The topic of risk (and how it pertains to business/entrepreneurship/startups) came up recently on a blog I read. This is a really interesting topic because I’ve thought a lot about my perception of business risk over the years and how it was shaped and is potentially changing. Here are some updated thoughts.
A lot has changed since 2007 when I wrote Risk, Part I and Risk, Part II:
- Leads360 had incredible growth through the first half of 2007;
- We raised our first round of VC in October, 2007;
- 2008 was a complete shit show in the mortgage business;
- We raised a follow-on round of VC in October, 2008;
- We brought in an incredibly talented CEO in November, 2008;
- I left the day-to-day in December, 2008;
- SJ and I got married in March, 2009 and;
- We’re expecting our first child in July!
Ok, so how have these life changes altered my perception of risk?
For some backstory, I left Leads360 because I wanted to return to “building something from nothing.” Leads360 is an incredible company and the team is steller, though for me, I had lost the excitement I had waking up each morning and going to battle. The company was maturing and I wasn’t super passionate about the day-to-day anymore.
For the past 6 months, I’ve been noodling on a few ideas, but nothing has completely gelled yet. I’ve had a few seeds of my own and I’ve heard some good pitches from potential co-founders, but still I’m yet to pull the trigger on anything. One reason I think why I’m stalled-out is because the experience (good and bad) we had building Leads360 has open my eyes to things I was blind to in 2004. I have a tangible understanding of the potential for company-building, but I’m also hyper-sensitive to the neccessities for successful execution (people, market, model, etc.), so much so that I’m way more critical of every opportunity I analyze. I’m critical like a first year MBA student. I was dumb(er) when we started Leads360, I didn’t know any better, now the more I know the more fearful I seem to be.
I also think I’m suffering from fear of being a one hit wonder.
There, I said it. It’s true, I’m scared shitless about failing at my next venture. To a point where I can’t pull the trigger on anything, which will 100% guarantee that I never have another business success. My perception of risk has definitely changed; but not for the good. I think I’ve become more risk-adverse…fuck.
I know for sure that I want to do another startup and get back to scrappy company-building mode, that seems to be in my DNA. It’s almost like what is at risk has changed. Before the risk was primarily financial; the risk that being out of work for a few months could bankrupt the family. There’s still moderate financial risk, but there now seems to be some sort of reputation risk, which is really funny coming from a guy who almost nobody (on the LA tech startup scene) really knows and who get’s 10 uniques a month on his blog. I know in my heart that I want to make myself, my wife, family and friends proud. I want to be a winner again.
“Mommy, what does Daddy do for work?”
The baby thing hasn’t even really hit me yet. I’ve heard that women “nest” and men “circle the wagons.” We’ll see. I definitely don’t want our child born into total chaos with daddy on the couch drinking pabst waiting for EDD checks. I feel urgency to get back at it, but it’s the same feeling I’ve had for the last 15 years; that uncomfortable nagging that you could be doing more, working harder, and sleeping less.
It’s one thing to be in this funk at 35 with baby #1 on the way, it’s another to be in it 10 years from now with whatever things look like then.
I need to sack up and figure this shit out.
This is the third post in my series Startup Lessons from Scarface.
There’s some incredible content written about the startup process, rightfully describing the amount of inspiration, perspiration and tenacity you need to succeed in starting or working at a early stage company. The amount of unknowns are so great that you’re constantly pivoting, re-focusing, and pivoting again to a point of exhaustion.
One of the many lessons I learned from Leads360 was that the business you start is often not the business that you grow into, for numerous reasons. For us, we found that selling software to manage leads was less capital intensive and more suited to our skill sets than selling leads and competing against huge companies like LendingTree, so we made a pivot. What’s important is that we were only able to stumble upon the right business model by starting somewhere and iterating through the customer development cycle until we found something that we could build a scalable, sustainable business around.
I’m a fan of the customer development cycle, as described by Steve Blank and endorsed by many others. Essentially, the customer development cycle forces you to get your product out to potential customers as fast and often as possible to get REAL feedback from people that might be willing to pay REAL money for it. This is not about just having a few beta users because that’s what the “playbook” says to do, or have some half-baked focus groups. I’m talking about having potential customers that actually have the problem you’re trying to solve hammer your solution hard. If there is a need in the market, you should not have a problem finding people to use your product and give you tons of commentary.
“But wait, if I go to market too early I might make a poor first impression, or worse someone might steal my idea”, you say. Yes and yes. On first impressions, most savvy customers will respect the fact that you’re engaging them early and they’ll appreciate you recognizing their unique challenges, as opposed to making a bunch of assumptions about their day-to-day. However, you have to be genuine in your engagement with them, otherwise they’ll sniff you out and won’t want to participate further. As for the uniqueness of your idea, odds are you’re probably not the only one thinking of it, and most likely someone else, or several teams of smarter and more motivated guys and gals are working on a similar solution. Forget about preserving your secret, I’m positive that the idea is 5%, execution is 95%. That’s why most VCs don’t fund ideas but people behind ideas: an “A” execution of a “B” idea is way better than a “B” execution of an “A” idea, all day long.
As the customer development mantra goes, only opinions, not facts, exist within your office/garage/parent’s basement. The only way to get facts is to go out and engage users who hopefully will kick you in the nuts and tell you what they like and don’t like. If you go home after a customer development session and your product has been shredded you should be stoked because either (a) the product has potential and was interesting enough for someone to give you serious feedback, even if it seems negative, or (b) you’re so far off the mark that you need to pivot, which is another way of failing fast. Failing fast is incredibly useful because it frees you to move onto something else without wasting your and/or your investor’s time and money. Once you have the feedback you need, you make tweaks and go back out, hence the cycle.
So how does this all relate to the ‘face? Well, Tony had a rough start in his first round of customer development. Even though shit went completely haywire, he learned some really valuable lessons about his business. I certainly don’t advice telling your customers to stick their head up their arse, but it turns out his gut about doing business with Columbians was spot on. Also turns out his co-founder Manny was more focused on the ladies than developing the business. Tony learned that he can’t trust Omar and needs to go directly to Frank, which turns out to be his ticket in building his enterprise. Oh, and a few “$500 suits” and bottles of Dom at the Babylon.
This is the second post in my series Startup Lessons from Scarface.
There’s this really interesting, emotional and pivotal time when you decide to start working on your company full time. I mean full time, no side work, no maybe still noodling on other opportunities; the day you go full force into it. I think it’s interesting because although everyone faces this challenge with different life circumstances like spouses, kids, debts, savings (or none), we all share the same emotional challenge of saying YES, I’m ready to commit myself to making this work, I’m ready to give 3-5 years iterating around the core of the idea to make it reality, I’m ready to put my ass on the line and maybe be completely wrong about it.
This is scary shit. I’m in the pre-stages of this right now, and having had one success makes it even harder, because now my and others expectations are much higher than before.
The 800 pound donkey is usually money; how am I going to get paid? Well, if you’re lucky to have raised cash, congratulations, that’s a major feat in itself, you’re part of the 1%. If you’re bootstrapping, you could be living very lean for a long time. I’m really talking more to the unfunded bootstrappers (at least at startup), as that’s my only experience and I’m also a big believer in not going to the money man “hat in hand”, i.e no product or customers.
When we started Leads360, we did the very common consulting shuffle. We had programming gigs that we used to pay the bills, and because we were working remotely, we could carve out a few hours a day and most nights working on the new company. This is tough, it’s emotionally draining because you have to keep doing good work for your paying job from both an ethical and practical matter (if the work sucks the consulting stops) while thinking about something else. You’re constantly torn between wanting to work on the new venture and paying the bills.
Eventually, we slowly began increasing the proportion of time we worked on Leads360 as we started getting a little cash flow. However, the transition wasn’t completely linear; there came a time when we had to make the plunge. We felt in our gut that we needed to sack up and get there. It helped that we were young, mostly unmarried, and dumb enough to not know any better. Those finance jobs my classmates took out of MBA school were looking attractive (not really.)
The point of this whole thing is to focus on moving forward. Whatever it takes. Get There. I got this phrase from our first VP of Sales, Scotty Hewitt, who was the driving force for getting us traction in the early days; kid doesn’t get enough credit, but he used to say this all the time and it worked!
Fail fast if that’s the case and get on to something else. What’s the worst thing that can happen? Your wife, husband, kids, friends will most likely always love you. Go for it. Fuck it.
So, how did our boys handle this situation? Well, they took a serious leap accepting a job that was probably a bit above their pay grade because Tony was ambitious (to say the least.) He clearly was the more aggressive of the partners, which can present issues, see my post on picking co-founders. To answer the age-old question of whether Tony and Manny were bootstrapped or funded, let’s call it an “earn-out.” They sure earned it, Angel at least. They cut the cord and put it on the line. What a great way to quit a job. For geeks like me, it usually involves us taking our ping-pong paddle and keyboard home after a goodbye lunch at El Torito.
The take away for me is that at some point you have to “look after your investment.” Get There!
SJ and I have returned from another epic trip to Baja. We worked a pit with our good friend John Sonnenberg and new friend D38 John. Good times per usual. We got into Ensenada early Thursday morning to pick up our race fuel and knock around contingency a bit before heading out to our pit at race mile 265 (outside San Felipe.) As usual there were gorgeous trucks and buggies to drool over. This is my friend John’s 12 car and the Lexus trophy truck:
We always enjoy remote pits and this one fit the bill perfectly. We were at race mile 265, which is across the mountain range from San Felipe with little easy access. No RV’s here, we’ll probably be the only ones there, which is awesome, because you get a certain satisfaction seeing a rider pull up for water or gas after having not seen a soul for hours. On the way to the pit SJ and John agreed to chase me on my bike. I decided to run the course from Borrego to our pit, which provided some early excitement before the race began. SJ and John dropped me off at race mile 200 as it crosses highway 3. They proceeded to head down to the 5 and then take Zoo Road in to meet me at 235.
I got to run some gnarly silty whoops before hitting laguna diablo, aka “pin-it road.” After meeting at 235 we decided that I would continue the race course to 260 and they would drive an alternate ranch road, as this section was super silty and really whooped-out. The sun was setting and the riding was epic, I made it to 260 just as the sun went down. It soon got dark and as I waited at 260 it kept getting darker. No worries, I have gas, water, spark and my riding jacket. I waited, and waited, and waited, no sign of life. I got to high ground to look for headlights and saw some lights in the distance…turns out it was John trying to get from the ranch road to the course.
Eventually John and I connected and he informed me that SJ “had a flat.” Ok, no worries, so I followed him back to the car, about 6 miles back…only to find complete annihilation. SJ hadn’t just gotten a flat, she had completely torn a new BF Goodrich All-Terrain tire off the rim and then proceeded to turn the circular wheel into a square. As you can see below, both sidewalls completely ripped off (due to low air and bumpy high speed road.) I was very proud. We hi-fived and then I changed out to the spare. If you know anything about tires you know that this is an incredible feat. My wife rocks!
The race day was excellent, 1X and 12X (Kawi vs. JCR Honda) had an epic battle. I got to wrench a bit, other than that it was pretty standard. Dust, a few beers, carne asada, awesome Baja sunsets and being completely stoked that my wife loves being down there with me!
We packed up Saturday morning after the last few vehicles limped by and headed into San Felipe for Shrimp tacos and a hot shower. Place was dead, everyone wanted to be in Ensenada for the party. The four of us had a great time telling stories and reliving the last few days.
Update (12/1/2009): I went back to Costco yesterday where I bought the tires (6 weeks ago) and got a replacement tire for FREE! I showed the tire to rep, who was understandably amazed, and explained how my wife was “driving up La Brea” and all of a sudden the new tire blew out. Thanks Costco. Now please start selling Christmas trees.
Anyone who knows me well knows I’m a huge fan of the 1983 classic, Scarface. In honor of Tony, Manny, Chi Chi and Angel, this is the first in a new series I’m calling Startup Lessons from Scarface. Here goes.
Lesson #1: So, you find yourself newly freed (literally or figuratively) and ready to start your new enterprise, whatever it might be, in this case let’s use a technology endeavor. Do you go it alone? Do you pick a partner or two? Let’s assume you decide to rope someone else into your entrepreneurial madness and take on a co-founder, here’s some thoughts on the kind of discussion that needs to take place before embarking on the relationship. (Note, this works the same for other relationship types like marriages, but unlike your nuptials, there’s no divorce for startups, at least not one you want to know about.)
Ok, so you and your new cohort are sipping fruity drinks poolside, now what, what things should you discuss?
(1) Why has each of you decided to start a company and not continue the NORMAL path in life?
I emphasize the “normal” path because, as a one-time (thus far) entrepreneur, I’m convinced that you have to have something mentally wrong to do a startup. It goes against all conventional wisdom; high risk, no net, low pay, a lot of doubters (what the kids call haters) and you’re usually the only one that believes in your vision…but, let’s hope there’s huge potential upside. Personally this is the only life that makes any sense to me, I guess I’m wired that way, I can’t have it any other way. Both you and your new mate need to acknowledge that what you’re embarking on is nothing short of gnarly, burly shit. Unless you both are fully willing to deal with the constant internal and external nagging to “get a real job” or “pay your rent”, get out now. Seriously, leave, life is too short. I’m cursed, I don’t have a choice, you can run.
How did Tony and Manny handle this conversation? Quite well, actually. It was clearly laid out poolside that Tony’s ambition was to quickly make up for lost time acquiring golf courses and yachts, while Manny’s sole mission was to have his name on the back of “chick’s” arse’s. This should have been a clear red flag that maybe they weren’t totally aligned.
You’re still here? Good. You toast to the madness, on to conversation topic #2.
(2) What are your current respective financial situations and growth plans?
This is HUGE! If you and your partner are in materially different financial situations, such as (a) you’re still paying off student loans and living check-to-check and (b) your partner is independently wealthy or has the proverbial rich uncle, this can create huge issues now and later. This impacts not only the amount of risk each of you can bear, but also how long each can go without getting paid, and ultimately how a liquidation goes. This last piece is a big one. Say for example that your company defies all the odds and achieves moderate growth and you’re presented with a buyout option from a suitor. There’s a pretty good chance the two of you are going to have wildly different opinions on when to sell and for how much. Depending on corporate structure and shareholder rights, this can get complicated.
Tony and Manny were simpatico here; they both were clearly tired of eating octopus 8 times a day and dealing with Russian shoes with a propensity to quickly wear out.
(3) How much time is each of you prepared to dedicate?
No two people are exactly alike in their work/personal life balance. Some have husbands, wives, kids, hobbies, etc. It’s very important to have a clear understanding of each other’s commitment to the company. When your partner is in the office every weekend and you’re at home with the kids watching cartoons or waking up late from a hangover, some heavy resentment can accumulate.
Anytime your partner is being riddled with bullets at the Babylon while you’re chilling on satin-sheeted heart-shaped beds, something is wrong. These guys were clearly not clicking.
Bottom Line: Remember the T&C’s: Is this the sum of everything you should discuss? Of course not, it’s just an exercise to start the journey. Remember the T&C’s (not terms and conditions for your lawyer types), Trust and Communication. You have to continually communicate at a deep level about all the decisions you’ll face together, good and bad. It also helps a ton if you trust the other person to keep both of your interests at heart. If you trust that your partner has your back, you’re off to a great start.
As for Manny, where was he when the Toad was wielding a chainsaw at Tony and Angel? Exactly. This partnership was doomed from the very start, not good co-founders.
Unlike these guys, I’ve had good experiences with partners and I highly encourage you to get co-founders, I had great ones at Leads360.
I love Frontline, it’s definitely in my top 5 tv programs. A recent episode titled The Medicated Child got the wheels turning on a lot of topics, but the one I wanted to address here was how the Internet and constant stream of information impacts our brains, specifically children developing in this time.
A couple thoughts. (1) For those of us that were adults in the late 90’s when the information really started flowin’, how are our brains evolving to get better at processing information? We at least got to start with Web 1.0 (static pages) and the Inbox which you could empty. Now shit is coming at us sideways.
(2) How will children born in the first part of 2000s develop? Maybe they’ll be way more agile at processing information. People say they’re more “tech savvy”, but all that really means is that they’re good at using the tools of the day…it was early game consoles for me and my peers.
Maybe we won’t evolve fast enough and our brains will push the easy button, requiring us to take more happy pills, like on the Frontline episode.
I know this, I have to work really really hard to maintain patience. I should get a tattoo or something to remind me. Oh wait.
My wife Sarahjane is an incredible saver. One of her recent scams money-saving programs has been using coupons from restaurant.com, which I think is an excellent service. If you do it right, like SJ does, you can get $25 coupons for $1 at some pretty kick-ass joints.
Anyhow, we went out last night to C&O Cucina in MDR (C&O has apparently taken a page from the Starbucks playbook about opening locations within walking distance of each other…but that’s a conversation for another time.) The point is that the whole coupon program of restaurant.com is awesome, but the math some restaurants do with the coupon is a bit funny. Kind of like VC math.
The basic gist is that they (C&O in this case) automatically added an 18% gratuity to the undiscounted food-only bill. So my bill comes out something like $38 + $10 gratuity. Additionally, they provided the “Additional Gratuity” line, which I struck in honor of my man Larry David.
I fully understand why they do the math this way, it’s to protect the waiter, making sure that their tip is consistent with the undiscounted amount. No problem, in fact my wife gives me shit because I usually tip 20%! Yes, even in this economy. The point though is that there’s always some funny math going on behind the scenes. They can’t just give you the discount and have you be generous to the waiter and give a fatter tip.
I thought that was funny. LD will probably make an entire episode about it soon.
One of the earliest memories I have of the technology business was a conversation I had with my father when I was a teenager about his business, specifically related to the disconnect between product features and sales success. He had been building a suite of software that was vast in scope and far more robust than any competitor. What I couldn’t get my head around was how such seemingly valuable product offerings were underperforming in sales relative to their competitors.
What I began to contemplate was the intersection of product features and customer needs. It seems like an absurdly simple concept, however companies still manage to crank away on product offerings, features and add-ons that don’t clearly address challenges that customers face. It’s not to say that my father wasn’t connected with his customer base, because I think he was, or that he isn’t a smart guy, because he surely is.
I think there’s a fundamental issue related to engineering-minded entrepreneurs who want to solve business problems with technology in an elegant manner. Solving the problem (assuming you’ve got it right) doesn’t seem to be the issue; understanding what problem you’re actually trying to tackle and getting customers to buy into the solution is. What I began to realize from that early conversation and now focus on as a software entrepreneur is that no technology sells itself, nor can it prove its value to the customer alone. More importantly, I can’t assume that just because I think I’m smart I clearly understand my customer’s world and the challenges they have.
Understanding the customer and delivering them a solution that has clear and demonstrably improvement to their success is straightforward-sounding but not naturally occurring to me or others I suspect. On this topic, there are some great videos online from Steve Blank, author of The Four Steps to Epiphany. I haven’t read the book yet, but I definitely appreciate his arguments.
This is a portion of his talk on retooling the product development process.
Hola. I just got back from a seriously crazy trip to Mexico for the 40th anniversary of the Tecate SCORE Baja 1000. I met some great people, drank many cervezas, ate incredible fish tacos, and brushed up on my spanish (donde puedo compre fuegos artificiales?)
My original plan was to drive down to Ensenada, walk the contingency, camp on the race course and maybe do some pre-running in my truck and on my 250X, but I was able to score, as they say, the Gouch. While reading some off-road forums, I came across a post from Bill at Mag 7 about volunteer opportunities at one of their pits. One thing led to another and next thing I know I’m driving 1100 miles down the peninsula with John, my pit captain, and my compradres, John and Doug to our destination, race mile 1180.
The trip was a blast, we were 500 yards from the ocean and close to the finish line (120 race miles to Cabo Wabo) which meant we got to pit some guys in bad shape, both machine and man. We provided gas, food, water, mechanical assistance and encouragement to the guys and gals coming through our pit. These people are warriors.
The Baja 1000 is not an easy experience to get your head around, it’s more than a race, it’s a journey and barometer that people who like to push the boundaries of speed and endurance measure themselves against.
The race started in Ensenada at 0600 on Tuesday, November 13th. Our pit was officially open from Tuesday evening to Thursday afternoon. By Thursday early afternoon, most racers had either finished or dropped out for a host of reasons. As we’re packing up to head north, a rider rolls in for gas, dead tired and barely hanging on. I asked the guy where he got on the bike (as most riders run the race in sections) and in a thick Irish accent he replied “at the starting line.” Ironman; riding the whole race alone, 1300 miles. We convinced him to take a rest at our pit and ready himself for the remaining miles, he was hesitant to get off the bike, I sensed that if he got off, he might not get back on.
Most guys train their whole lives for the 1000, this guy took a vacation from Ireland with his wife, rented a truck and a race bike all with the intention to “ride a few miles.” His wife, who had never been to Mexico, was in the chase truck, no radio, only a cell phone. He luckily got reception at our pit, phoned his wife, and told her to get a room in Cabo. He was making it there either on the race course or the highway. That guy was awesome. If I ever have a chance to race the 1000, hopefully I’ll remember him when I get lonely and delirious in the pitch black in the middle of 100 miles of silt.
I have some great pictures and videos that i hope to post of the bikes and trucks going by at a million miles and hours, neither of them do any real justice to the real thing however.
I’m looking forward to the 250 and the 500 in March and June. Let me know if you’re interested in coming along, good times for sure.
I doubt few people would disagree that the last couple of years in the lead gen and lead management space, specifically related to mortgage, has been crazy. Ups, downs, sideways; enough to create some early-retirement scenarios. As I look at the state of the current market with sub-prime and numerous bks, I can’t but think of people needing to get back to fundamentals, like contacting leads more efficiently and more often.
Our clients ask us all the time about lead management best practices, they always want to know what the most successful shops are doing with their leads. My response seems to amaze some: it’s not fancy, just get better at making contact with your prospects. It’s not high science, its hard work.
We as a company are at fault as much as anyone for sometimes ignoring these fundamentals. We have wiz-bang features all over the place from custom reporting to fancy pie charts and multi-level distribution every which way ’till Sunday. Those features are great, but only if you’ve mastered the basics of lead management, getting your contact ratio up.
More calls? Yes. More often? Definitely. Better communication styles and methods? Yes, yes. We’ve found, and I think many would agree, that contacting prospects within the first 4 hours triples your chance of winning the relationship. Within 5 minutes, forget about it, you’ll be on the cover of mortgage originator.
Now stop reading this and get back on the phone…
