Interview with Dalton Caldwell

Dalton Caldwell has seen it all. As a Managing Director and Group Partner at Y Combinator for over a decade, he's worked with over 21 batches of startups, including powerhouses like Instacart, Brex, DoorDash, and Amplitude. His unique vantage point, witnessing countless founders navigate the treacherous waters of building a company, offers unparalleled wisdom. In a recent interview on Lenny's Podcast, Caldwell distilled his hard-won lessons into pragmatic advice for anyone daring to embark on the startup journey.

The Unyielding Spirit: Why Startups Must Simply "Don't Die"

At the core of Dalton Caldwell's philosophy lies a deceptively simple mantra: "just don't die." He equates this to a seasoned basketball coach reminding elite athletes of the fundamentals – not because they don't know them, but because constant affirmation keeps them in the right mindset. Caldwell emphasizes that successful startups often seem like irrational acts of perseverance from the outside. He points to Airbnb, a company that "probably should have shut down like three or four times" before YC, their founders driven by a "purely irrational act" to keep going despite overwhelming odds.

This resilience isn't just a feel-good story; it's a common thread. Caldwell vividly recalls the Winter 2017 batch, where two companies, Vyond (a VR headset startup) and Cashew (a PTP Venmo clone for the UK), were objectively struggling, "ashamed" and "despondent." Yet, Vyond pivoted to become Brex, a decacorn, and Cashew transformed into Retool. These companies, once considered "the worst" in the batch, became its biggest successes. For founders grappling with the question of when to throw in the towel, Caldwell offers a simple test: "Are you still having fun? Do you still enjoy doing what you're doing? Do you enjoy spending time with your co-founders?" If the answer is yes, and you still "really, really love what you're doing and the people you're doing it with and you love your customers," it's a strong signal to keep fighting. Conversely, he notes that the most common cause of startup failure isn't running out of money, but a loss of hope – when founders, in their hearts, "resign themselves that they're failing."

Key Insights:

• Irrational Perseverance: Successful startups often involve founders making a purely irrational choice to keep going when all logical signs point to giving up.
• Passion as a Compass: Your enjoyment of the work, your team, and your customers can be a powerful indicator of whether to persist or pivot.
• Hope, Not Funds, Dries Up: The primary reason startups fail is often a loss of founder hope and internal discord, rather than simply running out of capital.
• Near-Death is Universal: Dalton suggests "100% of the time" founders experience moments where they believe their company is on the brink of collapse.

The Art of the Pivot: Finding Home in the Startup Wilderness

Caldwell is often called the "king of the pivot," a title earned by guiding numerous founders through transformative changes. He explains that "a good pivot is like going home – it's warmer, it's closer to something that you're an expert at." Brex, for instance, shifted from VR headsets to fintech because its founders had prior experience building a fintech company in Brazil. Similarly, Retool leveraged the internal tools and dashboards they had built for their struggling PTP Venmo clone, realizing their true expertise lay in developer tools.

Sometimes, the expertise isn't pre-existing but forged in the fires of early attempts. The Segment founders, initially building software for university students, pivoted through understanding analytics, eventually realizing the value of event routing from lessons learned in their earlier ventures. "There was no Universe where they would have made up the idea for Segment because they didn't know anything about how analytics worked," Caldwell notes, highlighting that insights emerge from the grind. When should a founder consider pivoting? When they're "out of ideas" for how to grow, and their proposed solutions sound like desperation rather than strategic moves. To find truly novel ideas, Caldwell advises founders to "mix up what your information diet is," to go "off the beaten path" and leverage unique personal experiences, like Zip's founders who targeted "knowable big Market with an incumbent... [where the] software is horrible."

Key Changes:

• Leverage Existing Expertise: Successful pivots often bring founders closer to areas where they possess inherent knowledge or passion.
• Learning Through Failure: Early startup ideas, even if they fail, can build unique expertise that informs later, successful pivots.
• Idea Exhaustion as a Signal: When you've run out of genuine, impactful growth ideas, it's a strong indicator that it's time to consider a pivot.
• Information Diet Diversity: To avoid "tar pit" ideas and find true opportunities, broaden your information sources beyond what every other founder is consuming.

Dodging the Tar Pits: Avoiding Alluring but Fatal Ideas

Caldwell introduces the concept of "tar pit ideas"—those that draw founders in with apparent promise and positive feedback but have historically proven impossible to scale. These aren't just "hard" ideas; they "seem like an unsolved problem," garnering excitement, but "people have been starting that startup since the '90s." A classic example is "an app to coordinate with your friends to decide where to go out at night," an idea that receives enthusiastic validation but consistently fails to gain traction. Caldwell even admits to falling into a tar pit himself with "music discovery" in his first startup.

When discussing why investors say no, Caldwell urges founders to put themselves in the investor's shoes. Investors make a limited number of bets, and often, a "no" isn't a judgment on the idea itself, but a reflection of "other opportunities that are less risky" or simply "waiting for something that hits higher bar." Market size (TAM) is a nuanced factor; while critical for later-stage investing, Caldwell reveals that at YC's early stage, it's less of a concern. He cites Razer Pay, a major Indian payment processor, whose TAM was "tiny" in 2015 because credit card usage was low. Investors had to believe the market would "100x," which it did. For YC, the focus is on "are you making something people want," not pedantic TAM calculations.

Key Learnings:

• Identify Tar Pits: Be wary of ideas that generate easy positive feedback and seem like perennial "unsolved problems" but have a long history of failure.
• Investor Psychology: Understand that an investor's "no" often stems from having better options or seeking higher conviction, not necessarily a flaw in your idea.
• Early-Stage TAM Flexibility: For pre-seed and seed-stage startups, focus more on building something people want, and less on rigid market size projections, as markets can grow exponentially.
• The "Crazy Leap of Faith": Be prepared to make a compelling argument for future market growth, even if current market size seems small, if that's where the opportunity lies.

Beyond the Keyboard: The Relentless Pursuit of Customer Connection

Gustaf, a former YC colleague, believes startups most often fail because "they don't talk to customers, they don't find product Market fit." Caldwell wholeheartedly agrees, adding a crucial layer: founders must "not over-delegate" and "stay close to things." He warns against the "trap of hiring super senior people with fancy resumés really early" who might push founders away from the hands-on involvement required at nascent stages. "You can't delegate caring about your users and you can't delegate caring that the product is great," he asserts.

Tactically, Caldwell challenges founders to conduct a self-assessment: how many in-person meetings have you had with potential customers? He suggests that "20 or 30% of your time" should be dedicated to "customer meeting, customer call." He recounts how the Zip founders were "beasts at getting companies on calls," cold-DMin hundreds of people on LinkedIn to understand procurement needs. Perhaps the most vivid illustration of this customer obsession comes from Stripe's early days, famously known as the "Collison Install." Patrick Collison and his team would offer to "drop by" a customer's office and essentially "not go away" until Stripe was fully implemented into their website. This "white glove service" ensured customers not only bought the product but actually used it, closing "the last mile" of sales and illustrating that even after a "yes," the work of truly serving the customer continues.

Key Practices:

• Founder-Led Product & Users: Maintain deep, personal involvement in product development and customer understanding; resist early over-delegation to senior hires.
• Prioritize Customer Engagement: Actively dedicate 20-30% of your time to direct customer meetings and calls, rather than relying solely on analytics or ad campaigns.
• In-Person Connection: Prioritize real, in-person conversations over remote communication, pushing past social awkwardness to build genuine understanding.
• The "Last Mile" of Sales: Your sales process isn't complete until the customer has successfully implemented and is actively using your product, requiring proactive support.

"the underlying theme is that rationally the founder should have given up at some point" - Dalton Caldwell