Introduction - Founder Psychology Extremes

• Michael Seibel and Dalton Caldwell discuss founder psychology
• Topic: Whether founders are too optimistic or pessimistic about their startups
• Need balance between both - extremes lead to failure
• Meet founders regularly who fall into either category

Too Pessimistic Founder Characteristics

• One painful experience triggers desire to quit/change everything
  • Bad customer call, investor pitch, advisor conversation
• "Eeyore" mentality - "woe is me, everything bad happening"
• World's out to get them, everything going wrong
• Nothing good can happen mindset
• Brings everyone down including co-founders
• People feel worse/deflated after talking to them
• Low energy, draining conversations

Too Optimistic Founder Characteristics

• Initially exciting but longer conversation reveals confusion
• No apparent value creation or insights found
• Person has no idea what they're doing
• Everything is great/wonderful, everyone helping
• Planets aligning, startup is best thing ever
• Poor/unrealistic plans involving "magical things"
  • Rainbows, ponies, space-time travel
• Employees lose trust quickly
• Leader appears "completely insane" - like crazy car driver

Leadership Impact on Employees

• Pessimistic leader = horrible leader (doesn't believe things can work)
• Too optimistic leader = horrible plans, employees question basics
• Employees feel "strapped to crazy person" with overly optimistic leader
• Loss of credibility happens quickly
• Trust erodes when leader can't see obvious problems

Self-Diagnosis: Too Pessimistic Signs

• Poor expectation setting - expect immediate unmitigated success
• Shitty email to 100 customers example:
  • Not personalized, wrong recipient, sent at night, typos
  • Bad call-to-action (6-hour phone call request)
  • Only 5 replies = "world ending, startup doesn't work"
• Taking single negative feedback as gospel
  • One investor/friend/customer says won't work = quit
  • Friends are idiots, don't know anything
  • Investors are "close seconds as idiots"
  • Customer might not be early adopter or misidentified
• Missing demo day goals = company is dead
  • Purpose of aggressive goals: move fast, learn
  • Value gained even if goal not accomplished
• Want to give up too early
• Think it's easier for everyone else
• Victimization mentality

Pessimism is Curable

• Easier to help pessimistic founders
• Usually need realistic expectations introduced
• Can adjust when told what's reasonable
• "Oh okay, things aren't as bad as I thought"

Magical Thinking Concept

• Psychology term adapted for founders
• Believing in magical world with magical causes/effects
• Things not rooted in reality are true for you
• Example: Airport pitch fantasy
  • See Michael in airport, pitch startup
  • He immediately sees brilliance, gets checkbook
  • Flies them away, advises to become next Google
• Extension: Think that's how companies get funded
• Don't study how world actually works
• Like romantic comedy/movie mindset
• Poor grasp of actual cause and effect

Magical Thinking in Startups

• Always have excuses for everything
• Complicated answers/stories about why can't grow/get customers
• Other people plotting against them
• They're hero of story, startup is great
• External parties doing bad things preventing success
• "If only I had money like everyone else"
• Other companies getting breaks, not them
• Magical moment one step ahead
• Zero to 100 in one step belief

Product Development Magical Thinking

• Can't build product, no tech co-founder
• Never built/given product to anyone
• Think it's going well anyway
• New social network pitches:
  • Facebook + TikTok + friends + discovery
  • No code, nothing exists
  • Frustrated investors aren't pumped
• Idea has inherent value vs implementation value

Investment/Hiring Magical Thinking

• Raising money will save from all problems
• Investors have magical powers
• Turn off brain after raising money - "easy street"
• Hiring will solve biggest problems:
  • Marketing/sales person will figure out product
  • Will solve pre-product market fit issues
  • Not "help figure out" but "do it for you"
• Why would top talent work for pre-MVP startup

Trend-Following Magical Thinking

• "Obviously going to work because it's cool/trending"
• Hot category on investor Twitter
• COVID remote/video conferencing startup example:
  • Zoom had years head start, established technology
  • Starting from scratch post-COVID = poor timing
• Get in before everyone thinks it's cool, not at peak
• When idea becomes common YC application = "jumped the shark"
• Chatbot example from couple years ago

Achieving Balance - Cognitive Dissonance

• Psychology term: holding two conflicting ideas simultaneously
• Most humans uncomfortable with cognitive dissonance
• Best founders develop techniques to handle it
• Example scenario:
  • Star employee quits, says startup horrible
  • Still get on sales call, sell heart out, close customer
• Must sit with both realities without going crazy
• Daily crises + victories require balance
• People who fail: can't handle dissonance, go too far one direction
• Successful founders thrive in risk/danger environment
• Danger sharpens performance
• Founders often don't bring A-game until "shit's pretty bad"

Final Blueprint

• Be optimistic but not magically optimistic
• Stay squarely rooted in reality
• Balance required for startup success