How Founders Blow Their Fortunes

Welcome back to their episode of the Startup Therapy Podcast. This is Ryan Rutan, joined as always by my friend, the founder, and CEO of startups.com. Will Schroeder will we help founders to overcome lots and lots of little hurdles along their way, hoping that someday they'll hit the promise land, win the big prize, get some sort of a liquid exit, or just accumulate enough cash from the years of their startup that they finally now have something.

Financial to show for it, and then you and I could just hang up our hats and say, job done, right? Mission accomplished. They've, they've gotten there. Now. Nothing else has to happen. If only, except that this is actually the moment you and I. Get absolutely terrified because what do we worry about at this point? We worry about them blowing all of it. Um, and it happens so often. You know, Ryan, part of the story, right?

The mythology when we talk about, uh, founders cashing out and having the big exit. We always assume that ends well. And, and it, it does enough, you know, I mean, it's not like it always ends poorly. And we've done some episodes on, on how the founders themselves deal with that, you know, from an emotional standpoint, a psychological standpoint. But what we often don't talk about is do they hold onto that money? You know, when, when, when they make that cash. Where does it go?

Does it always go where you think it? It does because fortunately, it's not in the majority, but there's enough founders that mess this up with the same amateur mistakes. Amateur, because we're all amateur at making money. Right. We're all immature at making money. So like when and if that happens, you're learning for the first time what to do and what not to do. So whenever I get a call from a friend that says, Hey, I just had a big exit, right?

Which Ryan, you get these like, it warms your heart. It's, I mean, it's the coolest thing ever. It's fantastic. It's the founder equivalent of just saying, Hey, I just got married. Hey, I just had a kid. Right? It's just such a seminal event.

There's always a few things I say outside of the financial advice. The first thing I always say is that you've earned every cent of it. Every penny you have earned every cent of that. Or if they buy a house or a boat or whatever, I'm like, you earned every square inch of that house. Right? And I say that to say there's a lot of guilt that comes with, uh, financial, windfall and exit, you know, things like that.

And a lot of the people around them are kind like hand wringing a little bit, like, you know, either screw them or how do I get my hands on it? Or you name it. Right. And I want, I want them to hear at least one voice that's like, yeah. Dude, you earned it. Do with it what? You will earned it. But you earned it. Yeah, but that's not the secret. It's yours. You shouldn't, you shouldn't have to feel guilty about that.

I mean, despite the fact that it came so quickly and so easily and without any sacrifice that you probably should feel a little bit bad about it. Right? My God. Like we go through so much, and again, like it's not like everybody gets one of these, right? This isn't a participation trophy. It's not like, you know, be a founder for 20 years, get the golden parachute and right off into the sunset. Yeah. Never. Right. And so for this one, I have a speech that I, I lovingly call. Congrats.

Now don't fuck it up. And, and there's a lot to it. And you know, Ryan, you and I have talked through these concepts on this show, you know, over the years, but I thought it'd be really helpful for us to basically unpack. Not just the speech, like, you know, what we're trying to convey in the speech, but really the key points of the speech that people get wrong.

And I wanna say for folks that are listening, this isn't just for, Hey, I've had an exit, this ha, this has to do with having money at all or having enough money where the position flips. Where for the first time in your life, you're worried about losing it more than making it. Again, sometimes that's a windfall. Sometimes it's just work and it's life.

But I think what happens is there's a severe lack of direction at this level, at, you know, at this level of wealth, if you will, particularly for founders who are seeing it for the first time. And I remember hearing this, do you remember the guy we both used to talk to a lot? Uh, Steve, Steve, I'm not gonna use the last name, who was doing financial management for, um. And Steve would always talk about, oh man.

Um, you'd talk about the speech he would have to give to athletes on the day of signing, you know, whatever sport they signed. And he's like, he'd start the same way as yours by any chance. Pretty much. Congrats now don't fuck this up. Exactly. Congrats on signing with the bulls. Now don't fuck it up. Right. And what he would say is. I would have to try to explain to this 21-year-old kid who was in study hall three years ago, right? Yeah.

What to do with tens of millions of dollars. Right. And he just got five seconds ago. And how everything you're about to do is a bad idea. Yeah. Whatever your instinct is right now, now at point, everything is jeopardy. It just puts it in jeopardy. You just, there's nothing you're gonna do that won't just put this at risk at this point based on what you understand. And there's a lot of parallel here because he was talking to athletes.

And with athletes, the idea is the money comes so fast and so young, right? You don't, you don't hear about people getting assigned when they're 60. It comes so fast and so young that they haven't had time to like learn how life works yet. Uh, so, so they're very vulnerable. The second part is they assume they'll make more. So let's say, you know, let's say I, I sign with the bulls.

And, and I get a $5 million upfront check, and I go out and buy, you know, I pay cash for jewelry and cars and in house and, and private jet and whatever, and like I burn through 4 million in six months. I'm like, well, what does it matter? Make 10 million a year. You do until you don't. Yeah, right. Until, until you pull a tendon or you get, you get hit on the field or you, you name it. Right. Exactly. That. Or you just suck and, and you don't care. Resign. Right. Yeah. Just get cut.

Right, right. So I guess what I'm saying is this advice, however, is not just for cashed out founders, and it's not just for people who just signed, uh, to go play with a major sports league, right? It's for everyone. All of this applies in the same way, but as you have more wealth, it just applies a lot more.

What I would open up with is the key here, if you've come into some cash or if you've been, you know, started to make more money, is to step back and recognize how your position has changed, right? Like, like you can't just say, I'm gonna keep doing things the way I've always done 'em. And always expect the same, Malcolm, because Ryan, in, in your life, as you saw your, your wealth position change, you started to see your relationships change. You know what I mean? A hundred percent, man. Like

it's, it's what I will call the three js of wealth, right? It invites these three things into your life judgment, right? Did you earn that? Do you deserve that? Should you have that jealousy? You shouldn't have that. I should have that right, or jockeying, which is, uh, you have that now. You should probably give me some of it, right? Hundred percent. I, I should probably position myself so that I can get some of what you got. And invariably it happens.

And the more visible it is to anybody else on the outside, the more of it's going to happen. And, you know, uh, which kinds of bring us to point number one in the congrats. Don't fuck it up. Speech.

Uh, point number one, never ever, ever tell anyone how much money you have. Right. Yeah, because you're putting a bullseye your back. That's it. That's why it's hard. Athletes, all three js right there. That's, that's why it's hard of athletes. It's literally in the paper. Yeah. Like, you know, it's everywhere pops up in everybody's social media feed. Can you imagine if everyone's income was publicly available to everyone else? Like, like the lottery check.

Everybody has to stand up and smile with their paycheck in their hand every week. Exactly right. That'd be amazing. It'd be amazing. Uh, and, and humiliating, uh, for, for, uh, for, for any founders in the early years. But so we have the only people with checks that were giant. IOU. Yeah, right. Um, maybe zero again, this period early in my career, I'm building my first company. The company starts to do well, right? And I'm not fabulously wealthy or anything.

It was just the first time we were getting like some distribution checks that they were starting to be meaningful. And I was fortunate enough that my, my business partner happened to have a father who was a billionaire. Uh, you know, someone that you obviously know, he had like a totally different understanding of. Like, it was so cool because it was almost like, you know, you and I came from modest means, so wealth and the things that come with it were, were new to us. He grew up with it now.

Like he watched his dad earn it, but he grew up with it. So like in his house, like at the dinner table, they were talking about billionaire shit. Right, right. That was definitely not happening at my, my dinner table. Nope. Wasn't happening at my dining table. No. So, and, and he always, he always did a good job of offering me advice that I was totally unprepared to accept. Right.

Like it was, and, and he was only a few years older than me, so, but again, even though he was only a few years older, the store of knowledge he had was, you know, generations older anyway. Yeah. Uh, the pay grade was different. Yeah. Yeah. And so we were sitting down and, uh, we were talking about our distribution checks. And again, they weren't enormous, but they, but this was the first time this was all happening. And he says to me, he says, now will just. I gotta give you a piece of advice.

Don't tell anybody about this. Mm-hmm. Like, don't tell anybody about this check or, or the money you're about to get. And I'm like, like if it was social media, I'm proud of it back then I'd be, I want, I'd be live streaming it at that moment. Right. Yeah. And this is how like far off the reservation I was. And so, you know, when I give this speech, Ryan, all I have to do is picture 22-year-old. That I'm giving it to and it has so much more emotion, like, you're gonna make all these mistakes.

Yeah, buddy. Don't do it. So here's what he says, and this is some of the best advice that I've ever gotten. He said, will never, ever. Tell anyone how much money you have? No one. No one at all? Yeah. Never, ever mentioned the number. And he said there are only gonna be two outcomes. Outcome number one is they're gonna judge you by it when you say the number, either it's either higher or lower than what they make. Yep. And they'll make an assessment, uh, uh, against it. That's number one.

And that sucks. Number two, they'll try to find a way to take it from you. It'll look like you have a bunch of money that shouldn't be yours. And there's some way, whether they're a vendor, a family member, uh, like a, a lost soul, a charity, you name it, right? They will look at that in and magically say, you owe that to me in some way, shape, or form, or I plan on getting from, well, it comes in a lot of ways, shape. It comes in a lot of forms too, right?

It's not just like people coming with a major handout. What I realized was after people knew I had gotten the check. I started getting the check, meaning like people just assumed I was gonna pick up the tab for stuff. They're like, well, we're all out together and you know, you got paid and so you're gonna buy dinner or drinks or whatever it happened to be. Right. So, and it doesn't come in like just amazing people assume it's gonna come like, you know, uncle Larry wants alone.

Yeah. Uncle Larry also wanted a loan, but it was actually all the little stuff that I found a lot harder to deal with. Nuance around the first exit. Yeah. It isn't interesting though if people didn't have that information, that expectation just wouldn't happen. Right. Like, I, I'll give you an example. Within my family, when they go out to dinner, like anybody but me and they go out to dinner and the check comes, they naturally divided among them uhhuh. Right. Just a very natural things to do.

Right. None of 'em have a ton of cash, you know, so, so they divide among them. Yep. As soon as I'm present, everyone looks the other way when the check is sick. Man, I've never once in 30 years have ever been at a family dinner or, or a family event where anybody has ever said, I've got this. Yep. Ever. That's it, man. You got the check ever. You get the check. That's, and I'm not angry about it, but it's an observation, right?

Yeah. And that observation is a hundred percent based on them having a sense that there's some sort of money. That I have, that they're entitled to by virtue of me having you have more than you need. So some of it's logically theirs. Yeah. And, and so you mentioned this a moment ago though, the money gets extracted in lots of ways, right? Yeah. And often it's with a smile.

It's in, it's in ways that you wouldn't think about, which is family member calls you up and says, Hey, uh, just, you know, I'm a little behind on something. If you could just spot me alone, I'll get you back right away. You know, I love you so much. I'm so happy, you know, uh, for your, all your success. Thanks for being able to take care of me. That's a really cool thing you're doing. And it's honest and it's authentic and, and you feel good about it.

You're writing the check and you know what? Now, now that I made some money. There you go. Right. You'll never see that money again. I, I was talking to a friend of mine the other day and I was like, in my life I have given so many quote loans. That have never been paid. I don't think I've ever been paid back a loan in my entire life. Okay. Yeah. And I've given a lot. And what's crazy about this is, this isn't me bragging about how much money I give away. A lot of these loans were tiny.

It's like 500 bucks. Yeah. Which makes not getting paid back that much more messed up. Right. That's the thing. It's like, oh, well, at least wasn't 500,000. Like No, it was 500,000. I would understand. Right. They defaulted on it. They needed in the first place. Mm-hmm. They didn't have it.

Yeah. When it's like 500 bucks, you're like, you assume that's coming back to you at some point, because at some point in pretty much everybody's life, they can scrape together $500 to save their familial honor. The other side of it is that means you had the money and you chose not to give it back to me. This makes it way worse. I'd rather just say, go fuck yourself anyway. The idea of never telling anybody how much money you have is basically this idea of not painting a target on your back.

'cause again, you've gotta understand people's motivations and lemme give you some other examples 'cause it comes up in way more ways than people realize. When I was out raising money for the, for the first couple times when I was out raising for, uh, you know, last couple companies out raising venture, um, as part of your intros, you know, I would talk about how we grew a company at 700 million and we sold it and blah, blah, blah. And I'd, you know, done some other companies, whatever.

Immediately. And Ryan, I want you to put one VC in your head specifically that you and I both know specifically. 'cause you, I want you to picture him saying this. Well, how much money did you make? Like, like how much money did you put? Am think you're tenting right now? Yeah. Or like taking a nap on a couch Will, which 1:00 AM I doing? You're already there. Yeah. Well, how much money did you make? How much did you make Personally the guys?

And it was always guys, when it was the guys that were asking me this question, you, you could just see the insecurity just pouring off of them. And chances are they probably made more than I had. Please say number smaller than number I can say. Please say a number smaller than the number. I can say. Exactly. That's, yeah. Yeah. That's exactly it. Right? That's exactly it. It's all they wanna know nothing with a B, nothing with a B, nothing with a B, exactly.

They don't care how much money they make, they have no interest in my personal wellbeing. They just wanna know that their's is bigger than mine. That's it. Yep. Right. That's it. And that's all it comes down to. And, and I would never share that information because it, it again, it never leads to anything positive. And it always frustrated them. They were always like, well, what are you holding back? What I'm holding back is I, I, I have no upside in telling you.

What are you grasping for, is the better question. Right? Isn't that what I'm holding back? It's what are you reaching towards right now? I already know the answer. I don't mean to worry about it whether you do. It was always interesting to me because the folks that had more security about it never asked, never cared, and you could always see the insecurity pour through when they needed to know that number and so. Play this out at different levels.

Again, you know, I'm talking about exits and things like that. That's just one outcome with with one group, right? This goes down to salary, right? Distributed, whatever. Like, you know, like people take this number very seriously. And by the way, and again, I hate to be chauvinistic about it, it's almost always dudes, almost always like. I can't think of many women in my life that have ever asked that question. Right? Profession. My grandma presses me from time to time.

What my grandma presses me from my grandma presses me from time to time. Yeah. I was saying like, like, you know who's never asked me that question. My wife has never come up. I mean, she has access to our information, but it's never even like, like, but a question. She just doesn't care. But I look at, you know, other friends of mine that I've grown up with, they would kill to know that information, right.

Not because it benefits them, not because somehow with that information, they're gonna do something positive in the world. It's literally an ego thing. Yeah. Just an ego thing. And it will likely just make them feel bad. Yeah. Yeah. I find myself just saying over and over again, man, it's like, look, I'm not public about money. I'm fortunate and I'm grateful. That's what I'll say. Like it's just that it's it. That's what you need to know. I've done, I've done some good and I'm happy about it.

And, uh, I'm happy to spend some time with you. I'm not happy to spend my money on you. That's, yeah. And so, um, this concept of not painting a bullseye on your back isn't insignificant. So here's what I did with it. I painted the world's biggest bullseye could possibly find, right? I'm like, did it come in the form of a. Yellow Lamborghini. Will a red Lamborghini. Much different. Ryan. Uh, that will come much later. Yeah. Sorry. It was so comical, like how badly I use this information.

Every single bit of what I just told you that you shouldn't do or what will happen. Yeah, I did do and did happen. Right? That's that's why you know, to tell the story. This is speculation. You're, you're here to warn everyone else they Right. And it's so funny because I watch my friends go through it. Now, here's why people share that information, because they wanna feel validated. I wanted to feel validated. I was a poor kid. I'd made some money, right?

Everyone thought I was gonna be a giant loser, right? So it was validating for me to say. Red Lamborghini or whatever, right? Yeah. What didn't occur to me was, I thought it ended at that it's, Hey friends, look red Lamborghini. Oh, you're validated will, you're not a total loser. Right? And that was like that first off, that didn't happen. Right. They're like, you're now a loser with a Lamborghini and second only losers by the red ones will. Yeah, exactly.

Exactly. So, but secondly, I realized that all it did is make people hate me. Like, they'll, they'll secretly high five you, you, you'll think you're getting that validation or whatever, but really they're like, look at that guy, right? Yeah. Little does he know all five of those were middle fingers. Fuck him. But seriously, man. And so then the other side of it was like, almost like, like frigging uh, rats to cheese. All of these like vendors come outta the woodwork, right? Yeah, yeah, yeah.

Financial planners, life insurance people, realtors, car dealers, you know, like accountants, like you. All of these people just pour out of the woodwork, right? Yeah. And everyone wants to be your friend. If you really like steak dinners, it's a great way to get a lot of free steak dinners. But short of that, it's their job to go find these people. I get it. Like, but I think it's gross. And so it was all of the wrong attention. Completely self-inflicted. Completely self-inflicted.

Completely self-inflicted. That's the thing. It's, it's so easy just not to say anything. Well, yes and no. I mean, it, it technically, you know, physically it's very easy just not to say anything. I think to your point, emotionally it is psychologically it can be quite hard. 'cause you are looking for validation, right? You're want to go back and tell those people who said, you should just get the job. You shouldn't risk this, you shouldn't do that.

You should just spend your time here instead, why are you doing all this nonsense and this will never work out? You wanted to show them in a way that was irrefutable because they didn't believe all the other things you've told them all the way through. They needed some quantifiable measure in the form of a bank account or a check. Right. They made them go, huh? You were right. And we do need to be right.

Sometimes I had a situation with a co-founder around that same, around, uh, the, the venture time, uh, who had, who'd done fairly well for himself. And I remember him grilling me on the number, right? He's like, just tell me the number. And what it was is he wanted to know whether I, whether or not I had more leverage in our discussion in the future. Right. Ergo, if I had a big number, he was in trouble because he couldn't like big time me, but if it was a small number, he could leverage me.

I'm like, how transparent is this? Is this ask? Right? I'm like, dude, I'm not telling you anything. And so what's interesting about that is when you tell people nothing, you. There's just so much less to go on. And they look at it one of two ways. They look at it. Either he's hiding a lot of money or he is full of shit. He doesn't wanna say how, how small the number is. Right. But either way, both are an option. So you're not stuck with the check, so to speak. Right.

You're not, you're not getting leveraged one way or the other. Correct. And so the best thing is no information at all. So that's, that's where the conversation starts. Like, like step one. Shut up. Yeah. Step one, don't announce anything, right? Don't social media, this thing, right? Don't become an influencer with, with all your new money and your 12 pack abs.

And so the next thing right, is a massive mentality shift, a massive mentality shift from offense to defense. The idea is, up until this point, up until this point, we've played offense. Meaning we're just trying to make money because we have none, right? Yeah. We have nothing to defend. And that's most of the world. Most of the world has nothing to defend. So every, every effort, every dollar is upside.

The reason that top 1% that everybody talks about behaves so differently is because making more really won't change their lives, but losing it, Allah, taxation, et cetera, will definitely mess them up. And so, uh, the next thing I explain that topically is look from this point on in life. All you can do is lose. You've already won. Right? You've already won. Now all you can do is lose. And Ryan, it takes people a while to get to, to get this mentality. Do you know what I mean? It does, man.

Well, we've been a contestant for so long, right? We've been a contestant for so long. Now we've won the prize. We're no longer a contestant A, we're now the custodian, right? Of the trophy. And so I think it is, it's a super hard mentality we've been chasing for so long that once we have it.

Like, how do you make that momentum shift from running on adrenaline to running on caution and care and, and just making sure that you keep what you have so long in build mode that maintain just doesn't even, doesn't even enter the picture for us. Lemme give an example. Let's say you had $5 million, which is a ton of money, okay? But I'm, but I'm just gonna use this as a reference. It doesn't have to be 5 million. This, this applies to 500,000, right? So I'm just using it as an arbitrary number.

$5 million, depending on how you invested it. You could earn, let's say, $40,000 a month, which is a lot of cash. Okay. Yep. For the rest of your life. Rest of your life. Without, without depleting the principle. Yeah, exactly. Without ever touching the principle. Now, there's part of you that says, well, if it's five, I could make it 10. Right? You could. Here's the thing. What you can earn or, uh, accomplish with $5 million gets you to 90% of what most people will ever want or need.

Yeah. Yeah. Which means you've won, you got to 90%.

Right. But invariably 'cause of how we're built as founders we're like, yeah, but the next 10%, you know, I'm still flying commercial, not private, you know, you name it. Right? And it's like, okay, but now think about this. If you win, you get 10%. If you lose, you lose 90%. It takes people a while to understand for the first time in their lives. That's a mentality shift. Yeah. Like you have something to lose.

Whereas before you kind of didn't, didn't, and you just, you needed more because you had none. So you need more to have something, but then you gotta go from more to keep, you have to move from more to keep. It's a hard mentality to shift, especially at that point where you've just finally truly numerically realized success. From a financial standpoint, you feel like it's like telling Tom Brady, don't ever play again. You just won the Super Bowl. This is not a good time to play more football.

And he's like, this feels like exactly the time to play more football. Exactly. Okay, so let's, let's talk about that. The problem is, the moment Tom Brady wins the Super Bowl, the moment you get your 5 million or you know, whatever the number is, again, the number here is irrelevant. The moment you get that, you feel the most invincible. At a time when you're actually most vulnerable because you think I'm a winner, right? Yeah. I go out and I win, so I'm gonna go win more.

That's, that's what I do. It's all I do. Correct. Because up until that very second, it's been all wins. It's not until you lose it, until you realize, oh shit, it, it, like, it only goes one direction.

So I always give you, um, uh, give people a, a casino analogy. And I say when you go to the casino, you can win forever. If you go to the blackjack table, you can keep on winning. Right. But if you lose it all, you can only lose it all once. Now, let's apply this to this concept of all you can do is lose.

Let's say you've got your $5 million, and in your mind, I'm gonna bet it all on, on a new startup, I'm gonna, you know, put it all in, in frigging crypto, you know, you name it, whatever your high risk, high reward strategy is, right? You know, you're betting on an IPO, whatever. If it goes well and you get from five to 10, that sounds awesome. Okay? Yeah. And, and that will give you a very marginal improvement in life. Because you can already afford most of the things like that you'd want.

Yep. You've already got everything you need and most of what you want. But if you lose it, right, you unless wanna go from fishing boat to a boat that you can fish for boats in. Yeah. Then right. But if you lose it, you know something that's really funny about everything we talk about here is that none of it. Is new. Everything you're dealing with right now has been done a thousand times before you, which means the answer already exists. You may just not know it, but that's okay.

That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all dayLong@groups.startups.com. So if any of this sounds familiar, stop guessing about what to do, let us just give you the answers to the test and be done with it. Here's the part that that, that folks miss. You don't get it back.

And I think the reason this is such hard advice for founders to, to process at that time is because when you've just won so much, it's hard to think about not being able to get it. Again. It's an athlete, you know, that young athlete getting that $10 million as a signing bonus saying, well, if I'm worth $10 million now, I'm worth at least 20, 30, a hundred in the future, right? Until you get injured. Until the stock market changes, until, until COVID happens, until you, you, you name it, right?

Until something happens with or without your control that removes it from you in the statistical probability that you'll ever get back here is infinitesimally small. It's tiny. That's the thing. I think people don't realize that there's an elasticity there, right? It is very easy to hit fortune and bounce back to zero. It is not easy to bounce off of zero back to fortune. It just does not happen statistically. It just doesn't happen.

It's so, so difficult and you know, the, everything had to align the first time to have to, to create the wealth. Not very much has to align for it to go the other direction. Right. You can just, a couple bad decisions can absolutely end it all. I think that that's what we have to understand is that like the upside is marginal, the downside. Is catastrophic and can be complete. Right? We have to reprice risk in terms of thinking tiny gains versus irreversible losses. But

this is a huge mentality shift. We've never played defense 'cause we didn't have anything to defend. We've never played defense before. Right? And, and I remember like again early on around that red Lamborghini time, I bought a. A house. I moved outta my campus apartment and moved and bought a house. Nothing crazy. Extremely modest house. And I thought to myself, man, if I screw all this up, I'm gonna get kicked outta this house.

And the first time in my life I was like, I have something to lose. And I've never had anything, so I didn't have anything to lose. And I was like, oh damn. For the first time, I have to start making decisions based on a defensive scenario. Not just all offense. And Ryan, I'll harken back to when we bought virtual, right? Remember when we were, we're putting the plans together, our financial plans, our risk assessment, et cetera, was basically like all downside risk, right?

In other words, we are already running a successful company. All we could do is fuck it up. So how do we make sure this doesn't hurt us? Correct. Right. If it goes well, that's not a hard problem to solve, but if it goes south, isn't that funny though? But just stick on that for a second, man. Because this is where everybody's like, they get out the spreadsheets and they're like, can I multiply it by a thousand? Multiply it by 10,000, multiply by a hundred thousand.

Oh my God. It's gonna be amazing. Yeah. Right. And you don't need to plan for that. You don't need to plan for success. Yes. Scale comes with some challenges. Believe me. They're all really fun to solve, right? Yeah. And they're all a lot easier to solve. It comes to challenges, failure. You've got revenue and cash. Yeah. A lot of leverage to do it. But nobody thinks enough about the downside. Like what if this absolutely rees?

What if this thing becomes an anchor around our neck and we're in deeper water than ever before? Yeah. This is where you've gotta spend your time doing the calculus. Agreed. And so for, for a lot of folks, you know, again, they get this big, uh, pile of cash and they're like, how do I basically bet it? I just want at the table, I, I hate to align Building a startup or, or doing a startup With gambling, it's not the same thing. People like, oh, there's, there's risk, or there's luck involved.

Not really. It's not like anybody that's never tried it. Anything just magically money fell outta the ceiling. Like it doesn't work like that. But regardless, it would be the equivalent of having like a chance in hell lifetime, uh, chance that you could win this incredible hand at the poker table. Then taking all of those winnings and playing them on another hand being like, well, if I just had this big win, I'll have another big win.

It's like, dude, you know, statistically unlikely it was that you got that first win. Yeah. The dumbest thing you could possibly do is say, I'm gonna do that twice. Now that doesn't mean go, don't try something else. It doesn't mean quit working. It means. For the first time, your number one job in life is do not lose. You gotta, you gotta move to preserve your optionality, right? This is your new job. Preserve your optionality. Buy yourself some time compound quietly.

Like I, I have often heard and like, I, I think it's a great, it's like a cool off clause, right? Commit to a cool off period where like you've now just done something you're not, because how often do we see this will sell startup wire hits? What's the first thing they start doing? Investing in other startup companies, they start buying shit or investing in startup companies. They make one-time decisions. I would argue buying shit is usually a better idea. Better idea. Right.

At least some of that has a, a liquidation value, right? Yeah. Right. But yeah, it's, it's, it's a massive mindset shift. You have to start playing defense for the first time ever because there's something to lose, like you said it, you have to, it's almost like shifting from playing, I don't know, something like tag or hide and go seek. To capture the flag. Right. You now gotta cover what you've earned. Yeah. You just don't wanna play offense. Great.

You cannot just leave everything you've earned fully exposed More often than not. Here's what I hear, though. I see. Yeah.

But Will, and I hear this a lot, I don't want people to think I'm a one hit wonder. I've gotta show to everyone that this wasn't a fluke, and then I can do it again. Now, once again, I, I'm recounting 27-year-old will, right? Yeah. You know, years later when he is like, okay, I had some, some success. I've gotta go do it again. Right. I get it. I get the validation need. Isn't that funny though? We don't learn it the first time. Right? We go out. We do. Exactly. Exactly.

If they were, if we were going to achieve validation, doing it once, would've done it, and yet we're like, Nope, I gotta tell everybody so they can see I'm not the fuck up. They thought I was and they're like. Nah, you're just the fuck up. They got lucky. And you're like, well, I'll just do it again. And they'll believe me the second time. Right. Geez, what's broken with, with that whole line of thinking and it sends so many founders off the wrong direction.

Yeah. Is that the whole point is you only needed to win once. Right. That's it. The whole point is you only needed to win once and, and, uh, you know, we talked about this on, on previous episodes, mark Cuban said it best. Right. And I'm not a huge Cuban fan, but I gotta give guy credit. He's like, you'll need to win once. And, and Cuban did only win once. Remember like we went down that rabbit hole and we looked at all the other stuff that he's done. I'm not knocking him as an entrepreneur.

I mean, again, he is done way better than I have. He had one that worked really well. Yeah, but Cuban's whole life was one single moment in the nineties that changed everything for him that he earned. Right? Uh, and since then, has never done anything even remotely close to that. Right. I mean, I mean, Don bought the bs. That was pretty cool, but like, like in general, that was his thing and he didn't have to do it again.

Now, every now and again, someone does a Steve Jobs, Elon Musk, you know, uh, a three-peat kind of thing or something like that. Like, okay, cool, but you know, who does, who's not running around trying to do that? Bill Gates, other than trying to solve malaria and give the whole rest of the world his money, dude was like, Nope, I'm good. I built, you know, you might have heard of, it's called Microsoft. It runs every, you know. Yeah. Every poorly running PC on the planet.

Uh, and like, so in his mind, the, the win once, now it helps if you're, if you're Bill Gates and you're hitting that, that threshold, but for all of us are the mere mortals among them. Right. You only need to win once. Right. Saying that I have to win twice would be the equivalent of saying, I, Hey, I just won the Powerball lottery. I'm gonna take all that money and put it on more Powerball lottery tickets so I can win more power bowls. It's like you could.

You could do that and it might even work. I mean, statistically my, however, you don't have to. That's the point. The point is you don't have to. Now lemme put it differently. The other reason that I went out and I wanted to go do it again and I would end up doing it eight more times. You know, starting eight more companies, some work, some didn't. Was that I was 27, I don't my whole life ahead. Yeah. Like even now as I'm much older, I wanna go out and build and do more stuff.

Like I don't wanna hang it up just 'cause I made a couple bucks. I get that part. But that's different than I have something to prove. I have something to prove is a wildly dangerous preamble to the documentary you're about to build about how you lost it all. You don't want that to be your claim to fame. Right. That one, the top of the charts on Netflix. Yeah. Look, I, I think at some point I had to have the conversation with myself and sort of separate my, my identity from velocity.

Yeah. And say like, I can slow down and I can be happy with what I've done and still be me. And to begin to chase meaning more so than magnitude. Well, we talked about that last episode, right? We, we talked about, yeah. Pointing your canon somewhere else. Somewhere else, right? Imagine that another bucket, this bucket. Be full, right? Yeah. Well, how, how about this? You solved that problem. You solved money problem.

Now go solve 50 other problems that you know, or things that you can pursue in your life. But I think. We have to adapt that mentality first. We have to men adapt a mentality that if I only ever win once, still won 99.9% more than everyone else. That's not to say I'm better than them. It's to look at the gratitude in saying, damn dude, the probability that this was gonna happen at all is freakishly low. So for me to look at that and say, but I deserve another. Generally doesn't.

Well, the other side of it is like, to, to look at it in a slightly different way is to say like, do you wanna risk that, uh, that you've already got? Right. You're now in the the 0.1. Yeah. Do you wanna risk that? For what reason? Just to rejoin the 99.99. What are you actually doing at that? There's some really fascinating studies. Remember which book I I was reading this out of is in the past year it has more of a reflection, not of the book, but of my memory, of the psychology money.

It was called the Psychology Money Uhhuh. Yeah, yeah, yeah. And, and in the Psychology Money, so the author talks about why is it that people who were wildly successful and wealthy found the need to risk everything. To become more successful and wealthy. And he gives a couple, uh, case studies of different, like, you know, famous rich people that lost it all because they was insider trading or, or, or they kind of like overstepped the, the bounds.

And I always thought that was fascinating because I thought to myself, these are really smart people. Like really interest and already wealthy people already wealthy, right? They already like won by orders of magnitude, you know, they were in some fraction of that 0.1%. And I think to myself, the essence of the book, what about. What they had made them feel like they didn't have enough. Right? Like what was it that made them say, any of this is worth risking?

And I look at it practically and I say it's just not, and I think for, for a lot of these things, the, the, the psychology here goes is much more nuanced, right? Yeah. It's, it's about risk a lot. And a lot of times it's, I don't deserve this, so I'm going to gamble it until basically life takes it from me. Yeah. I mean, they're gonna let statistics prove to me that I should have this and more, or, or take it away.

Or in some cases, like I, I think you and I can both name founders that, that fit this mold. It's that. They enjoy the, the chase more than they would rather chase than accumulate. They just actually don't care. I agree that much about what they've won. Yep. And they're like, honestly, like, I just want to do this. And I, I like the risk, I like the adrenaline. I like being on the, the bleeding edge. And so if I lose it all, I, I lose it. All right.

I, until they actually lose it all, then they, then they're very, they feel very differently about it.

You bet. Well, but you said something once too, which I think was really, really smart, which is that create a save point, right. Video game style. Right. Just create some level of financial foundation that you cannot slip back below and then go risk whatever you want above that, but keep yourself safe at a different level than you were before. You see us do that in our financial planet. Yeah. All the time. Right? Uh, we always have a net income number. That is our safe point.

Yep. And, and we're basically like, this is the threshold at which if we ever get to here, things have to change. Once you pass this go, you cannot go back. But everyone knows what it is and everyone knows that. The consequence of that, that safe point is, so everyone knows to react. If that didn't exist, if it was just like, ah, it's just a number and you know, it'll go higher or low or, or positive or negative and whatever. Right. It's up this month. It's down next month.

Yeah. Well, behavior doesn't change and that's super interest. And to your point, if you're like, look man, uh, I've got 5 million, uh, in net in the bank earning money, I really need at least, and again, I'm making these numbers up, I need at least 3 million. Feel comfortable in how I wanna live, you know, with my family or, you know, whatever your goals are, right?

So I've got 2 million in play Now, hopefully that 2 million will, will, will double, but if it goes to zero, I'm not at zero, I'm at less. Right? But I'm not at zero. It's tricky for folks to, you can mentally put those save points in place, but when you start to get to them, this is the gambler's dilemma. The gambler gets to zero, goes back to the ATM, gets more money. And says, okay, I'm gonna win it back and then win back more. And what, what happens? Of course he loses.

Yeah, he goes to the ATM again, he says the same thing. I'll double it. So I'll bet even harder. Take higher risks in order to get back to zero. Once you establish the mentality that you're willing to lose, it's very hard to unwind the mentality that you're willing to lose. So the premise there is, at what point are you no longer willing to lose? Which tra challenging, you know what I mean?

Yeah. Especially when you're trying to balance it against this idea that I will win if I just keep being willing to lose. Eventually, I, I, I strike gold. Right? Right. There, there is a payoff to the end of this. I think that's the, the, the really dangerous part because there's absolutely no truth to that. But I think a lot of people feel that way and they're like, if I just keep trying, eventually I will hit a point where, you know, this will pay me back. Right. It is the gambler dilemma.

It's trashed. A lot of founders. One of the places I see it consistently is athletes. The challenge that athletes, you know, that, that have been in, in whatever your league is or, you know, getting paid because they're, they're one of the unique industries slash careers. I suppose that you get paid a lot of money very early in your life. In a lot of things, you get paid later on in life. You know, we're in the startup industry, so you have like, it's the reverse in this case. Yeah, right.

In most cases, you make most of your money at your youngest. Let's say you actually did pretty well, uh, you got signed and played baseball. You did seven years in the league and you made $20 million. Okay? At the end of that time period, uh, you've quote retired, you got plenty of money, you're good if you just sat on that for the rest of your life, let some compound, let you know, let some, uh, fuel your, your needs. You'd be good. But here's what you think, dude. I'm an athlete.

I'm a competitor. Right. Um, I need to find something that is a parallel for what I just did. So I'm gonna do startup investing, or I'm gonna start my own company, or I'm gonna invest in my, my idiot cousin's t-shirt business. You like, you name it, right? And what ends up happening is you've got that same gambler dilemma. Like you, you need that rush. You need that challenge, which I get, but you also don't have a save point.

Like, I need it so badly that I'm, I'm not willing to just like pump the brakes or hit a cold stop. I've hit points in my career where I'm like, okay, I've hit my save point. I cannot, like, I cannot afford to keep burning.

Yeah. Yeah. I did that with one of my earlier startups, uh, with Afford It, where like we had raised a bunch of money, we were doing really well, and then we, we hit a point where we couldn't raise any more money and at some point I was just funding the company outta my own bank account. Yeah, yeah, yeah. And, and I realized that like it'd gone on for a long time. I've gone on for like two years. Yeah. I am, I am now. Burning my winnings from my, my previous efforts like, yep.

And, and quite specifically, the money I, I'm setting on fire every month. I'm never getting back. At first you're doing it because you think it's just a bridge. You think it's a short term, you think it's whatever. And then as the money starts to stack up and you kind of forget about how much money you spent last year, et cetera, but you zoom out and you look at it. I'm like, really?

The probability that I'll ever get liquid on this again and even just put that money back, much less earn what it would've earned, uh, in the market, whatever is pretty much zero. It's hard emotionally to stop yourself, which is why we have this speech, which is why we have little pep talk to say, you're already gonna mess everything up. Okay. And, and, and we get it. The idea is, like you said, a moment ago.

To help you establish a save point so that as you start to go off the rails a little bit, you don't kinda like bump you back in. You know what I mean? Yeah, yeah. Yeah. I think it's, I think it's important because I think that, you know, again, it comes at that time where you're, you're gonna be the most confident you've maybe ever been. Right. You've come through a whole lot of shit. At that point. Everything feels like it's going right. Right.

You, you run into all these paradoxes, like the gambler's dilemma, the fact that you are, you, you are at the top of your game right now. Yep. Everything feels good. So why wouldn't we just double down? Right? Why wouldn't we just keep going for this? If you, can you go back in time and, and think about like when that shift happened. Clearly, clearly it didn't happen right at the, the time of the first exit. So what helped you to replace Prove it again with protect it.

Now, I, I can tell you exactly after we sold Blue Diesel, like back in the day that that was the agency I was talking to you guys about, I had a period of like a couple years where I was doing my next startup and I wasn't getting paid. Uh, I just wasn't right now, I, I had, you know, stock market earnings and all that good stuff, but like, it was the first time where I didn't have active income. And anyone that'll tell you that, it just like exited whatever they're doing.

Even if you have like a strong balance sheet and you've got, um, you know, good earnings that you've got in the market, et cetera, not having active income. Retired people deal with this all the time. Not having active income has got a totally different mentality to it. It's because active income feels like you're actively replanting, you know, for future harvest. Just pulling from what you have just feels like you're constantly in harvest and never plant mode.

Yeah. One is a renewable resource, the other one is not. It is a finite. Resource. Correct. And, and I think for a lot of people, the first time you, what I call write, write your mortgage out of savings, so to speak, and it, those savings could be, like I said, you're earning in the market. That's obviously, clearly that's income, but when it's not active income, it messes with you. Yeah. And the first time I wrote my bills for the month. Out of, uh, non-active income.

Yeah. I was like, shit, that money can go away. It happens. Wait a second. This is an alarming trend. Now we're going down. Right. And if I don't do anything differently, it will just continue to go down. Exactly. And and most of the founders that I talked to that have had an exit for the first year or two, they're still trying to understand like everything that's just happened in their lives that, you know, et cetera, but nearly all of them. We'll go back to starting something else.

Now there's a litany of reasons for that. Part of it's boredom. Part of it's, you know, again, I gotta prove myself that I can do it more than once. You name it. But one of them is, it's kind of terrifying not to have active income, uh, even if you've done pretty well. And so I think for a lot of us, it's just kind of how we're built. For me though, I always kind like, damn, dude, I've always been in the mentality that it can all go away tomorrow, and I've genuinely believed that.

Now in 32 years, knock on wood, it hasn't happened yet. But at no point have I ever felt more confident that it's, that it's never going to happen. And I think that's probably saved me. Yeah, no, I think that, I think that makes a lot of sense. You know, I think that the, the, the minute you do feel that way, it's, it becomes problematic. I think it's interesting.

One of the things that occurred to me was that we do become comfortable with this concept as founders. That is kind of dangerous posts. Post outcome, whatever that ended up being, uh, whether it was distributions and exits, you know, taking on more money and, and getting some liquidity, whatever it was. If you are in that position, you end up now with a burn rate. And it's a concept that we're actually really comfortable with as founders in a lot of cases because we've had to utilize it.

It's like, oh, this is a tool, a burn rate's a tool, right? And so then when you end up within a personal burn rate situation, it probably doesn't feel as uncomfortable. I'm thinking through like some of my friends, like people that I knew who had, who had been corporate folks, right? Got laid off, decided to do a career change, whatever. Now they're not an active income. They had a hell of a lot more urgency around. Turning the burn off because they're not comfortable with it. Right.

But founders, on the other hand, a lot of us have become comfortable with the idea of a burn rate, right? That's just the investment we make. The difference in this case is, unless you got some plan for how that actually turns into active income again, yeah. It's just a downhill spiral. Right. I agree.

I agree. So here's what I'd say, man. The reason we give this speech, the reason I'm so passionate about this frigging speech, is I want you to enjoy. You hard earned exit. I, I want that money to be around long enough, right? For, for you to be a champion and not a cautionary tale. And fortunately it's a small few that become the cautionary tales, but that all, all of the cautionary tales that I've ever seen, Ryan could have absolutely been avoided, unquestionably, could have been avoided.

They were never catastrophic, you know, strokes of bad luck. They were always in, deliberately engineered by the founder. They brought it on themselves. That's a great point. Right? And so the reason we give this speech is we want you to keep that cash. The reason we give these this speech is we at least wanna be that voice on your shoulder. I think it's the angel in this case, where the devil's like, we need a Lamborghini. And the angel's like, dude, you don't need a Lamborghini. Right?

Obviously those people did not exist on my shoulders at the time, and I wish they had because I would've been better off for it. So I think for folks that that are. About to go down this path. Either you are on this path now, newly minted, hopefully. Congratulations. I just want you to think about these points because they're all valid. This isn't like an oh, that's just your opinion. These are all exactly how these things go and the harder you work at preserving your wealth.

The more likely you're gonna be to have it in the future. And when you have that future wealth, you can take some swings that you couldn't, uh, make before. The key isn't just earning the trophy. The key is keeping it. If you're gonna work that hard to earn it, work that hard to frigging keep it. Overthinking your startup because you're going it alone. You don't have to, and honestly, you shouldn't because instead, you can learn directly from peers who've been in your shoes.

Connect with bootstrap founders and the advisors helping them win in the startups.com community. Check out the startups.com community@www.startups.com to see if it's for you. Could be just the thing you need. I hope to see you inside.