the market has. So I think there's think that's an open question. And then as you said, yeah, each one of those companies is gonna be smaller in terms of headcount, but net, will they employ more people? The employment question is everyone's favorite one. You know, I go back and forth on the day about what I think the impact of AI is gonna be on employment. But right now, it's seems like it's hiring is at a low ebb across VC backed startups. So maybe that'll change, but I'm not sure.