All right, welcome to Dalton plus Michael. Today we're going to talk about how to avoid innovating on the wrong things. To set this up: we're in the innovation economy.

We're a major innovation.

It's right here: innovation economy.

That's what's happening.

We encounter a lot of founders who believe that they need to take what I call innovation juice and spread it across everything.

Innovation juice?

Innovation juice — when I'm trying to insult it. They feel they have to spread it across every freaking problem they encounter. I think there's only a limited amount of innovation energy that any company can have.

There's only so much juice, is what you're saying.

I set that up. We've encountered some places where you should just use best practices.

Yeah. Here's what I think about this. Making a startup work is a miracle. The fact that you got product-market fit and made something people want — you literally performed a miracle to do that. It is amazing. People would die to get where you got. The odds that you're going to be able to perform five miracles at once are much, much lower.

Much lower.

So you want to focus the miracle juice on the single miracle: making something so many people want and making a product. You know what I'm saying?

Yes. Solving a real customer problem.

And then all this other stuff — just do best practices. Please don't innovate. You don't need a low-likelihood-of-success miracle. You don't want to have to be right on these long-shot bets in five different ways.

I find it interesting because I encounter some people who are more religious about these side bets. "I'll only do a startup if I can locate it in the middle of nowhere." Or, "I'll only do a startup if I get to do this weird corporate governance thing." And I'm thinking: what you're really saying is, "I'll only serve my customer and help them with the really important problem in their life if I get this other random thing that the customer doesn't care about." In some ways business is really about being selfless and putting your customer first. But then: "I'll only put my customer first if I get to have this startup in New York." That's obviously putting yourself first.

Let's start with the most common anti-patterns we see. What are the ones you see the most? What's offender number one — where people are trying to innovate when they probably shouldn't?

One that I see on the YC application that I love is some kind of weird incorporation. "We incorporated as a Wyoming LLC." And I'm thinking: this was a voluntary red flag. Why would you do that? Sometimes they'll even write, "Well, because..." I don't know.

My theory is there are a lot of smart people who want to do things in different ways. They'll look at something like corporate law and the existence of the Delaware C Corp and think, "I — someone who knows nothing about this — could do better. Everyone else is doing Delaware C Corp. That's not for me. I'm going to do..." And then crazy things happen. Corporate governance is probably not the best place to innovate. One thing that's been funny, headline ripped from the news: people looking at the corporate structure of OpenAI and thinking, "This is an instruction manual."

A non-profit that owns a for-profit — I would not recommend that strategy.

Even the people working there. I mean, even Sam himself has suggested that that was perhaps not the wisest choice. Again, the point here is the miracle of making something people want is the hard part. But if you're just doing a startup, Delaware C Corps are pretty good.

I see another one. Corporate governance covers your investment docs, where you're incorporating, your classes of shares, and all that. I sometimes see founders doing crazy stuff. Another one that you brought up which I really love: "I'm going to make this startup, but I'm also going to disprove every piece of startup advice." I love this. "I'm only willing to help my customer if I can simultaneously prove that all of the startup advice is incorrect." And I'm thinking: what?

So the example of that is to take something that is widely considered useful or true and try to prove the opposite. "My thing will be reliant upon making the small town that I live in the center of the startup ecosystem," or something. Somehow there'll be some other bet they're making that involves a super contrarian thing that has nothing to do with the business.

I can give you an example. I remember a founder doing something — I'll keep this anonymous. They said the real bet we're trying to make is the hydrogen economy; that no one will use gasoline or solar or wind; that in the future we're going to use hydrogen everywhere. I thought: maybe don't mention that. We'll keep this between us. That's the real secret sauce — maybe keep that on the down low. Maybe he's right, but it had nothing to do with the actual bet of the startup. To throw in this long-shot bet that we're all going to be using hydrogen for everything... Maybe he's right, I don't know. That seemed like a completely unnecessary risk to innovate on.

What's so sad about these things is I think there's a misunderstanding of how hard it is to make something that people want. People think they have these extra points, this extra juice to spread to other things. I always tell people: this game is so hard already. Why do you want to make it harder? I never understood that. Is it fun?

Yeah. Let me give you examples when it's fun — nerd-made kind of stuff. My recollection is that when Figma started (I believe it was Figma), they wrote their own programming language first. Why would you do that? Because it's fun. I believe they backed that out. Someone will correct me if I'm wrong. But a lot of times choosing very idiosyncratic programming languages or tech stacks — people choose to do it because it's fun. Who am I to fault them for that? But they're optimizing for "Wouldn't it be cool if we wrote our entire thing in this new, idiosyncratic programming language?"

Yeah. I get it on one hand — your startup should be fun; you're going to be doing it for a while. But I've never seen a founder who didn't have the most fun by helping their customers.

Do you remember in the Reddit versus Digg wars? Digg made a lot of technical bets along these lines. They made a lot of very high-risk technology choices. Reddit was just... not.

Let's make a social news site.

I don't think they were taking any high-risk technical choices. So this is again an example where Digg was taking on all this extra risk on something that had nothing to do with digg.com loading news stories. It was literally about the technologies they were choosing to power the website.

The one I remember was when they did the revision and they couldn't roll it back when the site didn't work.

Yes, that is correct. They redesigned everything all the time.

It was really impressive. The other thing that comes up a lot around innovation is business model and pricing. I think this is again not putting the customer first. Say you're selling cloud compute. Your customers have probably bought AWS before. Maybe you should charge like AWS does, because maybe your customers will recognize that and it will give them comfort. No — that's wrong. "We hate AWS. We can't do anything like they have, including pricing." So now your customer looks at this pricing thing and they're like, "I really like your product, but I don't understand."

Your pricing page doesn't make sense. It's not even that they don't want to pay. They're saying, "I don't understand what you're saying or how this works. I don't buy flusels, and then I get credits for flusels, and then I transfer them into the..." It's super confusing.

By the time I'm at that page, I just want to know what it costs. If I can't figure out what it costs, I'm walking. You invited me into your home and then you shot me in the leg.

You invited me into your home and I can't open the front door. I don't know how to use your door handle. And I really wanted to come in.

I was game. I had my money; I was ready to buy something. So much of this pop-entrepreneur, Shark Tank–y advice — I actually think it comes from a different place. I think it comes from weird branding. In the branding world, being different, being unique, is a very important thing. A lot of the examples in the branding world are people who did things radically different and then 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. At least 80% was the minimum that they copied. I think one of the things that founders screw up is when they take advice that might work in fashion and apply it to software.

Yeah. This might have been usability. If people can't use your thing... I remember back in the day people would try to innovate on the website design and how the cursor worked and how you would even click buttons. That was an example of probably not helpful innovation. Watch out for unintentionally creating risk that you don't need to create.

Yeah. If you put 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 one successful startup out of the way. Then I can make programming languages. I can hire people all around the world. I can do all kinds of crazy things. I can build rockets. I can do all kinds of cool things. Startup number two.