Starting Up

The Startup Happiness Formula — This 3X Founder Shares His Approach to Figuring Out What to Build Next

Waseem Daher has proven his startup bona fides. His first two startups snagged successful exits (KSplice acquired by Oracle and Zulip acquired by Dropbox). His current startup, Pilot, recently nabbed unicorn status. And he's managed to stick together with his two co-founders, Jessica McKellar and Jeff Arnold, through the turbulence of all three companies.

But if you ask what's different about the third time around, Daher's answer might surprise you — he leaned on a happiness framework in the earliest days of building the company. “Since we intended to spend years or decades building our next business, I wanted to make sure I was going to enjoy the ride,” he says.

Happiness isn’t always the first word that springs to mind in the context of startups — there are long nights, the sting of rejection, and a seemingly endless list of critical decisions with no clear answer. Despite the sometimes rocky roads over the course of building three companies, Daher has found that centering happiness makes the path easier to travel. More specifically, it comes down to two components: working with talented people and making a product people want.

It sounds simple enough — who doesn’t want to work with other sharp leaders or build something that’s useful? But as a Silicon Valley veteran, Daher has found that these priorities often begin to slip along the path of startup-building. You bring aboard folks who are technically capable but don’t mesh with your values. You get into conflicts with your co-founders. Or you misdiagnose the customer’s problems and struggle to find product/market fit. 

In this exclusive interview, Daher takes us through each element of Pilot’s first-year founding journey — from how the co-founders got together and approached problem selection, to how they sharpened their product vision and expanded from their initial wedge. 

He’s keen to share his tips for keeping this happiness quotient in the forefront along each step of this 0 to 1 journey, starting with the people. Before you put pen to paper and jot down your company ideas, he makes the case for prioritizing your founding team first. He also shares his biggest lessons when it comes to creating a harmonious founding team with the right kind of tension, honed over the course of founding three companies with the same two co-founders. 

Next, he turns his attention to creating a product with staying power. Daher takes us behind the scenes of the ideation stage for what would eventually become Pilot, which specializes in bookkeeping, tax prep, and CFO services for high-growth startups. He walks us through how the founding team gained conviction to actually start building rather than staying in the basement thinking. Finally, he looks out to the horizon and shares how he prioritizes which offerings to add to Pilot’s product suite. Let’s dive in. 

STEP 1: WHEN ASSEMBLING YOUR CREW, REMEMBER THEY’RE THE MOST IMPORTANT PART OF THE JOURNEY AHEAD.

Before we get into Pilot’s origin story, Daher takes us back even further for some background on why the group gels together so well. “The story of Pilot is quite intertwined with the story of me and my co-founders, Jeff and Jessica. To really understand that story, you have to go back not six months, but like 15 years before the founding of the company,” he says.

Daher met his two future co-founders at the computer club at MIT, and the trio teamed up to bootstrap their first company, KSplice, right after graduating. Eventually, the product for completing software reboots without restarting grew to seven figures in revenue and was acquired by Oracle. As Daher puts it, the co-founders were at Oracle for exactly “a year and a day” before once again getting together to toss around startup ideas for their next venture. 

Two weeks later, they landed on building a group chat tool for businesses called Zulip. “It was basically a Slack-like product at the time when Slack was still making a mobile game,” says Daher. He admits that while they nailed the market opportunity, he doesn’t give Zulip A+ marks on execution. However, they netted a positive outcome with Dropbox acquiring the company, where the Zulip founders stayed for two years running product and engineering teams. (Daher’s co-founder Jessica McKellar previously shared her tips for impactful engineering leadership on the Review that’s well worth a read.)

This time around, upon leaving Dropbox, Daher didn’t immediately dive back into company-building, instead deliberately taking off a big chunk of time to recharge. “I decided that I wasn’t going to work, I wasn’t even going to think about what another startup could be,” he says. He spent the next six months tending to the things that had been neglected while building startups and working for the acquirers. “The time was spent basically visiting friends and family, going to the gym, sleeping eight hours a night, spending time with my wife. It was really about investing in myself,” he says.  

After the months spent rebooting his personal life, the pull of building something new, plus reuniting with his co-founding team, was strong. “We knew we wanted to get the band back together,” says Daher. 

De-bug the most likely cause of company turmoil.

What sticks out most about the Pilot co-founding trio is that with each of these three startups, the team had to not just find a great company idea, but also navigate the added complexity of selecting an idea that all three co-founders were equally excited about. It’s a trade-off that Daher thinks more startup founders should make. 

“What are the likely causes of death for your company in the early days? One of the most likely culprits is the inability of the founding team to work together. To actually be able to solve for that from the get-go is incredibly valuable to increase the probability of success for the company,” he says. “Because we know each other so well, we can focus our mental energy on making the company successful, as opposed to spending that time debugging the founder relationship.” 

While most founders in the earliest days are laser-focused on the idea, Daher implores folks to pay equal (if not more) attention to choosing your co-founders. “You may conclude after the first six months that the idea is wrong and you’ll never get to product/market fit and there’s something adjacent that you want to pursue instead. But if you make that choice, what you’re left with is the team. So if I had to constrain one, I would rather pick the team and then tackle the idea,” he says. 

People think that a startup is only about the idea. But in some ways, the idea is the most disposable or flexible part of the company. 

For the skeptics, he points to the trio’s track record of building three very different companies. “I would basically work on anything with my co-founders. I happen to be very excited about the thing that we’re working on, but I think there are a ton of other companies that we could do together and I would be equally happy about it,” he says.

That’s not to say that there are never any bumps in the road or co-founder tension — but the strong undercurrent of trust keeps the ship afloat during choppy waters. “It’s not always smiles and rainbows and unicorns — there’s always tension, but it’s a healthy, constructive tension. Like any long-term relationship, we certainly fight. But the through-line is strong mutual trust and respect,” he says. 

There are all sorts of different reasons why a founding group snaps together like puzzle pieces, but Daher specifically pinpoints the co-founders’ autonomy. “Jeff, Jessica, and I each have big, non-overlapping areas of ownership and we trust one another to execute well in those areas of ownership. That doesn’t mean we’re off building our own fiefdoms or that we’re going to do something sneaky that’s not in the best interest of the group. But I think of it as having an extremely detailed mental simulator,” says Daher. “I could tell you with 95% confidence what Jessica or Jeff would do in any given situation and vice versa. The power of that is we know when something is going to be controversial and should be discussed as a group.”

STEP 2: WHEN BRAINSTORMING IDEAS, ASK THESE QUESTIONS BEFORE MAPPING OUT YOUR COURSE.   

With the founding team already in place, it was time to start coming up with a shortlist of startup ideas for company number three — and it’s not a period that Daher looks back on fondly. “I find this to be one of the most painful and unpleasant parts of an early startup. In trying to figure out what to work on, it’s hard to go sit in a room and think for eight hours a day,” says Daher. “It’s also very demoralizing because for anything you come up with, there are a million reasons why it won’t work that are very obvious to you. It’s very stressful because the goal is unclear.” 

Instead, the trio sketched out a few different spaces they were excited about and set out to talk to folks in those areas. Their specific goal — to understand the actual problems for customers, not to approach with a specific solution in mind. “This is much more energizing, productive and focused because you’re getting feedback from the real world as opposed to running a thought exercise in your own head with no external input,” says Daher. 

He points to some of the most frequent missteps in these early customer conversations. “Especially in the early days, when you’re talking to a potential customer you say, ‘Hey, let me tell you about this cool thing I’m building, what do you think of it?’ This is the wrong question to ask first,” says Daher. “Instead, let’s see if there are any themes that emerge from each of these conversations and if there are common pain points. And then, perhaps more importantly, let’s evaluate if we’re the founding team that is well-suited to tackle those problems.”

Narrow in on the most pressing problems.

“The first thing you’ve got to understand is their pain in particular. The question I like is, ‘What are your top three hair-on-fire problems? What are the things you’re most worried about right now?’ I’m not there to sell you my thing, I’m there to understand you,” he says.

Why is he so laser-focused on just the top three? “Imagine you tell me that you have trouble with parallel parking. I say, ‘Great, I’m going to start a school to teach you how to parallel park. Would you pay me $5,000 to do that?’ But learning how to parallel park is problem #20 for you and you’re never going to get around to solving problem #20 because your day is laser-focused on problems 1-3,” he says. 

Another tip for identifying whether a problem is truly hair-on-fire? 

When something is a burning need, there will likely already be some hacky duct tape solution that folks are trying to cobble together to solve for it. That’s how you know there’s really a pain there.

Get specific to truly understand the problem.

But just opening up the conversation talking about stumbling blocks isn’t enough — you’ve got to dive deep rather than skim the surface. “Get specific. If the customer says they aren’t able to hire engineers, let’s drill down to the actual problem. Is it that they don’t have enough bandwidth on the team to find good candidates? Is it that you’re making a ton of offers but you can’t close them? Solving each of those challenges will yield very different solutions. You want to pinpoint the actual pain as acutely as possible,” says Daher.

You have to really viscerally understand the customer’s problems — you get there by asking lots of questions of lots of different people and listening for consistent themes. 

Probe would-be customers for a willingness to pay.

Daher warns that only after gaining a deep understanding of the customer’s problems have you earned the right to ask about how your solution might fit in. How you phrase this request is critical to determining if you’re building something nice-to-have or must-have. “The question is not, ‘Do you think someone would buy this?’ The question is, ‘Would you give me $500 right now for this product?’” says Daher. 

Why put a monetary value on this seed of an idea so soon? “The people you talk to don’t want to hurt your feelings. If they think your idea is terrible, they’re probably not going to point-blank tell you that. They’ll probably say, ‘I don’t know if I need it, but probably someone else does, so you should go out and build it,’” he says. “But if you’re concrete and ask for a specific amount of money right now, it’s a lot less theoretical. Then you’ll hear from the customer, ‘Actually, no, I’m not ready to sign up for that service yet, I don’t know if I actually need it.’ It’s going to force an amount of rigor in the feedback you’re getting from the market, which is what you need to actually build the right thing.”  

STEP 3: WHEN PICKING THE PROBLEM, STEER WITH YOUR HEAD AND YOUR HEART.

Daher and his team ran through this process for a few different potential spaces and even got close to building a tool for mid-market HR teams. In choosing which idea to run with, the team went through what Daher calls a calculus of the head and the heart. 

“Like most founders, we were orienting around tackling a problem where the opportunity size and total addressable market was really large. If you’re going to put in all the work to build a company, why not build a company that has the potential to have a huge impact? That’s the calculus of the head,” says Daher.

In part, it was a course correction from the days of their first startup, KSplice. “What some investors say is that the only problem you can’t fix is the problem of market size. But most folks’ intuition about how big a market or a problem is typically quite off, including ourselves with our very first company. The way we landed on the problem for KSplice was saying, ‘Well, we have this tech, it happens to have a problem it solves, surely we’ll figure the rest out. We were not particularly thoughtful about how many people have this problem, how much pain is there?” 

When it came to starting Pilot, they leaned on these questions to try to more clearly evaluate market size: 

Is this a niche problem or a general-purpose problem?

How Pilot stacked up: “Literally every business in the world has to deal with accounting.” 

Is it a nice-to-have or a need-to-have? Are people’s hair really on fire about this?

How Pilot stacked up: “It’s basically legally required — that’s as need-to-have as you can get.” 

How much does it cost? If there’s a lot of pain, there should be a willingness to pay.

How Pilot stacked up: “$60B a year is spent in the U.S. on SMB bookkeeping and accounting.”

But that’s only one-half of the equation. “The calculus of the heart is your connection to the problem. For Pilot specifically, it was solving a problem that we had in our previous startup ventures. For me personally, my relatives who were small business owners in Ohio also faced these same problems that I saw firsthand. There was really strong founder/market fit.”

Daher had acutely felt the pain that Pilot was set out to solve. “Whether it’s a tech startup or a florist or a doctor’s office, you started your company because there was something you wanted to change in the world. And one of the things you pretty rapidly discover when you’re actually running the company is there’s a lot of back-office stuff you need to do that’s important, but it’s tedious and not your area of expertise. You want to focus on the reason you started the company in the first place,” he says. 

STEP 4: WHEN SHAPING THE EARLY PRODUCT, LOOK FOR SHORTCUTS ON THE ROUTE TO YOUR MVP.

With the founding team firmly in place and each excited about the idea behind Pilot, it was time to build. “There’s strong temptation to just do more and more analysis. But you’re not going to get strong conviction by doing another three months of homework,” says Daher. “We decided we’ve just got to try it and commit to taking this idea as far as it can go, and if it turns out it’s a disaster, we’re going to come back to the drawing board.”

At some point, you have to make the call and start pursuing an idea. You can’t run three startups in parallel, you have to make your bet.

To start building Pilot, the team narrowed their customer focus to exclusively startups in the early days. Here’s why: “One, we knew startups well because we could draw on our own experience, so it’s a bit of a cheat code. Two, startups were a good way to pressure-test the model because it’s a very hard version of the problem. The nature of a startup’s accounting needs varies dramatically when it’s two people in a garage versus 300 people with a VP of Finance and a Controller. It would prevent us from overfitting for one particular use case,” he says. “And finally, we had a solution for initial distribution, which is that we were going to call up all of our friends who had their own startups and make them use Pilot for their bookkeeping needs.” 

The early days were extremely low-tech. “I bought a copy of QuickBooks online and Jeff and I did the bookkeeping while Jessica looked over our shoulders to figure out what software tools we could build to make the process more automated and efficient,” he says. “There are a variety of steps and substeps. We would time each bookkeeping step for every customer, so Jessica could look at the data and see which steps are eating up the most time that we could make more efficient.”

But early on in building Pilot, the team realized that the business model would rely on some form of human power and machine power combined. Here’s why they decided to forgo an all-tech solution: “The alternative to Pilot is hiring the local provider and showing up to their office with a shoebox of receipts. It’s expensive, skilled human labor, which will cost you several hundred dollars an hour,” says Daher. “The actual problem the business owner has is not ‘I need accounting software.’ The actual problem is that they want all the back office stuff taken care of so they can focus on solving other problems that are critical to the business.” 

He likens the human-plus-machine combination to Tony Stark and the Iron Man suit. “The Pilot thesis is people doing what people do best and software doing what software does best will yield a result that’s higher quality, more reliable, more consistent, more accurate than what you could get if someone just did it entirely by hand,” says Daher. “The computer can do 90% of the work, but when it runs into a thorny problem, one of the account managers can step in and either sort through the problem with the context on the account. And if the accountant can’t quite figure it out, they can escalate the question to the customer with a human-centric approach.”

There were early signals that the approach struck a chord with customers. “I remember in the very early days a customer called us up and asked, ‘Hey, one of my employees is about to have a kid. What should my parental leave policy be?’ And that really struck me because these customers are also buying Expensify or some other piece of software that's designed for the back office, but I'm sure that no one is calling up those companies and asking what their parental leave policy should be,” says Daher. “But the reason they're asking us that is because we have this unique and powerful high trust human relationship with them. We realized quite early on that the consequence of that is extremely powerful.”

STEP 5: WHEN EXPANDING YOUR PRODUCT, BE PARTICULAR ABOUT THE SHIPS YOU ADD TO YOUR FLEET. 

Pilot started with bookkeeping and over the last four years has since expanded to tax prep, budgeting, forecasting and CFO services — each adding on additional layers of complexity. “One of the big challenges of Pilot is that the market opportunity is so large in every direction. It would be easy to try to boil the ocean and be unfocused about what we do. The space we play in has so much pain and we’re well-suited to solve all of it, but the only way to solve it well is to do so in a really focused way,” he says.

He returns to the topic of market opportunity size calculations. “If we're really running the entire back office, if we're doing accounting and legal and lending and insurance and HR, very clearly that's not the multi-billion dollar business, that’s a trillion-dollar business,” says Daher. 

He takes inspiration from one particular tech giant. “The business has these Amazon-like attributes. First, they started selling books, then they sold CDs and now they’re selling literally anything you want. I also think of the insight of AWS, which was that your engineers could be spending their time running your data infrastructure, or you can host it in the cloud and have Amazon run your infrastructure so that your engineers can focus on actually building the application,” says Daher. 

In choosing what to build next on an incredibly long list of possibilities, Daher relies on a few different considerations.

Customer pull. He starts with customer pull — even if that means deviating from the original plan. “We were very resistant to do tax preparation in the early days. It’s a ton of work and in some ways, it felt like it would represent a big distraction from the core bookkeeping work,” he says. “But what we found is our customers really wanted it. And in fact, when we started to do it, customer satisfaction was way higher. They refer more people, they are retained longer, and they tell their friends about Pilot.” 

Competitive landscape. Then he pulls the lens further back to look outside of Pilot. “We look for areas where there are not good alternatives in the market already. As a very concrete example, I would be shocked if we ever build a payroll system or a corporate card. I'm not going to say we never will, but I think it's extremely unlikely because there are lots of good providers in those spaces today,” he says. “It's good for the customer and it's good for us if we just say, ‘Hey, go use system X, Y, Z, we think it's great and we have a deep integration with it.’ That seems far better for everyone.”

Industry in-roads. “We think about where we play today at Pilot. We’re very good at enabling venture-backed tech companies of various sizes and stages. We’re also great at e-commerce folks that sell on Shopify, etc. So when we think about expanding the aperture, we consider what we can do that will cause a lot of other e-commerce companies to knock on our door.”

Play well with others. “We can’t be in the business of building little point solutions that are not generalizable. We’re trying to build something that is flexible enough to work for the two people in the garage, the 500-person company, and the dentist’s office. It requires really good systems architecture and making sure that we’re building for scale, not just slapping a bunch of band-aids on the acute issues.”

To close out, Daher imparts one last bit of wisdom, from one of his go-to advisors: Hans Robertson. “One of the things he said that’s really resonated with me is that you have to be a heat-seeking missile for revenue. I feel strongly that I’m not smart enough to predict the future or know exactly what the customer wants. So if that’s the case, what should you do? It suggests you should spend lots of time talking to your potential customers. Because I don’t need to derive it from first principles, I can actually figure it out by just talking to people,” says Daher. 

This article is a lightly-edited summary of Waseem Daher's appearance on our new podcast, “In Depth.” If you haven’t listened to our show yet, be sure to check it out here

Cover image by Getty Images / EyeEm.