What's up YouTube? I'm back.
Sorry I had a little bit of a hiatus because I got really busy
closing the newest Initialized Capital fund.
But, we're back. It's $230M.
focused on the earliest possible stage, seed.
And yes, the other really big thing for me is I gave myself a COVID haircut.
Just got a little crazy back there.
Today I wanted to talk a little about a thing I found called the Stockdale Paradox.
It actually affects almost every founder I've ever seen.
You've got to know you're going to succeed no matter what, but you've also got to accept reality as it is.
It's easier said than done. Let's get started.
- "You must never confuse faith
that you will prevail in the end.
Which you can never afford to lose
with the discipline to confront the most brutal facts
of your current reality.
Whatever they may be."
They call this the Stockdale paradox.
During Stockdale's time in the prison camp,
do you know who died?
It was the optimists who died.
First off,
you have to know you will prevail in the end.
To do that,
you've got to have a big enough goal.
Something that you would work on for 10 years
and not ever get tired.
That's because every startup that works,
ends up being a 10 year overnight success.
But those 10 years or more,
will be walking through fire.
Start with a belief that you hold so closely and so dearly
that you would never walk away from it.
And this is hard and incredibly rare.
Most people are working on startups
like they work on book reports.
They could take it or leave it.
Startups are not book reports. They are callings.
Are you willing to work 10 years on this?
Okay, hold on a second though.
What about startups starting as toys?
I'm glad you brought that up
because my startup posture started as a toy.
I thought it was cool, fun and interesting.
I loved blogging,
I loved media and it was enough to try it out
and see what would happen. At pre-seed,
I didn't really have a sense for what I was getting into,
but I didn't need to.
It was something that I thought was fun and interesting.
It was a toy.
By the time we raised our seed round,
I started seeing what it could really be.
I started seeing product market fit and by series A,
it started feeling like destiny to me.
I would have worked the rest of my life on it
if I could have.
That's the conviction that's necessary
to get to the 10 year overnight success.
(amplifier humming)
Next, you need an extreme devotion to reality.
If you know who you'll prevail, that's good.
But that's clearly not enough.
Remember the optimists died.
When I was working on Posterous, my startup, we were riding high.
We had just made it to Top 200 website on the planet.
I was feeling like this was destiny.
And that's when I got hit by this second part.
I didn't accept the data as true reality, especially when we stopped growing.
It grew without stop for years, and then one day it flatlined.
But when that happened, we didn't change course. Or we didn't change course until it was too late.
This is what I mean by accepting reality as it is.
If you're not doing well, you need to have real discussions with you and your team.
You and your cofounders. You and your team. About what you're going to do about this situation.
You can't just say "We will prevail." You have to have a plan.
This is the part I failed at, and it directly resulted in us not getting to where I wanted to go.
This might be affecting you right now. You've got to accept reality as it is.
Charlie Munger says,
"Just because the full consequences haven't hit yet,
doesn't mean there isn't a huge problem.
It's as if someone jumped out of a window on the 42nd floor.
As you go by the 20th floor you're still okay,
but that doesn't mean you don't have a problem."
The key thing here is that hope isn't a strategy.
This is tricky because some founders intuitively know
that they need to bend reality.
But bending reality needs to stop
at some sort of inner circle.
At some level,
you've got to have a real conversation with yourself
and your most senior lieutenants.
You've got to keep it real with them.
The worst kind of lie, is to lie to yourself.
This doesn't help you at all,
because if you can't acknowledge a problem,
you can't fix it at all.
When you lie to yourself,
the problems become unknown, unknowns.
The next worst kind of lie,
is to lie to those closest to you.
Your executives and your investors, your board members,
believe it or not, it happens all the time.
If you can't acknowledge it,
or you can't acknowledge it with the people
who you need to fix it,
then the organization is actually completely
unable to address the problem.
It's flying blind.
And the problem can be internal or external.
You might be running out of money.
Your competitors might actually be beating you.
Customers are churning.
Operations might be failing,
or your sales process just doesn't work.
Whatever it is,
you need to have an extreme devotion to the truth.
If you can't even have that discussion with your team
about how you together are doing
or how each part of the team might be achieving
or failing their goals,
Well, literally that means you have no management.
This is a hard thing.
As managers, as founders,
you have to hold yourself to account.
You have to hold your team to account.
Only then can you win.
Let's return to Jim Stockdale.
The originator of the Stockdale paradox.
He was the most senior Naval officer in Hanoi.
He was tortured over 30 times.
He had his legs broken twice.
He suffered immensely.
He survived eight years spent
as a prisoner of war in Vietnam.
Who didn't survive that experience?
"Oh, that's easy."
He said.
"The optimists, they were the ones
who said, we're going to be out by Christmas
and Christmas would come and Christmas would go."
Then they'd say,
"We're going to be out by Easter.
And Easter would come and then Easter would go.
And then Thanksgiving, and then it would be Christmas again.
And they died of a broken heart."
This is a very important lesson.
As Isaac Asimov said,
"The easiest way to solve a problem is to deny it exists."
So this is hard.
I mean, this is whew!
Warren buffet says,
"If you're the CEO of Geico
you have the luxury of only focusing on reality.
Big company leaders can do this, no problem.
But if you are creating reality,
you must both bend it and be able to see it as it is.
And this is why starting a company is far more difficult
than becoming the CEO of an existing one."
Founders have an incredibly hard job.
A job that is even harder than that
of being a big company CEO.
CEOs of big companies just have to manage.
They have to be a good study of reality.
Founders, especially founding CEOs,
you've got to be better than that.
To bend reality,
you've got to know reality.
And that's a very tough line to walk.
I know we can do it.
Thank you so much for watching.
I'll catch you next time.