How to construct a team and make your first hires + has the initial AI hype bubble burst?

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June 29, 2023

This week’s pod is a two segment episode with my partners Phuong Ireland and Mike Rogers.

As usual, Phuong shares some great startup advice. This week she shares valuable insights on team construction and the key factors to consider when making your first hires.

Mike and I then discuss the current state of AI and its hype cycle. There’s no question AI is here to stay, but we note that the initial wave of hype and investments in the field is subsiding. We chat about the challenges of AI reliability and the presence of hallucinations in AI platforms, emphasizing that these technologies are not yet fully trustworthy. Despite this, we believe in the long-term potential of AI and its future impact on various industries.

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Transcript (this is an automated transcript):

MPD: Welcome everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is definitively part of that effort. Today we've got partner meaning format. We've got Mike and Phuong. Phuong lays down some really good insights about building the team in the very early days of the company, which is not as obvious as people think.

There's some. Real nuance to thinking about team construction and who you should be looking for to build out the team. When you get first get started. Mike and I dive into a little bit of what's going on in ai. First we think the first kind of wave of the hype cycle of investing is probably coming down.

But there's a long way to go in that market and a lot of opportunity and we're gonna see a lot of investments there. And we also spent a minute or two talking about this pending Zuckerberg Musk death match. Which brings more bizarreness to our already bizarre life. All right, everybody, hope you enjoy

Phuong. How was your trip?

Phuong Ireland: It was great. I'm trying to think. Oh yeah, it was in New Hampshire. Yeah. Up there, it poured. We were at a wedding and it poured which also happened at my wedding. Which, as the bride, you think it's the worst thing that ever happened. And then no one remembers, no one cares. Yeah. No one cares. That's the

MPD: thing about weddings is like, the disasters are the only thing you talk about. Yeah. Long after, like the cakes messed up or it rained,

Phuong Ireland: we forgot our rings at at the ceremony. And that's, and at that time I was like, your father for decades.

Yeah. It's so funny. I love reminiscing on that part now,

MPD: but at the time everyone's panicked about it. Yeah. All right. What do you have for this week?

Phuong Ireland: Mark, today we're gonna step back from the more cut and dry and quantitative topics that we've covered over the last few episodes and talk about a softer, but I think equally important topic specifically building your team and making your first hires.

So as a founder, this is a really important step and one that sparks a lot of questions, right? When should you make your first hires? What roles should you fill? How do you find them? That's what we're gonna try to answer today. So let's tackle the first question. When should you make your first hire? The short answer is as soon as you can afford to.

And that may seem simple, but there's interpretations here, right? So when you can afford to. Probably means you've gotten some validation on your business and on your product. You've probably gotten your first customers and are generating some level of revenue. Some signs that you're overdue to hire are that, one, you're turning away customers.

Two, your customer experience is suffering because you don't have the bandwidth to fix key breakages in your customer journey or field customer service tickets. And then last one is that you've reached a certain level of revenue, but you're not growing. So once you've decided that you need to hire, how do you do?

You decide which roles to hire for. There's just so much to get done and everything's so important, right? So sales, marketing, product development, customer service, finance list just goes on and on. The best way to think about this is to hire around the most important business needs that none of the founders can do or are good at doing.

So that requires you to know two things, the founder's strengths. And then the key activities that are going to impact growth. A great tool you could use is Interplay Superman analysis, which we covered in one of our earlier episodes. We left the link in the show notes, so you can check that out. It's basically a Google sheet where in the first column we list all the activities we need to accomplish.

For the company to run effectively prioritized by the most important activities needed to grow. And then in each of the next columns, we list each founder and map up which skills each founder is good at. It'll become clear where your hole's at. And most businesses, these core impactful activities are usually around marketing, sales, customer experience, and customer service.

And it goes without saying, you should be hiring into your team's skill gap. It might be tempting to say sales is the most important driver of growth, and even though I'm already really good at sales and we don't have anyone who's good at customer service, we should double down and hire another salesperson.

I think in the earlier stages, you'll benefit more from rounding out your team's skillset than doubling up on any particular area. So in this example, hiring another salesperson probably won't double your sales. They're probably not gonna be as good as selling at your product as you, and you might be losing customers faster because no one's providing the quality service and experience needed to get repeat customers.

Then also think about what are your time drains. So for example, if you're spending a lot of time on bookkeeping and admin, and it's stopping you from focusing on growth, maybe considered outsourcing that to a third party. Now, once you decide the role you need to hire for, how do you find the right person?

So this will bring us to one of the most important determinants of a successful founder, the ability to attract world-class talent. Being able to attract great talent is not only good for your company, but it's also good for fundraising. If you can show you're able to lure great people from successful companies, that's gonna be really powerful proof to potential investors that you have the chops to build a strong team and a strong business.

So you're gonna have to do all the gritty legwork of tapping into your networks and interviewing and all of that to find people. But here are a couple more overlooked tips. The first tip, which is not immediately obvious, is to hone your storytelling skills. You have to be able to sell your business to candidates.

Why would anyone leave a well-paying secure job for what is likely less pay at your unknown company? You have to sell them on your vision and mission, why you're building this amazing company. It's unique value proposition to them. Maybe it's a chance to work on innovative projects or to have a real impact.

Or to be part of an amazing team. Maybe it's the unique culture or the potential for personal growth that only you can provide. Whatever it is, you have to be able to tell the story in a compelling way. And then my other tip is to try to de-risk these first hires. So as much as you try, you're not gonna get it right a hundred percent of the time.

So make it easy to move on if you discover you've made a hiring mistake. One way you can do this is to start new hires as freelancers and transitioning them to full-time after you've been able to fully assess them. This way you're able to move fast in building out the absolute best team. And that's all I've got.

Those are my tips for how to make your first hires Excellent

MPD: topic, great coverage of it. I just want to like exclamation point on the first thing you were saying. There's two phases of hiring, probably more. In the beginning it's about filling gaps, right? And that superman analysis is critical. You can pretty quickly see no one on the team knows how to do customer service or marketing, and we need that.

The thing people get stuck on though is afterward, and this is a probably another conversation it's not for today, is that the mindset shifts towards shedding responsibilities. Reducing the founder's roles down to a very specialized function and basically building specialization within the company.

Proactive delegation, other things come into that, but this is it. This is very hard for people to figure out. Especially in the early days of a startup, you're dealing with so much resource constraints that the. Getting this sequencing right. And that's kinda the key words I think in overall strategy is sequencing is very important.

Yeah,

Phuong Ireland: it's the sequencing and it's like where you are at what stage you're in, right? So you're hiring differently if you've reached whether or not you've reached product market fit, whether or not you've got funding, whether you're getting your first customers or you're scaling. So really have to take everything into consideration.

But these are some general tips, I think for the very earliest companies are really

MPD: important. Absolutely Fantastic. Thank you, Phuong

. Thank you. Mr. Michael Rogers. What's up man? What's up man? Before we get into today, just a liHow to construct a team and make your first hires + has the initial AI hype bubble burst? ttle like tech social hype like Zuckerberg Musk cage match, like what

Mike Rogers: my question for you is, are you paying the $59 pay-per-view fee to watch it?

Will this be more entertaining than Floyd Mayweather's flights, which we're not entertaining

MPD: a hundred percent. Yeah, a hundred percent. We'll have a showing of that.

Mike Rogers: Yeah. We should host a, we should host like Popcorn in the office

and

MPD: get, we'll host an interplay event around. It's gonna be entertaining as hell.

Who's your money on? Yeah, Zuckerberg would. Oh,

Mike Rogers: Zuckerberg would. Did you see Zuckerberg's a beast right now. Yeah. He's

MPD: gonna destroy him. Yeah.

Mike Rogers: Elon's a big dude though, and sometimes it can be tough to fight big guys.

MPD: Yeah. And he's older though. I'm getting older. It, your body doesn't work the same.

Yeah.

Mike Rogers: It's gonna be fun. I think it has. I think it's gonna happen now. I don't know I don't think it's gonna be like they, knock each other out, but something is gonna happen. There's no blood's gonna be for charity. Yeah. Maybe some light blood, maybe a broken nose.

But

MPD: I don't think it's gonna, I think it's gonna be like real quick and embarrassing. Yeah. And playful, and that's gonna be it. Super

Mike Rogers: embarrassing. I think what's gonna happen is, here's my prediction. Okay? It's super prediction times. I think Zuckerberg takes it super seriously and like embarrassingly.

Embarrassingly seriously. And Ilan comes in with these casual, laissez-faire attitude. I just don't give a fuck. And trolls him and Zuckerberg wins the fight, but Elon wins the crowd, right? And It's the whole thing.

MPD: That is a very good prediction. The only thing would make that would tweak. Yeah.

This could fit into it too if Zuckerberg goes hardcore and like actually chokes him out or something crazy, like one of the dies. That'd be bad. I hope that's not the, I don't wish that to be clear for the record. Yeah. I hope that's not the outcome. All right. Yeah. So there's that because the world's not weird enough.

I, all what are we talking about today?

Mike Rogers: I wanted to talk a little bit about what I'm seeing is like, The first mini hype cycle of AI crashing, and I don't want to, I think crashing makes it sound like this. Thing's like dead. It's not dead. Like I think we're, we are still in the era of the AI revolution, and I think it's gonna be a big part of everyone's lives for the next.

Forever or in the

MPD: beginning of it.

Mike Rogers: Beginning, but any beginning. And I'm sure you'll have more to say on this as someone who's seen more cycles than me, but any beginning you have many cycles within the cycle. And I think we, we hit a peak hysteria at the top of this first cycle, probably like two months ago or so, where.

The deals were crazy. They were moving fast, like prices were up and we had this moment where we were like, oh my God, it's happening again. That was quick. We're back. I do think we will continue to see big mega AI deals get done, but I think a lot of people are realizing that, first of all How much money these businesses really need.

And two, like, how good are these products right now? And I think the short answer is like anyone who's actually spent a lot of time with chassis, BT and Bard, they're incredibly impressive products, but they're not reliable yet. They lie a lot. And by lie they, they call it I'm blank on the name right now.

What's the name for it? All right,

MPD: We'll plug this. I don't know what you're going, I'm gonna let you hang out there with that one, but

Mike Rogers: hallucinations. Sorry. There we go. Wow. Oh, hallucinations. They have they come, yeah, they have hallucinations where they basically put out false information.

And this happens a lot on both platforms and a lot of other LLMs too. And we haven't quite figured out why that is yet. It's part of the technological innovation curve gear and I think it will get solved and the product will get better and better, but for now, they're not really totally trustworthy or reliable products yet.

And I think a lot of the things being built on top of them are also not. So we're seeing this first wave of people being like, oh, they dove in and tried 'em and they're good, but now they have to take a step back and be like actually I can't. Replace that full person yet, right? I can't fire my entire creative team and just use DeepMind now.

So I think everyone's coming back a little bit, being like, okay, like back to reality. We're gonna keep building, we're gonna keep investing in this space. We're gonna get great companies outta this. But it's not there yet today, and none of these things happen overnight.

MPD: And the euphoria is understandable.

We've been living around machine learning and everything else for more than a decade now. It's obviously been around longer, but like from a part of the narrative that we're seeing as investors, it's been around for a while and this was really the tipping point where first time there was a commercially viable API where people could plug in and use stuff and it was available to the public.

I have the chat g BT app on my phone. I highly recommend if people don't have it, you get it. Right now the AI is not fully integrated into a lot of the other platforms, and that's coming. It's gonna be integrated into Google. So I use Google right now for website navigation. I'm looking for a destination.

But if I have a question or I need to think of something a little more creatively, I'm interacting with chat G p T. We're at the very beginning of where this is gonna, how the interface is gonna go, and it's gonna change for sure. But there's real utility in it now, even if it's wrong, right? We've named a business line using it.

We have used AI to write business plans for new concepts. We're vetting stuff in the foundry. We'll actually do the first version in an AI platform. And then we'll tweak it and then we'll take it out and a human will cook it, fine tune it. So it's become a real part of our process.

And I can understand why that led to a lot of euphoria. Cause it's like a, we've been waiting for this for a long time and it's finally here. But I do agree with you. It's it's the beta product. It's the first one everyone's seeing. And it's in, it's an incredible feat as it is, but it's going to get a hell of a lot better.

And the use cases for it are gonna be a hell of a lot more significant as it gets better. But my one caveat is that I do think now is a wonderful time to be paying attention to application Layer Place because this PL infrastructure technology is going to enable this. A lot of applications to exist that were not viable before, just as mobile did with a whole bunch of apps or a bunch of things that just didn't make sense to use.

Like Uber wasn't that cool when you were gonna be doing it from your computer. From your mobile phone. It's amazing. There's a whole bunch of new interactions and things we can do because of ai. And so this is something we're thinking about a lot deeply on the investment side, the foundry side, everywhere else at Interplay.

Is it the only thing we're thinking about at Interplay ai? No. But it is the major technological milestone that's, it's the wave right now. I like to think there's always these waves and you wanna have exposure to them. There was the blockchain wave, there's, this is the wave right now is the AI wave.

Mike Rogers: Yeah. And there will be, there'll be huge winners in the space, right? I do think that the only difference here, so all the ways are different. This one feels to me like the large, major majority of the value is gonna acree to the already largest players in the space, in the ecosystem. Where previously the sh the shifts allowed for lots of new entrants to build big companies.

I think we will still get big companies built. I think there'll be great opportunities to invest. I do think though, that given the data modes and distribution modes of the largest players in the ecosystem at this point in our technological cycle, you are going to have a huge amount of the value in AI acre to places like meta, places like Google places like Apple, and less so distributed out across the curve than in previous cycles.

We'll see. It's just a prediction. I agree with you.

MPD: Yeah, I agree with you. It's like very parallel to the mobile phone, right? iPhone comes out, there's. 10 million apps on there. There's 50 that matter, maybe a hundred that are independently great businesses, and the biggest winner of all isn't those 50 to a hundred apps.

That's where we focus on investing as early stage investors. The biggest winner of all is Apple. Yeah, they're the gatekeeper taking a toll on everything. So I think that's gonna be the same thing here. The big tech's gonna win with the infrastructure, the application layers, the opportunity for early stage investors, and there's gonna be a lot of noise and a few really novel new technologies that are game changers that are gonna come out right now.

And that's pretty exciting to me. I think it's gonna, if I think about pre-mobile, just as a consumer to post mobile quality of life way better pre AI to post ai. Oh, there, there are side effects for sure. I think quality of life is about to get way better for a lot of folks. Yeah, I agree.

Cool. All right. Thank you, Mike.

All right. Thanks for listening everybody. Hopefully that was helpful. Another good session over here at Interplay and we'll catch y'all next week.

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