Episode 14 - Venture Capital: Why More and More Corporations Are Getting On Board

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LISTEN TO THE EPISODE ON ITUNES:

Episode 14 - Venture Capital: Why More and More Corporations Are Getting On Board w/ David Horowitz of Touchdown Ventures

SHOW TRANSCRIPT:

David Horowitz:                And I think, really, at the end of the day, what corporate venture is, is having an allocation outside the corporation.

Dave Knox:                         I'm your host, Dave Knox, and this is Predicting the Turn, a show that helps business leaders meet their industry's inevitable disruption head-on. Welcome to another episode of Predicting the Turn. Today, I'm excited to welcome David Horowitz from Touchdown Ventures. David, welcome.

David Horowitz:                Thanks for having me. It's great to be here.

Dave Knox:                         So I want to dive right into your backstory. You spent 14 years at Comcast Ventures, where you invested in multiple deals that were either acquired or eventually went public. In 2014, you left to start Touchdown Ventures, where you partner with leading corporations to manage their venture capital programs. What inspired you to start Touchdown?

David Horowitz:                Yeah, happy to talk about it. So as you mentioned, I was at Comcast for a long time. I was one of the early people that helped start the corporate venture fund there. I was there for almost 15 years. And what I saw there, a lot of people from the outside, especially other investors that I worked with, and other entrepreneurs, saw how impactful we were to the startups. But what a lot of people didn't see, is how impactful we were to Comcast. And actually, that's probably the one thing that I'm the most proud of. Really almost every new business that Comcast launched during that era either came out ... the inspiration to start that business or how that business was started came out of the corporate venture fund, and so that really generated real innovation impact to Comcast.

David Horowitz:                And also during that time, I started getting a lot of calls from other companies trying to pick my brain on how to do this the right way, meaning corporate venture capital. And at one point, the light bulb went off, and I said, I think there's a real opportunity, a company like Touchdown didn't really exist before, which is a third-party management company that can help manage corporate venture funds. So we came up with the idea, pitched that to a bunch of folks, and got some early traction, and that's when I left Comcast, and that was right in the middle of 2014.

Dave Knox:                         So talking about corporate venture capital, it's one of the fastest-growing portions of the venture capital ecosystem. Corporate VCs participate in one third of venture deals, I believe it was, and the number of corporate VCs has tripled since 2011. 75% of the Fortune 100 have active corporate VCs. What do you think is really driving this recent growth and this resurgence of corporate venture capital?

David Horowitz:                Yeah, and there's never been more of an impetus, and obviously, I know you've written a lot about this in your various books, around innovation and ... you know, we've all read the Marc Andreessen, Software's Eating the World. Software's eating every company, everybody's threatened about some new entrant, whether it be an Amazon or Google getting their business. I mean, Amazon and Google are in every business.

David Horowitz:                So you have a lot of, we'll call them older line companies that have been around for a long time and have never really had to innovate, and now they do. And I think this really goes to add innovate, and there's a lot of proof points, whether you look at what we did at Comcast or other successful corporations that says venture capital is a great way to innovate, and it makes a lot of sense. It's a great vehicle to see a lot of startup deal flow, to get a lot of market intelligence about where the industry's going, and ultimately, and I'm sure we'll talk about this in this podcast, a lot of different ways to, not just about investing, but really work commercially with startups.

David Horowitz:                So I think it will continue to grow, and obviously, you're very bullish on this space, you wouldn't start a company like Touchdown if you weren't.

Dave Knox:                         Yeah, so that's all the ways that corporate VC can benefit the corporate. How do you think the corporate VC really helps the entrepreneurs in their portfolio, to be the best that they can be?

David Horowitz:                Yeah, one of the interesting things about a corporate VC is the amount of depth that corporation has in that industry. Typically they have subject matter expertise and a traditional VC, it's very hard to go very deep because you tend to be more horizontally focused on your agnostic to industry and typically you're looking at investing in the best management team, best product. And a corporate VC, it's really different. If you're in, for example, healthcare, you're really dissecting a particular part of healthcare.

David Horowitz:                So that allows you to, I think, have a lot more knowledge of where that industry's going, have more connections, building up a recruiting talent around that industry. And so I think that's something that really gives corporate venture capitalist an advantage, even over traditional financial investors.

David Horowitz:                But the real way you really add value as a corporate VC is you figure out how the corporation that you're investing on behalf of, can really support the company. And so there's a lot of ways of doing that. A lot of that can even be done and should be done in the diligence process, of figuring out whether to invest. But typically what we'll do, even right after investment, we'll have almost a brainstorm meeting. What's put on the table, on the white board, all the ways we could work together. And then obviously, the hard part is obviously executing that. But just having that mindset that once we close the investment, we have to shift to the mindset of supporting the portfolio company. That's how we certainly think about things and a lot of other corporate VC's do the same thing.

Dave Knox:                         That's awesome. So corporations have a ton of options in their innovation portfolio, ranging from MNA to partnership to venture capital. What advice do you give to corporate partners, regarding this mix of what they need for their innovation? And how does corporate venture fit into that mix, as an overall piece of the pie?

David Horowitz:                Yeah, so I think the traditional model was that 100% of your R&D spend is spent inside the company. And I think really at the end of the day, what corporate venture is is having an allocation outside the corporation. And it's certainly not mutually exclusive, I mean a lot of great corporate venture investments are invested in companies that even supply products or technology, that could work with internal R&D. And that's actually, so I think they're very complimentary.

David Horowitz:                And then on the MNA side, MNA is every difficult. I'm sure you've had other people come on your podcast to talk about that, actually most MNA, especially when you're talking about a traditional older lying company buying a new digital company, the success rate on that tends not to be high. So if you think about it, venture capital is a way of de risking an MNA for corporations starting out, just kind of dating before you're married, starting out as a minority investor, understanding whether this is a good fit and certainly if you like it, invest more. Whether that continues a minor investor or certainly as acquirer.

David Horowitz:                So, actually that's one of the reason's were seeing, going back to your earlier question, of why we're seeing corporations do this. It's because it is a way of getting your toe in the water before making some big MNA bets in the innovative space.

Dave Knox:                         So playing out that analogy a little bit, one of the biggest fears I think entrepreneurs have when they take corporate dollars is, does that dating make me exclusive? That I'm going to the altar with this company or I'm never getting married. How do you talk to an entrepreneur about why taking a corporate dollar won't necessarily limit their choices to be able to look at other acquirers, competitor acquirers, et cetera, down the line?

David Horowitz:                Yeah I mean I think the limiting the choices would be on how you structure the deal. So certainly the advice I would have would be, not to structure a deal that gives you that limitations. I've certainly been part of plenty of examples, even going back to my days at Comcast, where we had even some competitors to Comcast, Dish Network I remember bought one of our portfolio companies. If anything, I've seen the opposite, which is actually other big strategic players, actually get more interested when they see that another player in their space has made an investment or gotten behind a company. So I've seen more of the opposite effect, then necessarily the limiting effect.

Dave Knox:                         Oh I love that. So related to all this space of as you think of corporate VC versus traditional, how's a corporate VC and a traditional VC both similar and different? Both from the mindset of an entrepreneur and just the community as a whole.

David Horowitz:                Yeah, it's a great question. I'll put a bit of a shameless plug out for our blog, which you should check out. Which is called Risky Business, it's medium.com/touchdown. And we publish a lot of great content about corporate VC. So we're actually in the process of writing one on this topic, because we think it's a good one.

David Horowitz:                And I would say that they're very similar, corporate VC and financial VC, the process, especially, I would say first is the corporate VC run professionally and that's probably distinction that maybe we'll talk to on this interview or not. But a professional corporate VC investor should be pretty similar, in terms of looking at financial returns, building a portfolio, being proactive and sourcing deals, the diligence process. The big difference would be the strategic lens of you're not just thinking about whether it's a good financial investment, but what strategically can the corporation do, again whether that's the portfolio value et we talked about or that impact to the corporation.

David Horowitz:                And that's going to be part of the analysis of whether it's a good investment. But, the professionally managed corporate venture firms should be pretty similar to a professionally managed financial venture firm.

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Dave Knox:                         Being at the front seat of the world of startups for the last two decades, you've been there seeing how somebody does that professionally manage and really works closely. But you've also seen a lot of corporations, whether it's ones you work with or in the industry as a whole, step on some landmines when it comes to working with startups. What advice do you give to corporations as they start engaging and working with startups to avoid maybe tripping over themselves?

David Horowitz:                Well I'd like to think the ones that are working with us aren't tripping over the landmines, because we're helping to avoid that. But in all seriousness, yeah I would say it comes down to this are you managing it professionally or not? And so, some examples of some of the mistakes that I've seen some corporations make, the first one would be not to have any goals. If you think about, in our belief, if you're starting a corporate venture fund or program within a company, that's like a new business. And the new business is to make venture capital investments.

David Horowitz:                So anybody would tell you, if you launch a new business, you should have a business plan. And a business plan should have what your goals and objectives are of success. And so, that's mistake number one that most corporations don't have that, so then their executives check in to see how the program's going, they can't articulate how the program is doing.

David Horowitz:                The second piece would be purely acting for strategic reasons. I can understand why a corporation would do that, but at the end of the day an entrepreneur probably won't want to take an investment with somebody who's interests aren't aligned with that entrepreneur and the other co investors. So I see that as a mistake.

David Horowitz:                The third one is, you see some corporations, I've seen this a lot, rush out and will make a lot of investments. They have a checkbook and they all of a sudden want to spend all the money and you learn a lot that there is no rush, it's a long game. And if anything, especially if you're relatively new at this, seeing more deal flow and trying to understand exactly what the right fit is, both financially and strategically. That might take some time. And so typically when we're starting up a new corporate venture fund, I mean we certainly violated this a few times, but we usually might wait even three or six months before we make our first investment, because we want to make sure once we make that investment, you own that for a very long time and you want to make sure you're making the right investments.

David Horowitz:                We've seen some corporate funds in the first month make four or five investments, that just doesn't make a lot of sense to me. Most likely there's going to be a failure rate and there's where the landmines potentially come in.

Dave Knox:                         Yeah. So I want to dig into the second point you made there of the interests being aligned, because I think that's one that actually a lot of corporate VC's and a lot of corporations, as I get into this, they misunderstand. Joe Medvet from [inaudible 00:12:18] Hippo, when I was sitting down with him as I was starting WPP Ventures, he said it's so important for the corporate VC's to realize both the entrepreneur and the traditional VC, their interests are aligned because they both want to make a lot of money from this investment.

Dave Knox:                         Some corporate VC's aren't structured that way. So, how do you coach people through that, of understanding the financial side of interests being aligned?

David Horowitz:                Yeah, it's a great question. We learn a lot from some of the comments that Fred Wilson, who's a very obviously respected and one of the best venture capitalists of our era for Union Square, he's actually been a big critic of corporate venture. I think he said corporate venture's the devil in one of his talks. And I think we've dug into that a little bit and I think there's a little bit of, I would call it our justice system is innocent before proven guilty and this is kind of the opposite of this, which is guilty before proven innocent. Which is, I don't know whether you're going to do the right things.

David Horowitz:                And I think the issue with that is you have to prove yourself, you have to build your reputation. And this is one of the ways you build your reputation, by acting just like a traditional financial investor would and that's where I think you get access to better deals, people want to work with you. And ultimately, I think to be successful in this business, you do want to make good financial investments.

David Horowitz:                There's a famous, I think line in corporate venture that says, it's never strategic to lose money and nobody wants to go to the CFO or CEO and say, "We've lost money". So yeah, we don't believe in, I think corporate venture is hard because you have these two lenses, that I mentioned before, you have the financial lens and the strategic lens. And you really should invest when companies check both boxes. And if it checks a strategic lens, it's okay you could do a commercial partnership, there are other ways you can work with a company. But you shouldn't invest if you don't believe it can make money and that's a fundamental belief of our team at Touchdown.

Dave Knox:                         Yeah. So one of the industries that I come from, that we've seen a ton of change, is in fast moving consumer goods. The P&G's, Kellogg's, et cetera of the world. Kellogg's, there is one of your clients that you work with, with Touchdown. And a lot of these consumer brands have been buying emerging brands, Kellogg's bought RX Bar, Unilever bought Dollar Shave Club.

Dave Knox:                         And you touched earlier that acquisitions sometimes don't always go great. You've had that unique seat that Touchdown sees a lot of these acquisitions happen from your portfolio and you were part of Comcast buying a lot of these, including some really successful ones that became business units. What coaching do you give to your clients and just other corporations of, how should they think about acquiring a company? How should they handle that, to make sure that it keeps growing and doesn't become a bad investment or a bad acquisition?

David Horowitz:                Yeah, one of the strategies that I've seen some corporations and I don't know, I know your answers on the CBG space, but I think it's a general rule of acquisition, especially of an earlier stage company, try not to integrate it as much initially. I think that always goes well, try to keep it a little bit arms length, try to keep the culture. Ultimately, at the end of the day, when corporations buy companies, they're really buying people. And some of the people that are not good at acquisitions, don't understand that and they are focusing much more on the asset and the business and the revenue and want to preserve that and don't really have the right incentives to keep the people.

David Horowitz:                And I think the right incentives to keep the people is to continue operating the business, giving them incentives to grow the business and some cases, especially if it's a startup, they're most likely capital constraints. So can you make them uncapital constraint, because the corporation has access to other capital. So, in essence you take the benefits of corporate VC and you bring it into the element of a wholly owned acquisition.

David Horowitz:                So, that's my best advice. But if you can't keep the talent, it's hard to imagine these being successful acquisitions. What I've seen with some of the companies that you mentioned, I think the brand extension has been pretty interesting. So I know both, you mentioned Dollar Shave Club and you mentioned RX Bar and when they were originally acquired, they were effectively single, at least from my understanding, single product companies and now they've created a series of products under that brand, they have a customer base and obviously some of the CPG companies, Kellogg's is really famous for that, in terms of how they've grown their business and how they've run their brands and certainly same with Unilever and Proctor and Gamble and others.

David Horowitz:                So, I think you'll see more of that, but it goes back to the team. That's what the team should execute on and that's a good justification, so that's why that's I think particularly important.

Dave Knox:                         Yeah. And on that part of, how do you keep the team incentivized. Because a lot of these folks that end up being the founders or the early employees that join these companies, they're incentivized by going big. They don't want a bonus structure that's 10% of their base pay is their bonus. They're swinging to change the game. If they've crossed that finish line of being acquired, how do you keep them motivated and incentivized to keep growing while not maybe alienating another division that is somebody that's in the traditional kind of job?

David Horowitz:                Yeah that's challenging, especially in a public company environment, because I think the first instinct is I'm going to give the team a lot of shares in my company and I do want them to help drive the stock price. I've seen it work better in a private environment, because there's no stock price. And a lot of private companies have some form of phantom stock, phantom equity plan and you can do that even on a divisional basis where you can say, "Okay, what's the value of this division within the bigger company?". Maybe you can give them both, because maybe you want that manager to also look out at the whole company.

David Horowitz:                But I think it's harder in a public company environment, I think it probably comes down to reevaluating your entire compensation structure, which I think is very difficult for, most companies would resist that type of change. But probably it's something that most companies are going to need to do to retain the talent.

Dave Knox:                         Makes sense. So venture capital and particular corporate venture capital, goes through waves that are often tied to economic cycles. The massive growth of corporate VC has been tied to a pretty good time period we've been in and the stock market and the economic cycle. What do you think and how are you coaching the folks you work with of, what the next five years look like? And if we do hit that economic downturn, how do they keep going through and realizing full potential?

David Horowitz:                Yeah, as a couple points, I mean I think the first one is I really believe, based on the comments that we talked about earlier, that this era is different. In the downturns of 2000 and 2008, if you did nothing in status quo, you'd probably be fine. And now it's different, you have retail stores closing shop, automotive companies are under threat by the Google's and Tesla's of the world. Amazon is putting a lot of hurt into any company, selling anything at retail. You've got Netflix, Apple are the media business now. There's no industry that's really immune from this. So I don't think you can just say, "We'll go back to status quo", I think you have to keep innovating and so it comes down to whether you believe venture capital is a tool in the innovation toolkit.

David Horowitz:                The other thing that I would say and I think this is harder for a newer corporate venture fund to understand, actually some of the best investments, so if financial is an objective, which it should be, can be done during these times. Other investors pull back, so if I go back to Comcast ventures, but you can even look at other just financial VCs, some of the best investments were in 2001, 2002, 2003, 2009 was a terrific year for venture capital investing, right after the 2008 recession.

David Horowitz:                So you want to stay in because the financial opportunities, but you want to stay in really because you need continued innovation. So, but there will be people that leave and those might be the people that don't survive and are filing chapter 11 or have bigger issues. But the big incumbents that continue to innovate, I believe will be in this business in good times and bad times.

Dave Knox:                         Yeah well and I think that's so important because the average age of a corporate venture fund, I think is like at four years. You've been doing this for 20 years, you've lived through two economic downturns that have happened and to your point earlier, about people are what matters, oftentimes those people that are in really good jobs, working for a big company, being paid a lot of money, the risk of them leaving isn't there. But, when a downturn happens, they might be forced to leave and suddenly they're on the market to go do a startup and that's a great time to be able to jump in and capitalize as an investor, to find great talent.

David Horowitz:                Absolutely.

Dave Knox:                         Yeah, so people underestimate that for sure. So, related to that then, companies and employees need to be in this state of what I call continuous beta. This place where they're constantly evolving and changing and recognizing all of this evolution that's going on in our industries and our careers. Today you sit there as a founder and a CEO that has to think about how do you, yourself, continuously evolve, but how do you keep Touchdown evolving?

Dave Knox:                         So how are you doing that? How are you thinking about the change that you need to drive for your people, for your company and for yourself?

David Horowitz:                Yeah I mean I think we have a number of different constituents, which certainly makes it hard. So the [inaudible 00:21:48], it's our people are our biggest asset, which we've talked about. So, we try to spend a lot of time in areas like training development and we'll have, we'll pick a topic and usually we'll have, this'll come from some of the folks on our team and an area of development and we'll either figure out someone on our team that has expertise or bring someone from the outside. So I think this idea that you're always training and professional development, which is pretty important in venture capital overall.

David Horowitz:                The other key piece is really listening to the corporations that we work with and this is actually a pretty good advantage of the Touchdown model. So what we've seen is, some of our best ideas of how we do things at Touchdown, come from the corporations themselves, say, "Have you thought about X Y or Z?". Or have given us a new lens. And one of the nice things, if it really works well, we can take that idea and go to another corporation that we work with and really test that out and all of a sudden can demonstrate more value.

David Horowitz:                So there's an interesting kind of network effect from that perspective of our model. So, those are some of the things we continue to think about what other opportunities are there for Touchdown in the corporate venture market and right now, our focus has principally been if you're a new corporation that is evaluating whether to do corporate venture, we are really good potential partner to work with, especially given our expertise and our ability to really get up and running quickly, which we've done with a number of corporations.

David Horowitz:                So we continue to think about, what are the other areas of corporate venture where our expertise can be valuable? So those are some things that I'm sure you'll see from us, as we think about growing our business.

Dave Knox:                         Awesome. Well really enjoyed the conversation. You mentioned earlier that you guys share your writings on medium at /touchdownventures on Risky Business.

David Horowitz:                Touchdown VC actually.

Dave Knox:                         Touchdown VC, there you go. So, if somebody wants to get ahold of you and learn more about what Touchdown's doing, what's the best channels to do so?

David Horowitz:                I think any, LinkedIn's made the world so flat, so certainly reaching out through that or being referred by a mutual connection is always great. I mean obviously on our website we have our email address, but I'm sure there's a number of ways to get ahold of us.

Dave Knox:                         Awesome, well thank you so much again. That was a great conversation and love all the things you guys are doing in the world of corporate venture.

David Horowitz:                Yeah thank you so much, it was great participating with you. Thanks.

Dave Knox:                         Cool. Thank you.

Dave Knox:                         Thanks so much for listening. If you like the show, hit that rating and make sure to subscribe so you don't miss a single episode. And for more resources, head over to Predicting the Turn.com.

Episode 13 - Disrupt Yourself or Be Disrupted: The Challenge for Every Enterprise w/ Rudina Seseri of Glasswing

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LISTEN TO THE EPISODE ON ITUNES:

Episode 13 - Disrupt Yourself, or Be Disrupted: The Challenge for Every Enterprise w/ Rudina Seseri of Glasswing Ventures

SHOW TRANSCRIPT:

Dave Knox:                         I'm your host Dave Knox and this is Predicting The Turn, a show that helps business leaders meet their industries inevitable disruption head on.

Dave Knox:                         Welcome to another episode of Predicting The Turn. Today I'm joined with my good friend, Rudina Seseri, who is the managing partner of Glasswing Ventures. Rudina, welcome to the show.

Rudina Seseri:                   Thank you Dave, I'm excited to be here.

Dave Knox:                         Thank you. I'd love to start with talking a little bit about your journey that your career has taken. Moving from investment banking to corporate development at Microsoft, and then ultimately into the world of venture capital with Fairhaven and now with Glasswing Ventures. What led you down to the path of where you are today?

Rudina Seseri:                   It's been an interesting journey and as careers go, I can tell you that this was the path I had laid out for myself, but it has been a wonderful and rewarding path. And if you look at it, the common theme across my various roles, honestly starting from the day I graduated Wellesley and worked on Wall Street is technology. I joined the technology group at Credit Suisse at the time as a young college graduate. While finance and investment banking was all great, the passion that truly emerged was around tech and the transformative impact that technology was having.

Rudina Seseri:                   After business school, I joined Microsoft, focused on their acquisitions and some investments and then from there, moved onto the venture world. So with every step I've taken, I've gotten closer and closer to, sort of fulfilling what has turned out to be a deep desire around driving transformation through innovation and technology. So that's really the reason behind the path that has taken shape.

Dave Knox:                         Perfect. And we first met because of your involvement in SAS marketing technology, some great startups like crowdTwist and SocialFlow and Celtra, those investments gave you a front row seat in how the marketing industry is changing. What did these entrepreneurs and you as an investor see in terms of the future of things like loyalty marketing and advertising, creative and social publishing.

Rudina Seseri:                   Yeah, I'm gonna now date myself a bit, but a number of these investments are now six, seven, eight years old. So we're truly looking sort of in the 2010 timeframe, and what was fundamental about that period and the investment that I made was the fact that digital was changing everything. And brands at the highest level, particularly consumer facing brands, had a new opportunity that had been previously unfathomable in that they could get direct access to their consumers. I mean, let's go back a bit, could any given brand that didn't have a direct retail store they owned ever have disturbed chain and their relationships with retailers to try to get access to the consumers? Absolutely not.

Rudina Seseri:                   Yet with the advent of digital, an entirely new marketing opportunity and a new opportunity to establish direct relationships with consumers were created, the result of that has been multifaceted. In today's world, we really think of it as cloud marketing and that's all encompassing of anything from the distribution where programmatic has taken over, I.e. powered by data, to loyalty as another mechanism for honestly getting a 360 view of a consumer, not just on digital including mobile, whether it's app or mobile web, desktop, physical and a brick and mortar. Loyalty is one of the mechanisms and one of the more differentiated mechanisms to get a full 360 view.

Rudina Seseri:                   And you mentioned CrowdTwists, a portfolio company that focuses in that area, but all the way from that to the delivery has been worked out to how do you intelligently deliver the creative, the last bit in this world of what can you automate and drive by data. So I would say that whole learning experience has been very interesting and it has evolved and changed, initially just the access to consumers now a lot more leveraging intelligence and machine learning to deliver what, in Glasswing we would coin this term around personalization and hyper-personalization at scale. You build it once but you make it highly personable to any given consumer, and again we're seeing that even more around new plays.

Rudina Seseri:                   I have a company called Zilo Tech in the CDP, customer data platform markets. So a whole new category of fairly noisy category with large budgets but big opportunities for transformation of how brands and consumers interact with each other.

Dave Knox:                         Speaking of that, you mentioned Glasswing in that answer, and last year you announced the launch of Glasswing as the managing partner for the fund. With Glasswing your focus on early stage AI and complimentary frontier technology startups that are, as you say, enabling the rise of the intelligent enterprise. What led you to that focus of this area for your debut fund?

Rudina Seseri:                   So the funding, and we formed the firm in 2015, and I point that out because while today is speaking about AI, it's almost an overused term in certain regards. In 2015, I'm quite proud of the fact that we were visionary in what was happening around the rise of both deep learning as I would say, the impetus for the current, the wave and the current paradigm of narrow AI adoption and intelligence adoption as well as the amount, and the diversity of data that was being created given pervasive connectivity. So the processing power, the large amounts of data and the large, you know, the voracity and the diversity of data. And thirdly, the breakthroughs- you know, in machine learning, particularly around deep learning, those three driving forces created a trifecta that in our view was going to enable a new wave of disruption around AI.

Rudina Seseri:                   And we that impetus and with that sort of schematic view, we believe that it would be a transformative opportunity across the enterprise platform for [inaudible 00:07:16] the cyber security market. And that was the genesis of why we form GlassWing and launched the firm. And as I look back 18, 24 months now, the of the fund deployed, the potential- we've only scratched the surface while the term may be overused. The reality is that we've just gone from an era of data analytics to predictive, which is why, you know, there's a lot of discussion around predictive and yet at GlassWing, which will we believe that the real opportunity around the intelligence enterprise is not just to predict whats going to happen. We talked a bit about marketing, but we have investments around data infrastructure and Dev ops and other areas of the enterprise, it's not just about being able to tell in advance what's going to happen in an intelligent manner.

Rudina Seseri:                   We think about predictive. So in many ways I think we're still visionary and how we view the market shaping up in that, and by prescriptive I mean data informing us of what should happen to achieve optimal outcomes that we are seeking. So there's a lot of opportunity around that. But to come back to your question, there was the genesis of GlassWing and even more fundamentally the idea, again going back to your first question, of driving transformation and being part of shaping the wave around not just AI as a driving force, but of responsible AI. And GlassWing's roots, even the name it's a butterfly, so the idea of transformation within that butterfly, much like startups become large companies. And perhaps lastly is that, Joe, quite often I called the entrepreneurial bug and I and my partner, who would be Grinnell, we're ready to take on our own entrepreneurial your journey in that regard.

Dave Knox:                         Yeah, at Predicting The Turn, we talk a lot about growth challenges facing business leaders today. And as we talk about growth, I want to mention one of our sponsors, Chinatown Bureau. Chinatown Bureau is a consumer experience firm, solely focused on driving brand growth. They move brands beyond advertising towards a new brand growth playbook. They do this by building the strategies and technology tools that make each customer relationship as valuable as possible, streamlining operations and creating new revenue opportunities. Their clients are fortune five hundreds and high growth startups alike, and their engagements range from strategy development through full implementation of a new consumer experience. If you're experiencing slow brand growth and looking for better solution beyond just advertising, visit ChinatownBureau.com to schedule a call today.

Dave Knox:                         Yeah. So speaking of that entrepreneurial journey, this has been you launching your own business, you know everything that goes into it. What lessons have you learned in that journey of launching your own company alongside doing investing?

Rudina Seseri:                   I would say it's probably been the hardest undertaking and the most fulfilling undertaking I've ever done. I've never worked harder and I've never been happier and this because I think both in that kind of like a baby, you're shaping it and you're giving it life, but also the ability to shape culture and in the heavy burden at the same time to shift culture, to shave processes, to think about what will GlassWing stand for, what should our team look like and more core to our business, how do we add value for our founders or prospective founders. It's not just about, 'oh, we know the space, it's intelligence capital', no pun intended. It's about really being, especially for early stage, hand in hand with your founders. Yes, we take bore cts, yes were driving terms, but this is not an exercise in who's high and mighty on the broad of directors. This is an exercise of being an extension to the team and helping them, whether it is adding new team members, as the management team and beyond gets built out. Whether it is helping them land their first customers, whether it is focusing on pricing, you know, go to market, whatever it helped that might need.

Rudina Seseri:                   So as I think about our journey though, the core is perhaps, and most importantly, we relate to our funders at the most direct level. We know what it takes to get a company built from the ground up. We know what it takes to fundraise. We don't have the software or another solution to show. We had our track record, a successful track record, but nonetheless to use and to go and raise institutional capital as we did. so we know the hunger, the drive, and the unwavering commitment that's required to be a founder. And I think that makes us better investors.

Dave Knox:                         Yeah, without a doubt. I love that. So you're taking a slightly different tact with your time at Microsoft and your former venture fund, you were really helping corporations and their efforts around startup engagement. Why do you think it's important for large companies to be involved in the startup ecosystem, whether it is as an investor, acquirer, or a partner?

Rudina Seseri:                   Well, a couple of answers to that question. At the highest level, because any business no matter what vertical or market it's operating in, is a tech enabled business in this day and age. And the expectations of customers, whether they're, you know, enterprise customers or consumers are increasing. The responsiveness or time to responsiveness is getting shorter and shorter, at least from a customer's point of view. And the demands of the three constituents- so customers, employees, and perhaps regulators as an external force, are also changing. Regulators often lagging, but the employees are expecting just in time feedback, and especially with the rise of the millennials is a major force in the labor markets. They're expecting certain feedbacks are expecting tech savvy engagement customers as well. And the regulators are having to respond, especially when it comes to data privacy and other matters of importance. So with that changing, today's large incumbent may be tomorrow's fall on empire. It is not a coincidence that every large fortune 100, 500, whatever one wants to cut the data, has some major digital transformation effort under way.

Rudina Seseri:                   And it's interesting because in my view you ask 10 companies and enterprises what they mean by 'digital transformation' and you will get 10 different answer. What's common though is the fact that they recognize the need to change where technology data and more recently machine learning and AI, at times is a buzzword to be perfectly honest, are driving it- you know, are driving and critical components of the transformation. So to come back to your question, if that is happening, one way to do so and both remain relevant but also help transform oneself as a large enterprise is through the startup ecosystem and varying degrees of engagement in that ecosystem. Whatever forms they may take, as you outlined a couple of options, from my perspective as a VC, I think about it both in terms of helping large enterprises acquire cutting edge software. But also in my day role enabling my companies to land their first customers, those first critical logos. So I view it both as a contribution to the broader ecosystem and also as an opportunity to help and add value to our founders and portfolio companies.

Dave Knox:                         So speaking of engagement, you've really stayed actively involved in both of your Alma maters with Wellesley and with Harvard Business School. And with HBS in particular you served for the last five years as an Entrepreneur In Residence and had been involved with Rock VC. Why have you found important to prioritize this involvement with the educational community?

Rudina Seseri:                   I think both because a lot of what's happening in this space that we invest in, comes out of academia. I think about you know, machine learning and deep learning and in general this whole field of computing and AI will, you'd be hard pressed to find many individuals over the age of, I don't know, 45 that have training. In fact, if anything overall in the U.S., there is shortage of this capability and of the necessary training on what's happening around data sciences and albeit, I think it's a short term challenge because a lot of these higher ed institutions that are investing in the category. But if you are going to find the talent, oftentimes talent is coming out of the institutions. So for one very practical reason, I would be doing myself and ecosystem of disservice now that we have an ear to the ground. Secondly, because I think out of the HBS and actually for the broader university, much like my partners do at other schools, MIT and elsewhere, there's lots of new and entrepreneurial ideas coming out and then businesses being formed. So while we both want to add value and be helpful mentors as well as have an opportunity to learn about these upcoming ideas.

Rudina Seseri:                   And lastly, this pertains to both HBS but perhaps I have a bit of a softer spot for Wellesley, it's important to me personally to give back to both schools. But for Wellesley, in particular around the women focus and changing the dynamics around women in tech and women in venture capital. This need is, in my view, even more pressing when you think about AI and machine learning and how the neural nets and the algorithms are being built and wired. And as a woman and as a mother of a daughter, I do worry about AI being ethical, being fair, and not belonging to a given gender because the gender coded and built the algorithms. So I think anything I can do to help drive change in the ecosystem, I think it's important and it's important not only on a normative basis, 'Oh, I was right or wrong', it's important because it's good business.

Rudina Seseri:                   We are in the world of startups in the world of innovation. And the more creativity and the more diversity of thinking we have, the better the outcomes. And right now the percentages of women involvement and other minority involvement for that matter in our space, leaves much to be desired.

Dave Knox:                         Yup, no, those are great points. I love that combination of it's good business to really think about how do you tie it in and help make sure the change is being changed in the right way versus not thinking it through all the ways there.

Rudina Seseri:                   Absolutely- [crosstalk 00:19:12] no, go ahead.

Dave Knox:                         So one of the things I'd love to touch upon is, you know, you're spending your time on frontier technology and that by nature is putting you on the very bleeding edge of what's taking place in a lot of different spaces and industries. What are you doing to, you know, think about your own personal development, to stay ahead of these technology trends and these industry trends because you're looking at companies that it's very much at the early stages. So how do you keep yourself being on top of those things as you evaluate investments?

Rudina Seseri:                   I will start by saying it's an existential challenge that I'm constantly working on. It comes in many, many forms. It comes in, 'what do I read? What moods am I taking online?', who I surround myself with at the highest level, as you share and you know, at GlassWings invests in BDB companies that leverage machine learning and AI. And you know, my part, one of my partners [inaudible 00:20:14] Grinnell specializes in cyber security. I have another partner who is more on the digital side of things. I specialize in enterprise. So one area I'll focus this perpetually there if you will, is the enterprise focus.

Rudina Seseri:                   So you're not for the last 15 years that driving forces in the market dynamics in the various areas of enterprise have become second nature. The question often is, and then, 'okay, what technology is going to drive the next wave of disruption and and how will the market respond? Which verticals'- if it's a vertical play or which platforms will win. And there I think it's both. Like I said, I'm constantly reading but also surrounding myself externally with advisors who are either in academia or in industry at the cutting edge for every area that I know there is someone out there that can go a lot more deeply. So my goal is one, to have access to those people and two, to educate myself as much as I can, such as I can in turn add value to my own portfolio companies.

Dave Knox:                         And the way- [crosstalk 00:21:26]

Rudina Seseri:                   If I make them [inaudible 00:21:28] to that, and you know this from your personal experience, but we have actually what I just shared with you, formalize that view, and we have 33 advisors out of academia and industry and the startup ecosystem who work with GlassWing exclusively in part to address that very need. And I mentioned the fact that it's exclusive because these individuals are not just big names and a website and you check the box. These are individuals who commit a certain amount of time and truly play a fundamental role in adding value to our overall portfolio and fund, including the facets we've just covered.

Dave Knox:                         Without a doubt. And you mentioned that you've got those industry leaders involved. What do you think industry leaders need to do to reapply the principal and the mindset that you have to keep themselves on kind of that forefront of where change is going, given that industry change is happening kind of at an unprecedented pace these days?

Rudina Seseri:                   I mean, I think at the highest level of willingness to disrupt themselves because if they don't, someone else will, another company will. And that may come in the form of reinventing one business, taking risks that may even negatively impact existing revenue streams and cash flows, which is a very hard thing to do. How do you transform, if you have Wall Street expectations and broader market shareholder expectations, yet you know for a fact that if you don't do something about the present day challenges, 5 to 10 years from now you may cease to exist. So balancing those and having that sense of urgency, I think it's fundamentally important. And and then getting to the 'how', first grappling grabs, but then you know, internalizing the 'what' of what needs to happen and then focusing on the 'how' and if the timeframe for something [inaudible 00:23:37] of transformation is 'x', knowing that someone else somewhere else is doing it in half the time.

Dave Knox:                         That's perfect. Well thank you so much Rudina it's always an amazing conversation that has my, my wheels spinning at the end of it. So thank you for taking the time and telling the story of GlassWing.

Rudina Seseri:                   My pleasure and thank you for having me and I so enjoy working together. This has just been a joy. Thank you.

Dave Knox:                         Thank you, and if somebody wants to find out about GlassWing, what's the best way to learn more?

Rudina Seseri:                   GlassWing.VC, for venture capital.

Dave Knox:                         Perfect. Well thank you again, and I look forward to talking again real soon.

Rudina Seseri:                   As do I, thank you.

 

Episode 12 - How Disruptive Startups Embrace Category Design To Dominate Markets w/ Dave Peterson of Play Bigger

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LISTEN TO THE EPISODE ON ITUNES:

Episode 12 - How Disruptive Startups Embrace Category Design to Dominate Markets w/ Dave Peterson of Play Bigger

SHOW TRANSCRIPT:

Dave Knox: I'm your host, Dave Knox, and this is Predicting The Turn. A show that helps business leaders meet their industry's inevitable disruption head on. Welcome to another episode of Predicting The Turn. Today, I am joined with Dave Peterson, one of my favorite guys in the world when it comes to the world of category creation. Dave, welcome to the show.

Dave Peterson: Hey Dave, thanks for having me. We're in Club Dave, so always excited to partner up with you on that.

Dave Knox: In deed. It's always a good club. Well, I want to dive right in, because I love starting with your story. How did a guy from the middle of Iowa end up in Silicon Valley helping some of the biggest names in technology to design and dominate categories that change the world works?

Dave Peterson: Yeah. Well, I think that's a generous [inaudible 00:00:53], but I'll do my best. It is funny though. You look back and say, "Wow, that was an unlikely path," which I think most of us follow in life and business and such. Yes, indeed. Can I start off? My whole world started off in a little town called Sheraton, Iowa in the middle of Lucas County, Iowa. And I didn't know it at the time, but even back then I was surrounded by categories, so it's kind of funny. Looking through this lens now I can realize even back then there were these great companies that were inventing new ways to solve problems. In particular, I remember when I just got out of college way back in '92, so that will age me properly, I was working for an ad agency or a marketing agency.

Dave Peterson: One of my clients was this company called Vermeer Manufacturing. If you ever seen that brush chipper on Fargo, that's the company that made that brush chipper. They were infamously associated with that movie scene, but Gary Vermeer has since passed. But he was this famous farmer who basically solved problems by inventing new categories of heavy duty equipment. Their shipper was the easy way to cut a tree. In particular, the other story I like to tell is that, if you ever drive through the Midwest, and you ever see those big round hay bales, well, that was Gary Vermeer. He realized the problem with baling hay was it required a crew of 20 people and backbreaking labor. [inaudible 00:02:24] wouldn't it be easier to use a tractor and one person? So, he created the one-person baling system, which basically changed the way the agricultural world works.

Dave Peterson: Again, it started with a simple problem, baling hay, it's too hard, and then turned into an entirely new category. I didn't look at the world back then like that, but I can circle back and see, even back then I was surrounded by categories and then the long story hopefully short is, somehow some way I had a connection with a friend who asked me to come out to the Silicon Valley in the mid 90s, right when the internet came out. I admit, I didn't even know how to use a web browser. I thought email was interoffice, I didn't know you can email people externally outside of AOL. I was about as big eyed and fresh faced as you could get. Somehow, I walked right into this whole category world at a company called Vantage Corporation. It was one of the early companies in the CRM space before there was CRM.

Dave Peterson: I got to work with the team there that was not just building a great company, it was also realizing we were in a category war with a bunch of other companies. Ultimately, the one that won that war was a company called Siebel Systems. It was really the first time I ever felt the impact of business of, no matter how hard you work, no matter how hard you sell, market, or no matter how good your products are, a category can defeat all of that hard work and great products.

Dave Peterson: And that's what Siebel Systems did when they rolled up all the subcategories and creating CRM. That was my big awakening moment, and then I always carried that lesson around early in my career and it sort of, weaved me through many, many operating jobs. I founded a company, I serve as the CMO in a lot of different companies, in different sizes, from publicly traded companies to startups. And then, one day I decided to stop working in one company at a time and see if I could help build a portfolio of companies. That's how we started Play Bigger back in 2011.

Dave Knox: Awesome. It's been a fun journey. Let's talk a little bit about Play Bigger. That is the name of the book that you helped to write, but it's also the advisory firm that you started. So, what is this concept of Category Design that has been that thread in your career and really is at the heart of Play Bigger?

Dave Peterson: Yeah. If we were having a discussion about categories prior to the book coming out in 2016, it would have been a long discussion, very interesting, in the abstract around this notion that we look at the world through this lens of what we call "The magic triangle," which is company, category and products all move together. We feel like a lot of companies, at least in the tech space, really didn't pay attention or feel like they had any right to control or define their categories that they operated in. At a simple level, a category is ultimately the proxy to what problem you solve, and the categories are the way that people sort of navigate the world. One of the examples we give quite often is when we're talking about this is a grocery store.

Dave Peterson: If you're handed a big list, at least when I get handed a list from my wife to go cook dinner, you walk into a grocery store and the only way you can navigate a grocery store are categories. Due to the organic bread section you spent 15 bucks on a loaf of bread, or you have to get to all the different items inside the grocery store based on the categories. That makes sense in the consumer world, but it never really made sense in the tech world. So, after doing this as operators in 20 years and then after working pretty hard at Play Bigger from 2011 to about two thousand call-it 14, we just heard a lot of people say, "You guys have a lot of great ideas and you do a lot of good work, but why don't you write a book?"

Dave Peterson: And that is quite an endeavor and an easy thing to say and a hard thing to do. Then, a long story longer, we decided to write a book but we realized we couldn't do it on our own. Met a great guy named Kevin Maney who helped get all that shit out of our head and codified into a process that spilled out into those chapters you can now find embedded in the Play Bigger book. We had dreams and hopes that we sort of codified it in a different discipline you could apply right alongside all the things you are already doing in business. I think that's one of the perception questions we get, is category in addition to all the work I'm already doing. Is it a third job inside my very busy day or does it blend in to what I'm doing? We believe it blends in.

Dave Peterson: You're going to build a great company anyway. You're going to build great products anyway, why don't you take control of the category that will help value and make your products and company makes sense? Since that book has come out, it really is truly, the book title is Play Bigger, but it's all about Category Design and every single lesson we ever learned by our hands-on experience plus 150 to 200 interviews with CEOs, plus a bunch of research around how the economics work, we pushed it into that book and hoped, we joked, we open sourced it because we hoped the world could use it as a bit of a field guide and a manual for taking something back from the industry analysts and putting the steering wheel back into inside the business and build that muscle memory to create these categories for the businesses that you're building. There's been a lot of great companies we can point to that have had a lot of success doing that work since the book has come out.

Dave Knox: In that research we mentioned, one of the things you came across was this 6-10 law, as you can call it, related to the IPO sweet spot. That is important especially as private companies are staying private a lot longer today. Why is that concept the one the investors and founders and everyone else needs to pay attention to?

Dave Peterson: Yeah. Yeah. I really wish I could have a conversation with, as we all say 2006 Dave, because if I would've known back then what I know now, I would've changed my thoughts on how category timing works and ultimately how career timing can work. But the 6-10 law was something we discovered by accident. We had a whole bunch of questions about category economics and, how does a hundred different things like funding, money raised, time, how do these all correlate with how categories naturally developed? We were just doing the research to see if we could come up with some answers, and our data science team came up with this big question mark of like, "Wow," when we looked at funding rounds and the amount of money funded, it really didn't have any impact on the successful categories, or the companies that became category kings."

Dave Peterson: But the one thing that did stand out was, there was this time window, companies that basically went public in the six to 10-year time frame yielded all the economics. And then, if you went public earlier than six years, even if you had a successful IPO, in the long run, you'd be trading at a negative value. And if you went public after 10 years, again, you may have some positive results for your IPO, but in the long run, you would see those results dwindle away. So, all of a sudden we're looking at this giant spike of all the value created post IPO was living inside the companies that went public in the six to 10-year time frame. We were not sure about what were looking at, so we shopped that up and down, took the road with all the venture friends of ours that helped us really come to a conclusion as well as with the big investment banks.

Dave Peterson: Here's the part where I'll have to wave my hands and nobody can see me waving my hands, but there was a category curve model in the book that explains what happens, which is that six to 10-year period is when really a single leader for a category starts to emerge. That leader starts to take all the growth with them and you'll see it as the category economics rise in that category curve. And then that's when you start to see all the competition starting to fade way, which helps boost margins. Growth and margins are two of the things that are highly rewarded for publicly traded companies. We took that 6-10 year window and slapped it right over the top of the category evolution model, which says categories take anywhere from, call it five to 15 years, to evolve.

Dave Peterson: And there was a direct correlation with those two things. That's when we realized, "Wow, there is definitely a window of time that is burning our fuse that is lit when you're building your company and building your products." I won't say it's a finite law, as in there's not exceptions, but to the degree, it's something that's very relevant. And I think if companies looked at that research, they might be able to make some decisions about, we're not experts on taking companies public, but perhaps when you need to start thinking about really shaping and taking control of the category that you're in, because that's going to matter a lot when you start to approach the IPO window.

Dave Knox: Very cool. What's that mean for companies like Uber and Lyft and some of these unicorns that are getting past that 10-year mark today?

Dave Peterson: Yeah. Again, I can't speculate on what will happen with those IPOs. There's certainly some very successful companies that we've seen have a successful IPO outside that window. But the best take that we would give those companies that sort of stayed in the private world, and harvested the category economics while still staying private, you could argue that they're going to sort of come out public at the apex of the category economics. There's probably still some growth left in there that can be shared with the public investors, but it may not have the same ride as a company that started to climb that growth rate at an earlier point in time. And so, I'm guessing that those categories are still pretty big, and there's still some growth left in them, but one would question, will the ride-sharing category, is it a $50 billion category, is it a $250 billion category, and how much growth is left in that?

Dave Peterson: Then, ultimately, what category will start to form on the back end of that? I think there'll be some growth there. When we always look at it, we say, "Well, when will they hit the apex of that growth?" And that's the point when you go from category creation to category harvesting. We've seen that with great companies like Microsoft, they've been harvesting their category for 25 years, and they're not complaining about it, but it's a different type of situation at that point. Moves from solving problems, to harvesting economics of the problem that you solved.

Dave Knox: Talent is a big part of Predicting The Turn. And as we talk about talent, I want to mention one of our sponsors, Hunt Club. Imagine the power of the best marketers in the world helping you to find your next marketing leader. That's the power of Hunt Club. Hunt Club is a new category of talent company that powers the network of experts, connectors and business leaders to help you find the best talent. Let's face it, recruiting hasn't changed with the times. Hunt Club is changing the recruiting game by leveraging technology and crowd source referrals to find you the best people possible for your company. Stop paying job boards that don't work, or recruiting firms that recycle the same active candidates. Partner with Hunt Club.

Dave Knox: When I look at Category Design, one of my favorite parts you guys talk about is Point Of View, because it requires a company really draw a line in the sand and take a stand for what they believe in. But getting your executive team, your investors, your board, your employees, all aligned to this Point Of View, is far from easy. How do you help companies navigate this to come out with something that is not just a safe water down Point Of View?

Dave Peterson: Yeah, it's a piece of the category-colored building blocks that sometimes get perhaps through a point watered down or even not recognized for the power of the Point Of View. We always look at, a strong category needs a thesis, a very strong definition of the problem, a category name that does its job, which is an intuitive place to sort of answer, where's the solution to the problem? Ride sharing is a very easy thing to understand. You don't have to sit there and wonder what that means. You know exactly what that means. But that all, as I like to say, speaks to the head. It makes sense. "Hey, I need to get from point A to point B. I'm going to use my ride sharing app to get an Uber or a Lyft," but the Point Of View speaks to the heart. It starts to help you help customers make almost an irrational decision.

Dave Peterson: To choose your company, and to basically ultimately become a fan of your company using this technique that we did not advance at all. The Point Of View is built around almost a debate framework of framing a problem up front, which plays off that anchoring bias, clearly articulating the ramifications of that problem, painting a picture for the future, and then explaining very clearly what to do now. This has been used in every debate since the beginning of time. It's been used in every infomercial that you've ever seen. A lot of traveling, stuck in a hotel room at three in the morning and, arguably, you can see Category Designers use this Point Of View framework to change the conversation from a PR product-led conversation, or a company-led conversation to a problem-led conversation. And that's the key.

Dave Peterson: A Point Of View allows you to talk about the problem first. Salesforce and Marc Benioff talked about the problem of software first, and he had that fame of no software logo on the end of software even though [inaudible 00:17:17] a software company. He attacked the old and brought the world to the new, and that was a fast model and cloud delivery of software. And when you bring a Point Of View into the mix, it can really, really speak to the heart and start to move people's behavior around, and make it really clear that the way the world worked in the old way, it's silly or stupid or dangerous, and the new way is something that you should enlist and embark on. I think one of the greatest Category Designers out there right now is, you can pick on his personality all you want, but Elon Musk is definitely bringing us to his world with his Point Of View on many things.

Dave Peterson: But, to a certain degree, there's a fine line between a mad scientist and somebody who's going to get us to Mars and back. Every time he launches something into space we are sort of rooting for him, because we know through that Point Of View, that he has a vision that we can get to Mars and back someday. Therefore, it's not a failed rocket scientist, it's an innovator that's going to change the way that part of our world works. And that Point Of View is the way to have that story start working for your company and your products and it sets a context around the problem that gets people sort of mad or sad or excited or fearful.

Dave Peterson: It really is an effective more than a tool, effective strategy to incorporate. And we are always amazed, I think it's just because the technology industry is such product-first mentality. You make sure you sell shit and everything else is bullshit. So, by bringing a Point Of View in to bear, it sort of says the product and the company are important, but the problem is the most important thing. And if you don't like that problem, you should consider our company and product to solve it.

Dave Knox: Throughout our conversation here, you've talked about CRM. It's where you started your career and you've referenced Siebel and Salesforce and one of the concepts of Play Bigger is that categories of evolve over time. This hits on an idea I've been playing around with called "continuous beta," and it's basically this idea that both companies and people need to be continuously evolving, and they can't get comfortable with success at any point in their career or their company lifespan. So, how have you seen companies and people for that matter, that make up those companies, practice this concept to stay ahead of the change?

Dave Peterson: Yeah, I think it's super relevant. I would argue, one of the most important rule of thumb, and it's not just categories, business, when we say today's solution create tomorrow's problems. Every time you find yourself in a particular category, you got to understand that that category has a natural curve to it. It starts off with everybody thinking you're crazy, and then all of a sudden there's this massive surge of adoption and all of a sudden a bunch of VC money comes rolling in and a bunch of companies emerge. And then, eventually one company starts to rise and become this category leader. Whereas that curve reaches its apex, there's always another curve right behind it. And the best way to explain that, I'm even going back to the CRM example, I think the modern-day example that today is what EC Qualtrics is doing with experienced management.

Dave Peterson: But if you were standing around in 1996, and you work for an SFA company or a field service company or a help desk company or call center company, and by that time if your particular, the big industry show back then it was called DCI and I think there were 20 to 25 publicly-traded companies and all of those industries, or subcategories now that we call them subcategories of CRM, but at the time they didn't consider themselves subcategories. They were all on a curve. What they didn't realize at the time, it's easy looking back to realize this, is that these curves sort of feed each other. If you go back to the history of CRM, the whole thing started with contact management. It started with moving a Rolodex and a Franklin planner into Goldmine and [inaudible 00:21:38]. That was a curve, and those two companies are on that curve for quite a while.

Dave Peterson: They were very successful. But then all along came FFA and said, "Well, hey, if you're going to digitize all your contacts, why don't we start taking notes and capture what was being said on these calls?" And that was a curve. And that SFA curve yielded a lot of successful companies, a lot of economics there. But, lo and behold, SFA was just a subcategory inside of something called CRM. And that's when Tom Siebel said, "Hey, it's not about SFA call center help desk, it's all about centralizing all your customer data into one spot, and having a unified CRM system that feeds all of those things." When he did that, that marginalized the value of all the subcategories called SFA and call centers, et cetera, and turned it into a [inaudible 00:22:25] category called CRM.

Dave Peterson: Then at that point in time you would have said, "War is over, battles are finished, put down your weapons, it's over." Then all of a sudden, the problem shifted underneath Siebel. The problem didn't move from needing a CRM system, the problem move to, "You can't implement that stuff if your life depended on it." I worked at a company called Mercury and we used to test that stuff and there was this great keynote speech that I forget who gave, it was one of the industry gurus. He said, "You have a better chance of surviving a heart replacement surgery, then you do implementing Siebel Systems.

Dave Peterson: And so, the problem was Siebel Systems was impossible to implement. Along came Marc Benioff and said, "Well, why don't we start to consume software in a completely different way using what they call an application service provider, which is now known as the cloud?" He attacked on the premise software and moved the entire category over to the cloud as we know it now. Again, that was another category curve. There was nobody in the industry, I think, that would have said there's any chance that Siebel was going to go down. Ultimately, it wasn't based off the problem they were solving to automate the sales process or the CRM workflow, it was built around a different problem that moved the entire industry to a different place. If you understand that this whole world is a raging river, and it sort of never stops moving, then you can really get ahead of the game.

Dave Peterson: We always, certainly a long winded answer here, but that's why we get excited when you look at companies like Amazon. We call it The Flywheel. If you understand that the problems you solve today create new opportunities tomorrow, and then you jump on the opportunity you create, that's what we think Amazon does. Jeff Bezos is just brilliant at this, he makes it look easy, moving from books to all retail to now acquiring Whole Foods. But he is the master and that company is the master at understanding how these new evolutions, these new curves are going to emerge and he jumps on those curves and monetizes them and takes control of them. That's the part that [Allan 00:24:41] and I, my partner Allan at Play Bigger and I call the Strike Ops.

Dave Peterson: If you can get into the longterm chess match, and start to anticipate, "If we're successful here, what do we need to be thinking about two, three down the road," you can really start to, not be risque, but really start to create your own opportunities out there, and start to see almost around corners. And start to predict, no pun intended with your podcast but, start to predict when that next category is going to start to emerge, and then how you want to leverage your current strengths in the category you're in, and use that to start to define and control that next category that's going to start to pop up in the wake of your success.

Dave Knox: That's really tough for companies to do, but it's even more difficult probably for people to do, because it takes conviction of believing where something is going and maybe changing your career and what you're doing. How do you help people that might be at a big company, a Siebel at that moment, that they're on top, [inaudible 00:25:44] realize that curve is coming and they need to change?

Dave Peterson: At the end of the day. There's a whole other topic around sort of how this whole notion of category impacts your career and things like that. We can dig into that a bit later if you want. But, at the end of the day, I think it still lives in the hands with the CEO, and really deciding at some point, did we hit the apex of the category we're in. And if we stick around too long without extending, evolving or expanding this category, are we going to start to slow down? And then eventually our relevancy and urgency and our position and priority for our business, it's going to start to wane. I wish I could say how, but I do know that there have been many companies that really have done a great job of realizing, "Hey, the starting category that we built our business on, was the beginning of the beginning, not necessarily the end.

Dave Peterson: "It's not the only thing we're going to do. In fact, it's the bedrock that's going to allow us to do these things." I think one of the greatest examples today in the enterprise space is what Qualtrics did, a company up in Utah or over in Utah. I guess in California geography. We had the pleasure of working with these guys, but the real story is, if you look back and rewind the clock to three years ago and look at Qualtrics, they were a massively successful company, and they were doing some really cool work in market research. If you were an academic in a university, you were using Qualtrics to do really advanced analytics and research and development, and you would use the Qualtrics engine to get basically anything you needed to get done, done. To analyze cohorts and do a lot of feedback, review and analysis.

Dave Peterson: At the time, Qualtrics was doing great. You could have argued, they should just stay right in the space that they're in. Why bother, why mess with a good thing? At the time too, if you peel back and look down at the industry, Qualtrics was sitting neck and neck right next to two other companies that did something similar. A company called Medallia, that did something around almost like a managed service for customer experience. They sat next to another company called SurveyMonkey, who many of us have used to run surveys for arguably free inside your business. All those companies at the time were worth about a billion dollars in their market cap. You can argue, they should just keep doing what they're doing, but you've got to give Qualtrics credit. They realized, "Hey, this market research foundation that we built is, critical."

Dave Peterson: But it was just the beginning of the beginning. This was bedrock for them to go take down a bigger problem, which was ultimately, how do you start to manage the full range of experiences that really have a material impact on your business? They went from being a market research company, we call it their CRN move, and they expanded their category to something called "experienced management." And they realize just like CRM that they had their hands, it's platform captures something called experiencing data or X data. All of a sudden, what if you could basically use that as a platform to manage your customer experience, your employee experience, your product experience, and your brand experience? They made it almost silly to think of those things as separate from each other, because a grouchy employee could create a grouchy customer, or a bad product could create a bad brand, and all the experiences are almost glued together.

Dave Peterson: If you use this sort of notion of X data, you can have a better grasp by understanding how to control, manage, and close these gaps around experiences in all of these four areas, customer, employee, product, and brand. They launched this new category, a new way to think about how to manage experiences in business. Again, at the time, a lot of people were like, "Well, why would they do that?" They were so successful in market research, but the problem that they started, by the way, they used the Point Of View around experience gaps that all companies have, and not all companies manage those gaps. They moved their business from being a market research leader, to the category kings of experienced management. That was a long journey. It took about two, two and a half years. If you track their progress, they were recently acquired by SAP for $8 billion.

Dave Peterson: I guess maybe it's not a how-do-you-do-it day, but why would you do it? And I think the "why" is really clear because, at one point Qualtrics, Medallia and SurveyMonkey were all worth about the same amount, about a billion dollars a piece. Qualtrics raised, the category economic speak for themselves. They moved to a completely different world and a completely different economic set and ultimately were acquired for 8 billion. And I think if you check the evaluation of the SurveyMonkey and Medallia, they're probably still floating around a billion, maybe 2 billion. And so, the "why would you do it" is very important. And that touches on that point you made earlier about, is the category we're in market research, are we at the apex of that or do we still need to stay in here and, grow this category? Or is it time to use our strength in this category, to leverage a bigger play? And that's exactly what we saw Qualtrics do.

Dave Knox: That's perfect. Final question for you on this whole concept of Category Design is that, Category Design is not just for technology companies, even though we've talked about that a lot. You and I have talked about that CPG, consumer package goods, in many ways used to be the biggest practitioners and maybe even the creators of Category Design, if you think back to your example bird's eye that you talk about in the book. So, what do you think happened to big CPG that made them stop playing bigger over the last call it 10, 15 years?

Dave Peterson: Yeah. Yeah. We actually have, behind the scenes of Play Bigger, we're in this conversation quite a bit. Obviously, for those who know as we work in the tech industry, because I would argue you got to go where the problem is, and the problem in tech industry is this notion of category. It wasn't anything that was taught in the business schools, so they were very thirsty and arguably starving for this so that we just plan to build in to all their day jobs of building the company, building the products. The only thing I can say about CPG is perhaps, that is how that world works. They were, and you know better than me, but a lot of the folks in that space, were sort of brought into the world thinking category first, and perhaps because it's not thought of as innovative, and it's almost like breathing air, if you work for a clothing manufacturer, you think categories. You have to, because that's how the world sorts out the differences between high-end adventure gear and low-end jackets you could buy at Target.

Dave Peterson: Perhaps because it's so normal and not new, the thought that that could be a huge differentiating strategic advantage in this world, is maybe an afterthought. The only other thing I think of, and this is sort of possibly a non sequitur, and I promise I'm not just doing this because he's my buddy, but a coauthor of Play Bigger, Kevin Maney did another book after Play Bigger called Unscaled. It was really a fascinating view on how the world's moving to this more bespoke model, where the world is no longer required to operate in this small, medium, large, extra-large world. And you can actually create industries like Warby Parker, [inaudible 00:33:43] give example where you can just go right after what people need, pick all the cross out of it and serve a population that just really wants high-quality eyewear but doesn't want to pay the brand price for it.

Dave Peterson: I think if you look at like Warby Parker, you feel that all these great new fashion brands that are coming out with real bespoke purposes, like really awesome shoes that actually feel good, fit good, and are our purpose built, I think that's where the industry's going. And if the old-school CPG world doesn't catch on, this new school will. And I do think there's a new school out there, and I'm a big fan of Warby Parker. I can't stop buying their stuff, because it's like I can buy a whole bunch of different things that suit my personality and my mood versus buying one pair of glasses that I have to wear for the 15 years because the costumer. I think that's where I think our prediction here would be, "Look out for more Warby Parkers because I think these companies are going to turn the whole industry upside down." And then I think that's where you're going to see the innovation in the consumer sector.

Dave Knox: I love it. Well, thank you so much, Dave. Every time we have a conversation it always leaves me thinking differently about the world. I really appreciate you sharing it with the Predicting The Turn audience.

Dave Peterson: You got it, man. Thank you for having me on, and I really hope some of those discussion will be helpful for your audience.

Dave Knox: I appreciate it. We'll talk soon, my friend.

Dave Peterson: Okay, take care.

Dave Knox: Thanks so much for listening. If you liked the show, hit that rating and make sure to subscribe so you don't miss a single episode. For more resources, head over to predictingtheturn.com.

Episode 11 -How KraftHeinz Created Disruptive Startups w/ David VanHimbergen

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LISTEN TO THE EPISODE ON ITUNES:

Episode 11 - https://itunes.apple.com/us/podcast/predicting-the-turn-w-dave-knox/id1449879853?mt=2&i=1000433962685

SHOW TRANSCRIPT:

David VanHimbergen: We have to be comfortable with disrupting ourselves, or else someone's gonna do it for us.

Dave Knox: I'm your host Dave Knox and this is Predicting The Turn, a show that helps business leaders meet their industry's inevitable disruption head on.

Dave Knox: Welcome to another episode of Predicting The Turn. Today I'm joined with David Van Himbergen, Head of Springboard Brands at KraftHeinz. Welcome to the show, David.

David VanHimbergen: Thank you. Glad to be here.

Dave Knox: Awesome. So, David's an old friend of mine from our days together at Proctor & Gamble, and today we're going to cover some of the work he's done there, but then his new job that he moved into at KraftHeinz recently. Where I want to start, though, is in my book Predicting The Turn, I talk about this concept of disrupt the disruptors, and where the Fortune 500 can take inspiration from the startups that are out there. They're innovating and doing different things.

Dave Knox: When I was writing that, one of the first things that came to mind was actually the work you were doing at Tide Spin and this idea of taking an inspiration in the service industry and trying something new. Tell us about the origin story. How'd you start working on Tide Spin back in the day?

David VanHimbergen: Yeah, so I had been with Proctor & Gamble for I guess around 15 years at the time and moved all over the company in various roles. The role that I was in, I was leading global innovation for Tide in a group that was called FEI for like front end innovation. Within that group we were just looking and exploring kind of new or different models, so we actually came up to Chicago for a kind of a quest inspiration trip. This was, call it 2014, so there was a lot of chatter around the sharing economy, and that really I think just sparked to us about this idea of like call it Uber or Airbnb, where you can create a marketplace where a valuable brand could kind of do nothing more but just pair up supply and demand.

David VanHimbergen: That kind of led to the inspiration of like, "Okay, what would that look like for Tide?" Eventually then we just started playing around with the model a little bit. As we got deeper into understanding the consumer tension points of like, "Look, people hate doing laundry, especially if you live in a city where you may not have access to a washer and dryer in your apartment, it's even more of a hassle." It just kind of snowballed from there and then we started to evaluate the marketplace. We saw some venture capital was going into it. Then, it was just like, "Okay, if we were going to participate in that what would it look like for Tide?" And everything just kind of took off from there, I'd say.

Dave Knox: That's awesome. When you had that, building a technology company, that's usually not a core competency of the world of SPTs, so you don't have a bunch of coders sitting around waiting for you to do that. So, how did you even think about that launch phase?

David VanHimbergen: Yeah. It's actually funny we're here at 1871 today because that was, I think this was our starting point. Initially, you know, we kind of went down that path of like, "Okay, how do we build out this model?" We were very much embracing the lean startup method of like, "Okay, we don't want to over-invest. We want to be very focused on validating those assumptions within the business model that are the most critical and not get distracted by other things." Fortunately, so actually, our President, who was a sponsor, the first time we came into pitch it, we said, "Okay, look, here's the rationale strategically why we think we need to play in this space, the consumer landscape. We want some money to kind of go off and build a prototype, to go off and test this model in Chicago."

David VanHimbergen: I think, rightfully so, he kind of called us on that. He was like, "Why would we invest in building that out? There's so many fundamental aspects of the business model that we need to prove out first. Go out and try to find a more create solution." That was where, us being here at 1871, we were just at the early stages of establishing our membership. We actually found a company based here that had a white label solution, that they were selling off the shelf to mom-and-pop cleaners. And so, we were able to work with them and partner to create a duplicate instance of that.

David VanHimbergen: It was a very good strong platform, especially for a MVP-type level service, that provided all the technology that we needed. It had kind of the management dashboard for the backend stuff, it had a couple different front end mobile apps for consumer experience and also driver experience. And so, finding that partnership here through 1871 and others, was really I think the opportunistic thing that once we went back and said, "Okay, we've got this solution here. It's actually not going to cost us very much to get into the market very quickly. Like we're talking, 30, 45 days," and start learning. So, I think that was kind of the pivotal moment for us and how we handled that decision of, "Okay, how do you determine if you're going to build versus partner and other options out there?"

Dave Knox: Yeah, no, and that's such a key part because I think a lot of people wanna go hire all the engineers, hire all the hackers, start building themselves. And building a digital product's a little bit different.

David VanHimbergen: Yeah, very challenging. And I think you, it's kind of the fundamental basis of the whole lean startup principle though, but if you go off and build something and you don't know what you're gonna build, you're inevitably gonna waste time and resources, building stuff that consumers don't want and need. So us, starting off with a solution that had, at least been validated in market from the team here that was kind of that founding startup we were working with, that in addition to we ran that with them for six to twelve months before we got to the point to say, "All right." We were starting to grow out of what that solution could provide. Then we decided we needed to go off and build our own tech platform, but at that point we had been in market for six plus months.

David VanHimbergen: And so we knew exactly what those requirements were. Additional functionality, we wanted to build things that we didn't really need, so we could get really smart about that build process.

Dave Knox: That's makes sense. So recently P&G announced that what you'd started with Tide Spin was gonna be expanding nationwide as Tide Cleaners as kind of a name. So, this Ad Age, when they talked about it, they said, "This is building upon the last 15 years of P&G trying to think about service." You kind of indicated that was one of your really early inspirations. When you've got big companies that are going outside of their traditional go to market. You know a company that sold product, now moving into service, and new business models. What lessons did you learn along the way, of how do you change that mindset?

David VanHimbergen: Yeah, so I think as that Ad Age article cited, they talked a lot about a juvien pilot we did in kind of 2000 in Atlanta, where it was kind of a full service laundry. And there were a lot of great learnings from that pilot program. I can't remember how long it lasted, maybe a year or so. But it was great because we had a team there that we could go back to as we were starting Tide Spin and say like, "What worked, what didn't." Plus, we had that concept, Tide Dry Cleaners which is a franchising network and our friend Andy Gibson's been part of that. And so like they had a lot of institutional knowledge as well. So we'd already had some seeds planted in service, realized it was important. I think what was different about Tide Spin was just the way that we were gonna go to market, and it was kind of embracing this lean mentality.

David VanHimbergen: And everything that we did when we came up to 1871, we kind of isolated ourselves. We got into the market that we were gonna operate within. We hired outside people with kind of that entrepreneurial mindset and the skills that fit where we needed, and basically built that team to say, "We're gonna go off. We have six months to go prove this. It's enough money just to get us to that point. By the way, it's not a lot of money, so it's not like we're gonna do a lot of frivolous marketing and other things. We need to be very focused on validating the operational model. But we've got six months to prove this out. If we do, great. If we don't, then we might all be looking for jobs soon."

David VanHimbergen: So, it was kind of embracing really that entrepreneurial mindset of getting teams that were very dedicated and focused against it. But you're also feeling the reality of those constraints of like, "I've got a cash burn that's limited and only getting me to this point. It I don't prove out what I promised my investors, or in this case, the management team, then I don't have a future beyond that point."

Dave Knox: Yeah, no, that makes total sense. So, let's switch gears to the world you're in now. So, six months ago, you left P&G, moved over to KraftHeinz, one of the biggest players in grocery. But food's also that first one that starts seeing these smaller niche players really take market share and grow. So, this new role as the head of Springboard Brands, what falls under? What's your mandate and what are you working on?

David VanHimbergen: Yeah, so Springboard is a platform that the company built, just about a year ago. And you know I think it was at the time, the company kind of realized like. "Look, we see the disruption happening across all the industries." Food, especially me stepping into food for the first time, I've been more on the soap or the toothpaste business in my career at P&G, but just shocked at the number of entrants coming in. And it's pretty apparent, like the influence of ... how much influence of the people of just new diet trends they set for things that we're shaping, clean ingredients.

David VanHimbergen: And so, products within the KraftHeinz portfolio, I think they realized, "Okay, we've got number one, number two brands, but there's a lot of disruption coming." There's this emerging trend across natural organic, clean products, that obviously that's where a lot of the focus from startups is centered around, and we're not really, we're not at KraftHeinz, positioned to win there. So we need to figure out, how do we start building capability and partnering with folks on the outside that are building these authentic propositions. They've got an inspiring founder story, but they're out there creating these propositions that are, we believe, are gonna disrupt the future of food and beverage. And so Springboard is really designed to be the platform to allow KraftHeinz to participate in that.

David VanHimbergen: So within it, we've kind of got ... there's three pillars to it. We've got an incubator program, so we invite startups to apply to be part of the program. We're focused on very early stage food and beverage companies. Typically, less than five million dollars in sales. But ideally, they've got a saleable product so there's something that we can work with. But we invite them in. It's a very competitive application. We get 2 1/2% acceptance, so we get around 200 applications, we choose five companies from that. We had the first class graduate last fall.

David VanHimbergen: And really, this is a 16 week program where we bring them in, we mentor them. We introduce them to a lot of capability. We help coach them. Give them access to our facility, so they can start to think about their future product pipeline, and bring them in for that 16 week program, and hope that mentorship, their collaboration, and just working with other startup participants in their class, that they're gonna learn and advance themselves. That they accelerate, and they can increase their projections for the following year. So, that's kind of one big pillar of the program which is great. So, our second cohort actually starts in two weeks here, and we've doubled the size of that program to now where we'll be doing two classes per year.

David VanHimbergen: The second big pillar is our accelerator program. So we have a few brands within the KraftHeinz legacy portfolio that we believed had a lot of voltage. So, Devour, BOKA, Jell-O Play, which is kind of an extension off of the Jell-O brand, and then Momofuku's a joint partnership we have with David Chang who leads Momofuku restaurant group. So, that one is really around like okay, taking existing brand where we feel like they have a lot of potential but they were brands within our wheelhouse that we could drop into the portfolio from day one and start learning against.

David VanHimbergen: And then the third pillar in that is kind of around partnerships, which is acquisitions, mergers and acquisitions, and so kind of the biggest news on that front was the beginning of January, we announced that we were acquiring Primal Kitchen, which was a very strong player with a great founding story. That their core business was in kind of sauces and salad dressings, which is the stronghold categories for KraftHeinz, but they've got a very clean ingredient profile and standards, and they've had a lot of success in the natural channel. So, it just made a lot of sense as being a great fit within our portfolio. Of not only it's complimentary within channels where maybe we don't have the strength, but then there's just a lot to be learned from that, just in terms of their go to market approach, so.

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Dave Knox: So, let's talk a little bit more about Primal Kitchen, because I think that's a really interesting acquisition, because it's in a space, a category you've already been playing in. So, how do you maintain that spirit of entrepreneurship when you do an acquisition? Also, when some of that market share that startup was gaining, was coming at the expense of your parent company?

David VanHimbergen: Yeah, you know that's tough. I think first and foremost it comes from a mentality standpoint of I think, which more and more big CPG companies are embracing is that, look, we have to be comfortable with disrupting ourselves or else someone's gonna do it for us. So, I think there was just an openness broadly to that, that KraftHeinz management had of that, and that's really the justification for why they launched Springboard in the first place. But in terms of really protecting that entrepreneurial spirit, and making sure you don't lose the unique aspects of that culture that allowed that company to be successful, we actually researched quite a bit and did some benchmarking against other big companies. And those that have succeeded and failed as they acquire these bolt on companies.

David VanHimbergen: And what we ultimately decided on is look, we want to maintain the independence and autonomy of this company as long as we can. So, when we were working with Primal Kitchen on that deal, we talked a lot about, "Look, we wanna make sure that you guys are retained, you're staying on. You realize that we want you to be part of this vision," and so that team, which is largely based out in Los Angeles, California, they're retained. They're still operating the day-to-day business. And a lot of the integration that we work on of like, "Okay, well KraftHeinz has a lot of capability, either from an R&D standpoint, or maybe even relationships through sales channels and whatnot." That kind of integration happens at their discretion, so we're here t kind of provide them with like, "Hey, here's some of the experience and things that capabilities that we have, that now you have access to."

David VanHimbergen: But we want them to really be the ones that are pulling it from us, and that we're not pushing it on them. And I think that's critical so that they still feel that ownership sense, that this is their product and their brand. So, I think we're still very much early into this, right? It's kind of a couple months since the deal, but so far I think you talked to the team, which I do regularly, and I just think others in the company would feel highly confident that we're gonna be successful in this approach.

Dave Knox: Love it. So, you talked about the incubator program as one of the things you're spending a lot of time on. And what's interesting is that is at the stage between experimentation and proof of concept. Which is really, really early stage for a big company to be getting involved and quite a few high failure rate that you're seeing in companies that phase. So what led you to be that kind of the focus that you want to dive into when you thought about the incubator?

David VanHimbergen: Yeah, and I think for us, we felt that was probably the time in the lifecycle where we could have the most impact at KraftHeinz, because you get, I think its pretty obvious the barriers of entry are very low now. To start a product, you can find production, you can find capital. You can find distribution channels and you can advertise your brands through the social media channels. So, it's very easy for people to start up. So there's a lot of people that are passionate, that maybe have experienced some issue in their lifetime, like around a health or some limitation on their diet that drive them into like, "Hey, I wanna change the world. I know I can do that through food, because this is something that's personally affected me."

David VanHimbergen: So they've got this passionate desire to do it, but they may not have the experience or the resources or the know how. So, focusing at that early stage, we feel like we can help support entrepreneurs who are very passionate about an idea, about effecting and using a bit of a cliché room, but disrupting the future of food and beverage that, as we're gonna help enable them to get something started because we can offer up some small capital. But then just give them access to like, "Okay, what does it mean to build a brand? What do you do to think about when you're designing that package? Not only from a visual aspect, but even from like a structural. What's that experience of as I open the product up? As I think about my preparation instructions, how are you making that easy, depending on your consumer target?" Et cetera.

David VanHimbergen: These are all things that people at KraftHeinz obsess about. Because we do it every day but someone that's maybe a new startup, they may not know that. And so, that's really I think where we felt we had the biggest opportunity to make an impact, and then there's just, I think there's also to be said, something about just the energy that it creates there. These companies that are so early, I think there's just so much hope and just energy from that, and as we've worked with them, like our folks on our Springboard team internally that are maybe working on the accelerator side, they just feed off of that a lot. And so there's a lot to learn and then there's I think, just the spirit that just transcends across the organization when you bring them in, so.

Dave Knox: Yeah, and that energy can't be underestimated, so with that, do they come and live in Chicago for the course of the program? How are you getting the rest of KraftHeinz to feel that energy and that exposure?

David VanHimbergen: Yeah, yeah. So we bring them in, so it's a 16 week program. We bring them in to Chicago. We don't require that we're here, that they're here the full 16 weeks, because they're still growing and developing their business. There's sales calls, usually their production that's a co-packer is usually in another location, so we realize they have to visit them. But we really recommend that they have one person that's kind of on site throughout the 16 week period. And then there are about five weeks across the 16 weeks that we say like, "Those are pretty critical. You should probably be here," at least the founding team, two to three members to represent.

David VanHimbergen: But we lease space for them out of a ... we work over on Michigan Avenue, just off of Grant Park. So they're kind of the same thing as when we were here in Tide Spin immersed in 1871. When you're in that culture you feel the energy. There's just natural collaboration that happens among the teams, just because the way the space is designed or even other startups within that group. And so I think that allows the teams to be very productive and kind of maintain that spirit and transfer of energy. And then we're bringing folks in from KraftHeinz. Our headquarters just down the street in the Aon Center. We'll bring them over frequently, either as part of the curriculum in teaching the classes, or like we like to do showcases with the founding teams, where in the 76th floor common area, we'll have just a showcase where they can kind of demo their products, they can talk about it.

David VanHimbergen: And then throughout maybe a couple hour period, people throughout the company can kind of cycle through when they have free time, and just learn and meet the company. So, it feels kind of a good balance in terms of allowing that energy flow and transition to kind of go both ways.

Dave Knox: Yep. Yeah, I love that. So you mentioned that you do a lot of benchmarking. What worked for some people, what didn't work for others. As you think about what's next for Springboard as you enter month seven, month eight here, what companies are inspiring you, for think about the next step for where you wanna take Springboard?

David VanHimbergen: Yeah, I mean, I think there are a lot of companies out there that certainly seem to be playing in this new venture or looking at, "How do I supplement my R&D pipeline, with some external arm?" Whether that be a venture investment or some kind of incubator program, and whatnot. And there's certainly a lot across food that have been doing it, certainly longer than Springboard as well. Like General Mills has 301, Chobani has its own program. Unilever is kind of very famously, they've done a lot, even kind of going back to their Ben & Jerry's days as they've kind of protected some of their acquisitions.

David VanHimbergen: So, I think it's about constantly learning. Next week is Expo West, which is kind of the biggest trade show for all food and beverage start ups. I'm really excited about that, because it'll be my first show. It's, I've heard it's a zoo, so I'm kind of preparing for that, but I've got a very busy agenda where I'm just out trying to network and meet people, so setting up meetings with folks on the investor side, to understand kind of what are they saying, what are deals that they're working on? Companies in their portfolio might be maturing to the point where they're looking for a strategic partner to exit with. There's meeting entrepreneurs and other startup companies to say, "Hey, can you find those folks that not only have that passion, but they've got this inspiring story," and there's a very attractive upside that we see where it could be a good portfolio fit for KraftHeinz.

David VanHimbergen: And then I think third is just advisors out in the industry. So, it's just a ... I mean I kind of found that back in my days when I was in the Chicago startup community here in 1871 and others, of just like how closely connected everyone is within the community, and how willing they are to help and support. So, I just feel like the more interactions and connections you can make, that you just inevitably are gonna benefit from that down the road. Because there'll be a challenge that you'll encounter and you'll be like, "Gosh, here's something I've gotta try to solve, I'm trying to work through." And then you remember like, "Okay, here's someone that I had met back a while ago. They had similar problem, or they've got an expertise that might be able to help. Let me give them a call and see if they can help out."

David VanHimbergen: So, it's kind of like a little bit of staying connected into the industry, and just constantly assessing like what are other people doing out there. You know, I kind of took that question a little bit of a path of not just the big companies but even, just I think it's a little bit about the method and just the networking, and just staying very connected to everyone, so that you're staying on top of the trends.

Dave Knox: Yeah, no, but that's a really key thing, because as we think about innovation and all the other buzz words out there, a lot of people just focus on the companies and how the companies need to change. But companies are made up of people, and a lot of those people have been trained in a certain way of doing things, and that's what they know. That's how they do brand building or marketing, or even their industry as a whole.

Dave Knox: Over your career, you've had a lot of shifts that you've done. You came into P&G doing systems analyst, moved into brand marketing. Then became kind of this corporate innovator that was challenging the status quo. How have you thought about that continuous learning, just for yourself and shifting gears in your own career, as you're in the middle of your career?

David VanHimbergen: Yeah, it's funny. I'll look back sometimes and think about where I started, and how far I've come, and like I think you lose sight of that at times. And that's I think typical for an entrepreneurial journey too, is I would talk to other founders, is you get so deep into the day-to-day. So you really have to force yourself to step back and see the progress. And I would do that frequently in just our journey with Tide Spin. But even if I do that on my reflecting on my career, I came in as a systems analyst supporting a financial reporting system. But always what attracted me to P&G at the time, and even what I seen in KraftHeinz is just the openness to new opportunities and to grow continuously.

David VanHimbergen: So, I just took advantage of that, and I think just constantly connecting with people. In my mind, I say, "All right, if I'm gonna work for a big consumer products company, marketing, and brand management is the path towards leadership." And so that's the skills that I wanted to build, and so eventually I just kind of tried to step to get at least some degrees closer to, "Okay, is this the right fit? Am I properly prepared so that I can be successful there?" And then I've just kind of taken advantage of that all along the way.

David VanHimbergen: Honestly, as I think about my time when I was responsible for global innovation on Tide, that was my prior assignment, I was up on our target business in Minneapolis. And there I'm kind of all the way at the downstream end of kind of the business, where we're working with the sales team, helping influence buyers, selling marketing programs. We're at retail, negotiating. And when I was first, you know obviously I wanted to stay in laundry, and they were like, "Okay, we're gonna put you in front end innovation, which is on the other end of it." I was like, "Ooh, this might not be good. This is totally different from all of my experience." But I think just being open to the new opportunities and then within there, I think you just try to continue to dig and find that little, I think that nugget that you feel like you can really invest behind. And it can become eventually your gem.

David VanHimbergen: And I just kind of was able to identify that early on, and it was like, "Okay, look, we're talking about new business models. I'm extremely excited about the evolution of technology and what impact that has in the creating new business models and whatnot." So, I just kind of jumped onto that, and then just rode it, and was fortunate enough to have leadership that was willing to support that. They allowed us to come up to 1871 here. They allowed us to run this thing for two and a half, three years. It's still going today. But I think it's just being open to new opportunities and trying to find the best that you can make out of it. And I think it comes down to personality a little bit as well, as I think I'm naturally curious, ambitious, and I just wanna make sure that I'm using my time to the best.

David VanHimbergen: I never wanna get caught in the moment, where I feel like I'm just watching the clock move by throughout the day, waiting for it to strike 5:30 or whatever and it's time to go home. I want my days to kind of just race through, where it feels a little chaotic at times, but that's what energizes me, and so that's typically what I've looked for. I think it's, the fun thing about where I've ultimately ended up here with KraftHeinz is I feel like it allowed me to kind of leverage the prior experience, to kind of build and even stretch into more areas. So now with Springboard, not only are we looking at where we can kind of build new disruptive brands, but we've got this incubator program, so we can work with companies to build relationships early into that venture and life cycle. And then ultimately with someone like a Primal Kitchen, someone that's already done it and they've kind of been through that four year journey and now they've grinded it out, but they're looking at, "How do I take that next step and excel to the next level."

Dave Knox: Yeah, so you talked about curiosity there, and that curiosity is at the heart of every entrepreneur, and it's also needs to be at the heart of every big company that's thinking about that next generation. Not every employee is wired that way. So, how do you think companies can really encourage that curiosity and that entrepreneurial thinking, so they can get to the next level and be around for the next 100 years?

David VanHimbergen: Yeah, I think it probably comes down to a few things. I think first, you probably need to establish it as a cultural value for the company. So just you put it on the wall to say, "We care about this." And then that kind of trickles down to say as you're off recruiting employees, or you're assessing fit for roles and opportunities, you're saying like, "Does this person seem naturally curious? Are they constantly learning new things? Are they asking questions and kind of poking around where they don't understand?" Just to kind of get that baseline.

David VanHimbergen: So, I think, one it starts with just the cultural standpoint and establishing it as a value. I think two, you need to create some space to allow for it. It's very easy to get caught up in the day-to-day, and just running around with whatever the latest fire drill is. There's always gonna be an instance where you're behind on a project, or there's an issue at retail that needs to be addressed and so you're kind of solving those fires, fighting those fires all the time.

David VanHimbergen: So, I think the more that you can try to carve out space for people, so that they're putting that time into thoughtful, and you're encouraging them like, "Hey, learn new skills. Go off and subscribe to the Shopify blog. Read that regularly. Go out and take a class. Go out to General Assembly in Chicago and take a class on, how do I build out a social media marketing campaign? Start your own little company," so kind of encouraging that. I can go on and on with all these examples. But I think encouraging that.

David VanHimbergen: And I think the third and final piece of it is just kind of rewards and recognition. So, you kind of say this is important. You encourage people to actually invest in that time, and then the third thing is, once they've practiced that behavior, you wanna reward it and encourage it to happen over and over again. So, I think where there're examples where people have kind of gone off, and they've taken a leave to learn a new skill, maybe there's a way that you can put it into a practical application in the company, and you give them a small side project. That's not a major investment, but it's 10% of their time where they can kind of build and refine those skills. Put them into practice. It might have a business impact, it might not. But then, it at least is an example where, "Hey, the company is recognizing and rewarding this," and then they're giving folks new opportunities because they've taken the initiative to go off and learn new skills.

Dave Knox: Those are some great tips. Thank you so much for taking the time. I'm excited to see where you take Springboard, as you lead them on this next part of the journey. So, thank you for sharing the time, and looking forward to talking again real soon.

David VanHimbergen: Yeah, thanks, Dave. Appreciate the opportunity.

Dave Knox: Take care.

Episode 10 - Jeff Weiser of Shopify on His Journey to CMO, Being the Best Marketing Organization, and Everything in Between

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Episode 10 - Jeff Weiser of Shopify on His Journey to CMO, Being the Best Marketing Organization, and Everything in Between

SHOW TRANSCRIPT:

Jeff Weiser:  Don’t figure out who in your space is good and try to be better than they are.  Figure out what space is the best at each facet and try to be as good as the best player in each space. 

 

I’m your host, Dave Knox, and this is Predicting the Turn.  A show that helps business leaders meet their industries inevitable disruption head on. 

 

Welcome to another edition of Predicting the Turn.  Today I am joined with a great marketing leader, Jeff Weiser from Shopify who recently joined as their chief marketing officer.  Jeff has a great background across the world of the evolution of marketing and excited to have him join the call.  So Jeff, welcome.

 

Jeff Weiser:  Thanks so much for having me.  It’s great to be with you and Predicting the Turn. 

 

Dave Knox:  Well, thank you.  I want to start talking a little bit about your career.  You, for the last decade have really been leading Strategy and Analytics for groups that specialize in marketing optimization, with companies like Beachbody and Yahoo! and Social Gaming Network and even Myspace back in the day.  But, then you went broader across all of the marketing with roles at Shutterstock and now at Shopify.  Can you talk a little bit about that journey because it is kind of a different one for a lot of CMOs and the thread of how you used data and technology for marketing?

 

Jeff Weiser:  Thanks for asking the question.  I think at the moment it’s a slightly unusual path for a CMO.  I think if you fast forward five or ten years, it will be a much more common one.  But eventually I’m a victim of the idea that quant is sort of eating the world and describe myself to people as sort of an accidental CMO and what I mean by that is that if you would have asked 10-15 years ago would you ever be in marketing, I’d say probably not.  What I did was run strategy and analytics departments and we did a whole range of things that used quant, anything form basic basic reporting, dash boarding to a lot of financial planning type work, budgeting, financial analysis, etc., some corp dev-type things like M&A all the way up to advanced predictive modeling and data science and I was very happy doing that and as marketing became more quantitative, just within over the last 10-15 years marketers started coming to me increasingly saying things like, hey I’m running a CRM department and I’d love to have analytically derived segments, can you help?  Or I’ve got in the $100 million budget and I need to figure out the optimal way to deploy it, can you help?  And I’d say, I don’t really know but the quant group will be happy to take a look at it.  And as we did and as we gave data driven advice, marketers started to get good results and so companies are like, well, these marketers are doing kind of well when they use the analytics, why don’t we try moving one marketing group directly under Jeff.  So I took a CRM group on and we doubled the revenue in the first two years.  And they were like, that was pretty good, why don’t we try moving an acquisition group under Jeff.  So every year I would kind of chip away a little bit at marketing and so the line between what was quant and what was marketing was awfully blurred and then still surprised when my phone started ringing with offers to be a CMO, but I decided to go for it because it let me complete a career pivot, not living in two worlds at once and I really think that increasingly, you know you can’t throw the baby out with the bath water and lose the creative element as well, but I do think that increasingly marketing will be driven by the ones and zeros and so it just made a lot of sense and I’ve been able to sort of bring that analytical discipline to the marketing side and pick up a bunch of new skills along the way that I didn’t have on creative side.  So, it’s been really good.

 

Dave Knox:  Very cool and related to that a lot of marketers will come up from a silo, your’s is a unique one that’s growing in importance, whether it’s creative or analytic or brand and suddenly one day you’re supposed to be leading all of these different functions when you get that stripe as a VP or as a CMO.  How do you prepare yourself for leading those functions of marketing where you didn’t necessarily grow up in or have a deep experience in?

 

Jeff Weiser:  Right, it’s a good question.  I’ve always been of the mind set that you don’t need to be a functional expert in everything that you manage.  If that were the case you’d never have CEOs, right?  And so, I think that leadership skills will get you a pretty decent bit of the way, meaning if we can articulate pretty clearly what we expect out of a given area and can set up measurements, qualitative or quantitative, it really can be either, that indicates success, then at least we know what the expectations for that discipline are, then it’s a matter of going out and getting an expert who’s got a track record of delivering those outcomes in the past, and being a good leader to them.  So I don’t really thin, you need to know hands on keyboard, how to do everything that you manage.  That said, when I first made the leap from being a quantitative marketer to being a full fledge CMO, I did pick up a lot of skills I didn’t have from learning from the people who were in those positions and so, a lot of that just came down to, I think, intellectual humility and being willing to raise my hand and say, hey even though I managed you, I don’t really know all that much about product marketing or brand marketing or whatever it was and I’ve got like 50,000 questions I’d love for you to answer.  And by being a student of those disciplines and of those people even when I managed them, I was able to learn it pretty quickly and round out my marketing expertise and then when I went into my next CMO role I was much better prepared to weigh I on the substance of disciplines outside of quantitative marketing, not just weave them from a managerial perspective.

 

Dave Knox:  That makes sense.  You mentioned you were kind of surprised when you started getting those calls about CMO roles.  If you look back, a lot of people aspire for that CMO seat, that’s what they’re building their career on.  What advice would you give to somebody that that’s the eventual goal that they have, ending up in a seat like yours?

 

Jeff Weiser:  Great question.  I think as I reflect on why I was so surprised, to be honest, I think a lot of it comes down to, we’re so biased by how we think of ourselves and so, to this moment, even though I’ve been a CMO for, I don’t know, call it 3-4 years at this point, I don't think of myself as an analyst.  I mean I’m wired to want to break problems into constituent parts and put them back together and solve and so, a lot of that had to do with the way I was looking at myself, not necessarily the way other were looking at me, meaning that there would be plenty of people who would say, oh no that’s fine, like it’s easy to learn or easier to learn brand marketing than to try to pick up statistics as a brand marketer, right?  So I think that was part of it, but there’s also an element of truth to it.  I remember when I had to announce to the company I was at and the people I managed there that I was leaving after six years to take my first CMO gig and someone said something like, I heard Jeff’s leaving because he got a C level title in a public company, which was a partial truth and so I said to him, oh so you’re going to be CFO?  There was an element of truth that given my wiring sort of CFO or CMO as the eventual path and probably I had thought of myself more in the former pocket.  In terms of people who actually, unlike me, know what they want to be when they grow up, and are actively aspiring to this thing that I was fortunate to fall into.  I would say that whether it’s what does it take to be a CMO or what does it take to be anything, telling people actively what you want gets you a large part of the way.  Meaning, I’ll now ask people who are more junior to me in my organization, what are your goals?  What do you want to be?  And help them get there.  You’d be shocked at how often people haven’t said to their mentors, to their bosses, whoever it is, like here’s where I want to be going, please keep in mind continuously how I can get there and give me any feedback that would help.  What I tell people is number one, articulate it is what you want.  No one can help you get there if they don’t want it and certainly don’t be bashful about having ambition or aspiration.  And I say that especially to groups that are under represented.  I find myself saying it to women more, for example.  They tend to be less forward about stating their ambitions.  So, number one is articulate what it is that you want.  Number two, dial in on marketing specifically, I think there is an element which being a polymap is becoming increasingly important.  So no one is going to become an expert in all things marketing, I’m certainly not, but knowing the basics in the discipline across quantitative marketing and breaking down growth into acquisition and CRM and knowing a thing or two about brand marketing and product marketing and PR and things like that, I think it’s more helpful than if I’d be in other disciplines.  Meaning I’m going to get out of my zone here, but if you’re a computer scientist, knowing the first two commands in a language may not get you very far, but in marketing it kind of will and so, I think when you think about some people talk about being T shaped, meaning being wide and not especially deep in one domain.  I feel like marketing discipline where being T shaped may help more than average. 

 

Dave Knox:  I love that.  I think the advice you gave of tell people where you want to go is so valuable.  When I was at Proctor and Gamble we used to have something called the WBP, which was your work and development plan and one of the questions was where do you want to be six months from now and where do you want to be three years from now.  And when I started using that at other companies, it was amazing how many people were shocked that I was asking that because often times where you want to be from three years from now isn’t reporting to the same person in the same job and that’s uncomfortable I think, for a lot of people to have that conversation. 

 

Jeff Weiser:  Yeah and you’ll be in a position to answer this because you used that framework, but did you find that a lot of people didn’t even know themselves, meaning that not only had they not articulated the answer to you or to whoever their mentors were but that they actually hadn’t even answered it for themselves?  That’s what I find.

 

Dave Knox:  Oh yeah, they hadn’t answered it for themselves or frankly the self actualization of what they want to be was what they thought they needed to do to advance at the company not necessarily what was actually going to be personally fulfilling to them. 

 

Jeff Weiser:  Yeah, I appreciate you saying that.  I actually had a conversation with someone within the last couple of weeks where I actually asked them, we were talking about their aspirations and I said, okay, I want you to strip out any bias towards the idea that one area you might choose is more conducive to getting ahead.  Let’s just imagine for a minute, and it may not be true, but let’s just imagine that your promotion potential is equal across all disciplines.  Now where would you want to spend your time and then we added back after the fact the reality that that may not be true, meaning there may be an area that that lends itself to your advancement more, but it’s worth doing the thought experiment nonetheless, just to know what you really enjoy doing day in and day out. 

 

Dave Knox: 

 

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Dave Knox:  You mentioned when people heard you were making the switch over to Shutterstock you called out it was going from a private company to a public company.  What have you found is the differences in that?  Because I think that relates to of the aspirations, oh I want to go after the big company because it’s the big title or the big job.  What have you found the differences and how do you advise people on that space?

 

Jeff Weiser:  Yeah, great question.  I really like being, I’ll start by answering something you didn’t specifically ask, which did I really like working for public companies, but I think it’s one of those double edged swords where the things that I happen to like about it would probably be the very same things that someone who didn’t like it would call out.  And what I mean by that is that the public company, especially in a marketing role where you’re likely to be spending a lot of money, calls for a lot of transparency.  So I love the idea that when we spend money, we have to say pretty clearly not only to our internal stakeholders, but also to the street, here’s how we spent the money, here’s why we spent the money.  Here’s how we thought about what the right amount to spend was and here are the results and it will be transparent for everyone to see.  I think that forces really clear thinking and ensures that everything you do is truly defensible because not just your manager, the CEO is watching.  Really everyone is watching and so I just like that transparency and accountability.  There may be others who don’t feel like explaining themselves to the rest of the world.  I’ve been in companies that have thought about going public and ultimately started to put the breaks on and said, listen, why do we want to be explaining ourselves to a bunch of 25-year-old analysts on a call every quarter?  We know we know what we’re doing.  There’s other ways to get liquidity and so we just don’t want the burden of the transparency of the public environment, so I think there’s reasonable conclusions you can draw from that same set of information on either side.  As a marketer, what I would say is that, there’s another reason that being in a public company is particularly interesting and it has to do with the way you think about return on marketing spends.  So, a lot of companies will think about a return requirement on their ad spend, meaning if I’m going to spend $100 or even $1, on advertising, how much revenue or gross profit does it have to create, meaning what is my requirement for the productivity of marketing dollars I spend and sometimes what happens is that when you spend the marketing dollars to acquire a customer, they don’t create that revenue or gross profit contribution in the same period.  Meaning I might spend to acquire you, Dave, as a customer today, but you might not contribute to a break even point for a year or two years or five years.  And in a private company you can always optimize your marketing spend to lifetime results, meaning if I spend to acquire you today, we go in a financial hole on that advertising event, but we claw back to it in a year and are profitable in three years, no one necessarily needs to know that.  But in a public company you could end up with period mismatches, meaning I spent a lot of money to acquire customers today.  They’re not going to be a break even until a year from now and now it looks like we have a mismatch on our financials between revenue and advertising spend this quarter and so having to keep in mind simultaneously lifetime economics and period economics and balancing the two in a public company is really really interesting.  I’ve been very fortunate to work for public companies that were built for the long term, meaning like, there’s no sense in which Shopify or Shutterstock was telling me no, optimize for what we’re going to say to Wall Street this quarter.  They’ll built for the long term, both of them.  They’re high growth long term companies, but nonetheless, keeping that balance of the period and the lifetime in mind simultaneously is super interesting to me. 

 

Dave Knox:  Without a doubt and that’s an interesting analogy too, before the call we were talking about the whole disrupting yourself and how big companies things about this and there’s this tension of not just in marketing, but overall business strategy of as the rise of activist investors and everything else, meeting those quarterly numbers, it’s tough if you’re sitting in the C Suite of how do you invest in the long term of innovation and disruption while fighting against the quarter.  How have you thought about that balance?

 

Jeff Weiser:  I haven’t really though about, in a certain way it goes back to marketing, maybe I’ve become rewired to think that way, but I think a lot of it comes down as so many things do, to storytelling, meaning, you have to have a track record of credibility for this to work, but if you can look that analyst in the eye and say, listen, you know we spent more this quarter and it’s because we’re investing in something and there’s some amount of detail we can give you on what that investment is in and what it will yield, but there may very well be some things we don’t want to tell you about now for competitive reasons.  We don’t want to show our hand, if you can tell a clear story about why you’re doing it, what results you expect it to get and ideally where the investment is going, then if you’ve got credibility and a track record of following through successfully on those reinvestments of capital then I think the street will buy it.  So I’ll take Shopify as an example.  I’m very fortunate in that when we’ve said we’re going to reinvest our capital in growth, we’ve done so successfully and therefore I would hope we have a lot of credibility with the street, but that’s not a trust you want to break. 

 

Dave Knox:  Yeah, without a doubt.  Let’s dig in on Shopify a little bit more.  Amazing company that has 600,000 stores that use it, $82 billion in sales.  You’re the epitome of the company that is selling pick axes in the gold rush.   You are as the retail industry is transforming, you guys have infrastructure that’s empowering entrepreneurs and businesses of all sizes to move into ecommerce.  So you’ve got this unique lens of where the retail industry is going.  What are you seeing over the next 5-10 yeas?  How are we going to see this transformation of what retail really means?

 

Jeff Weiser:  Many people are focused on the directionality of trends and they forget about the magnitude and so, we’ve talked a lot over the last few years about ecommerce and especially the rise of D to C, direct to consumer ecommerce.  People forget that just under 90% of retail sales still happen offline.  So in terms of the core, the first thing that Shopify ever did, which is make it easy to sell things on the web, there’s so much growth left to come and it’s just worth keeping that in mind in terms of all these, retail is dead narratives, yeah but it’s alive to the tune of 88-89%, which is worth keeping in mind.  But I think even if you could play that tape forward, which we can and it will be 85 and then it will be 80 and then it will be 75.  We can play that tape forward, but it’s a little bit of a simplistic narrative as well, meaning that so many D to C companies that we’ve seen, I’m thinking of like your All Birds and some of these great companies that go from nothing to huge brands overnight, a lot of them once they’ve sort of skinned and disrupted direct to consumer ecommerce go the other direction and first maybe they open a pop up store.  The next thing you know they’ve got a retail location and so on the one hand we’re facilitating a move of retail dollars online, but for the folks who really nail it online, we’re actually moving back with them through our point of sales solutions back off line.  And so I think it’s a little bit of a marketing or business platitude to talk about omni channel, but I really do think that’s where we’re going to end up and Shopify comes at it from one direction but we’ll be everywhere where our merchants want to sell. 

 

Dave Knox:  Yeah, I think anybody that wants to say the mantra of retail is dead, you just need to walk down the streets of SoHo and you see that every single B to C business out there, that’s where they’re launching.  They’re starting the Bonova’s and the All Birds and they all have this physical presence because people still love ….

 

Jeff Weiser:  It’s crazy and I love that.  Those are really nice, those are really my favorite brands and I’m so lucky because I had become, maybe in a year or so before I joined Shopify, I had become like a real D to C junky, oh I figured it out.  I can get everything better at half price without the middle man with a brand that speaks to me and way better customer service, this is incredible.  So getting to work for the platform that’s effectively the outsource supply chain for that whole industry has just been incredible. 

 

Dave Knox:  Yeah, without a doubt and I think one of the power, thinking about it’s good to get a good brand name right from the day one, Shopify itself is such a great name because people love shopping.  Buying has been what’s been done most of the time on ecommerce, which shopping has been a horrible experience.  

 

Jeff Weiser:  I love that.  Sorry, I didn’t mean to interrupt you, but I just love that distinction, the way you said that.  I hadn’t necessarily thought about it in those terms, but one of the things that we talk about as a true differentiator for Shopify is that we let you own your brand, right?  So people will say, they’re going to start their business in sell on, I won’t call them out, but like think about notable market places, right?  Well those notable market places, you can start your business there, but they probably own the branding.  It doesn’t really look like what your brand is.  They own the customer, certainly own the customer relationship.  They may even be setting your prices, right?  And so when I think about the difference between selling or buying as you say and shopping, I really do think it’s implicit in the name Shopify that we’re allowing you to create a shopping experience by infusing your sales and your commerce with your brand identity.  We tell the story a lot of the woman who’s on the marketing team at Shopify who used to sell on Etsy.  She sells LBGTQ apparel and when she sold on Etsy people would say hey, thanks for selling that t-shirt, it’s super cool.  When she was able to use her personality and creativity into the store she built on Shopify people said to her things like, I’m so glad you created this brand.  I came out to my parents wearing this t-shirt.  Pretty different message, but it was because we let her be who she was and put it all over her commerce experience and so, I think the distinction, I hadn’t quite thought of it that way, the difference between shopping and buying in that sense if very real. 

 

Dave Knox:  Yeah, no doubt about it.  Pulling back my heritage of shopper marketing through the P&G days for sure.  Talk about that heritage, you’re career path has really put you at the forefront of this thing called performance marketing. Being just a tool a for direct marketers to something that everyone from CPG to retail to technology had to embrace and many times frankly learn.  So, how do you think about the intersection of performance marketing on one side and more traditional brand marketing in today’s landscape?

 

Jeff Weiser:  I just feel that the two areas have stopped being a dichotomy.  There was a time when you were either running a performance marketing operation meaning, we’re going to try to attribute customers or orders back to media events.  We’ll ensure that based on that allocation there’s a ratio of lifetime value to spend that’s productive for economics and that was performance marketing or you were sort of like, oh I’m building a brand, let’s just throw a bunch of advertising at the wall and hope the whole thing comes out good.  What I’ve noticed now and I spend a lot of time thinking about, what’s really the difference between D to C and what people used to call DR, what’s really the difference?  I think that they’re meeting in the middle.  I think that folks, that we think of as the modern day D to C winners know the mathematics behind performance marketing that all the old school DR shops used to run.  But they’ve also ingested the lesson of brand which is like the old DR guys might play a little trick to slip another billing through and I think that maybe the length of the optimization window in D to C performance marketing is just longer because there’s been a realization that yeah you can know that map and run the economics but it’s a long game and you got to treat the customers well and create incredible experiences as well.  So people are actually thinking of these hybrid words.  I’ve heard people refer to branded response, that capture the interception of performance marketing and direct response we’re experiencing it now.  So I just see the two fusing where it’s like we understand what the map would say in a short performing marketing scheme.  We understand the incredible experiences and the identity and meaning you’ve got to create in a brand world and we’re going to apply our own sounds judgment to create an experience that’s at the intersection of the two and takes the best of both worlds.

 

Dave Knox:  Yeah and that’s an intersection I think a lot more people need to be paying attention to, so it’s a great way to kind of articulate it.  You look at challenging yourself as a marketer and thinking about that environment and kind of a lot of what shapes you, what brands and companies out there are serving as an inspiration for you right now?

 

Jeff Weiser:  I thought about this a lot because I haven’t been able to exactly put my finger on what’s the one brand that encapsulates exactly the way I would want to do marketing and where I’ve sort of netted out is that, there’s a way that our CEO, Tobi, thinks about this, which is really smart, which is essentially don’t figure out who in your space is good and try to be better than they are.  Figure out what space is the best at each facet and try to be as good as the best player in each space.  So meaning if I want to be the best marketing organization in the world, I want to be as good at performance marketing as Booking is or Expedia or whoever’s really great on the travel side and those companies are just awesome and on the brand side I want to be as good as Apple or Nike or some of the really emotive brands that can sort of raise emotion in you when you see their advertising and so I really try to think about for each thing we’re doing, who kicks ass at that and then try and get as good as they are.

 

Dave Knox:  That’s brilliant, I love that.  Technology has had a dramatic impact on marketing over the last decade with the rise of mart tech, ad tech and pretty much everything throwing tech into it, but it hasn’t solved everything.  So what problems or inefficiencies in marketing are you hoping or waiting for technology to still address?

 

Jeff Weiser:  The thing that I would most like marketing technologies to create is some transparency.  So, I feel like marketing technology has largely been built to bring data technology and analysis to marketers who aren’t trained in that field and that’s sort of let them get by on being black boxes and so I think the thing that I haven’t seen yet is a technology that says okay I’m going to ingest your company’s data and I’m going to make an optimization decision and then I’m going to expose to you what data elements we mined.  What the elasticity is of prediction work, what made this model actually tick?  And typically what will happen is folks will come in and try to sell me a marketing technology and I’ll say, okay well that technology is making a decision to suppress, for example, half the eligible universe in my retargeting, or that technology is making a decision of how much to bid on X, Y or Z or what kind of content to serve to A, B or C customers, how’s it doing it?  And someone will usually, someone well intentioned will usually say something like oh it’s being done, don’t worry we have a proprietary algorithm.   And I’m like, okay, what’s the algorithm do?  And that’s often where the conversation ends and so it’s like, I appreciate that a lot of these have some sort of secret sauce to them, but I do think there are ways to bring some transparency to what has been black box solutions without giving away the secret sauce and that’s what’s going to be required as more quant or more people with some background in analytics step into CMO seats, they’re going to want to know how’s this really working if it’s going to make decisions, so again another sort of best of both worlds for me would be yes, please automate that.  Please make optimal decision algorithmically, but let me know how you’re doing it.  If nothing else, it’s a lost opportunity to learn something about the business.  So, if your technology is mining thousands of data element from my datasets to make a decision based on prediction for me, which of those a thousand elements turned out to be relevant?  Which ones were predicted?  How much?  Even if it doesn’t change the way I would use that technology, I’ve just learned something about my business and so the difference between a marketing technology that’s a black box and an internal team of human being data scientists doing the same work often comes down to that.  It’s the loss of the exploration of the data and what you can learn about your business through that.  So I think that’s the big thing that will eventually have to come will have to be some window into what these things are actually doing to get people comfortable as the people using them become more savvy with technology and data.

 

Dave Knox:  That’s great and talking about that using, place gain more savvy with the technology, right before we started recording the call you were talking a little bit about you have big companies that are starting to realize that tools like Shopify are really how entrepreneurial companies are uniquely building their companies versus maybe relying on historical heritage technology that is complicated, cumbersome and just doesn’t work.  What do you think bigger companies need to do to respond to the rise of new brands and new retail channels and kind of new everything?

 

Jeff Weiser:  Yeah, you know I see companies saying they want to disrupt from and we did talk about this a moment ago, and we talked about companies saying things like I really want to disrupt from within or I’m creating a startup within an incumbent or something like that.  You know what I would say is they really have to keep it pure in a certain way, meaning if you want to run like a startup, you have to bring in people who know how to do that, let them make mistakes, let them go fast and break things to use Silicon Valley platitude.  I don’t think that simply and this may sounds against interest, simply saying oh well you know the successful startups use Shopify, let’s just go buy it is going to get you there.  It's a mindset you know, and I think that the success or failure of these big companies is sort of disrupting from the inside will depend on their ability to adopt a mindset not their ability to buy the same tools.  So like there’s a, I’ll invoke our CEO again, Tobi, who’s just this brilliant philosophical guy.  He talks about something a lot called cargo cult, do you know what that is? 

 

Dave Knox:  I didn’t, I haven’t heard that one.

 

Jeff Weiser:  So cargo culting, is, I’ll probably get the story wrong, but I think you’ll get the gist of it.  Go back to World War II, this war is being fought all over the world and some islands that have not been exposed to modern technology become the battlegrounds or these staging grounds for some of the big World War II battles, right?  And so these islands sort of get taken over and someone comes in and lays down concrete and then big airplanes and jets start landing and they’ve got all sorts of modern technology and better food and warmer clothing than the native inhabitants of the island have ever seen before.  Anyway, flash forward, war ends, everyone goes home, years later the inhabitants of the island can still be seen standing at the end of the strip of concrete, the runway waving orange flags.  Right?  And this has essentially become a religion where they believe if they wave the orange batons like amazing technology will fall out of the sky.  And to him that’s cargo culting, right?   You’re doing something because you believe it will create a causal reaction when it’s just in fact a correlation.  So, in the same way that the jet fighters didn’t come out of the sky with amazing technologies and goods because there was someone there waving them in with orange flags, adopting the veneer of startup culture or the tooling of startup companies won’t get you there either, that would just be cargo culting.  You really need to be able to adopt the mindset and that’s always the harder part. 

 

Dave Knox:  Yeah, and I think that is an awesome place to end on.  So, I really appreciate you taking the time to talk with us today.  Love what you are doing with Shopify and your kind of view on the world.  So thank you for taking the time.

 

Jeff Weiser:  Thanks so much.  It’s been really fun.

 

Dave Knox:  Thanks so much for listening.  If you like the show, hit that rating and make sure to subscribe so you don't miss a single episode.  And for more resources, head over to predictingtheturn.com.

Episode 09 -How Legendary Entrepreneurs Adapt to The Disruptive Marketplace w/ Scott Dorsey of High Alpha

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LISTEN TO THE EPISODE ON ITUNES:

Episode 9 - How Legendary Entrepreneurs Adapt to The Disruptive Marketplace w/ Scott Dorsey of High Alpha

SHOW TRANSCRIPT:

Scott Dorsey: If you want to create radical enterprise value for a BigCo, you should be looking at startups and you should be looking at startups that are disrupted. 

 

Dave Knox:  I’m your host, Dave Knox, and this is Predicting the Turn.  A show that helps business leaders meet their industries inevitable disruption head on. 

 

Welcome to another edition of Predicting the Turn.

 

Today I have a chance to sit down with one of, I think, the Midwest’s greatest entrepreneurs, best investors and really somebody that has changed this community for the better.  Joining me is Scott Dorsey, who most famously is the founder and former CEO if Exact Target and now is one of the cofounders of High Alpha.  So, welcome Scott.

 

Scott Dorsey:  Hi Dave.  Thank you, great to be on the podcast and thanks for the warm intro.

 

Dave Knox:  Well, thank you.  I want to dive in and start right with ExactTarget the company that you spend nearly 14 years at as the co-founder and CEO.  ExactTarget is arguably the most successful story of building a Midwest based startup and tech startup in particular.  You started in 2000.  You took it public in 2012 and then you sold it to Salesforce in 2013 for an amazing sum of over 2.5 billion that kept growing as Salesforce kept going, which was good.  Along the way you pioneered this whole concept of the marketing cloud and beyond your core offering of email marketing, you acquired CoTweet and iGoDigital and Pardot.  That’s a ton going into that, when did you realize that ExactTarget had a chance to go from the company that was your initial spark to this massive billion dollar company that was going to pioneer the marketing cloud?

 

Scott Dorsey:  We were so fortunate.  We the entrepreneurial journey of a lifetime, starting out as three first time entrepreneurs, first time software entrepreneurs and ultimate building a meaningful company.  Our founding principle was about helping marketers leverage data to send more targeted and personalized communication to their customers and that really came from my cofounder Chris Baggott growing up in the world of database marketing at R.R. Donnelley and the expression of those communications were print and catalogs but the concepts of database marketing were really solid.  So that’s where we started and we were fortunate to catch the wave of digital marketing and catch the wave of software as a service.  I would say where we started to realize we were more than email was really around our data strategy.  So we, early on, as a I mentioned, we were founded on this database principle and we wanted to integrate everywhere and anywhere we could on behalf of our customers to bring data into our platform so we were ironically early in integrating with Salesforce, even before the average change existed, is one example.  So we wanted to integrate with ecommerce systems and point of sale and CRM and really start to be the database of record for the marketer.  And when that started really happening, really happening, then it became apparent that we were more than just a single channel company.  That we really had an opportunity to be omni channel and start providing technology across all forms of digital communication.  It was also interesting, Dave, from investors and then public investors, I felt like I was defending email at every turn and there’s still narrative today about the future of email and while other channels can blaze email, it was a better position for us with customers and investors we’re channel agnostic.  We’re expert in email, but we’re going to go wherever marketers can best reach and communicate with their customers and that was some of the early thinking and development into that broader strategy.

 

Dave Knox:  I love that.  And every entrepreneur, even a big company, when they’re thinking about the future of where they’re going to go, they have to make that choice, do we partner, do we buy, do we build it ourselves and for part of it, you made the decision to buy, like I said with CoTweet and Pardot and others.  What drove you to say I’m going to go find that company, buy it, versus build it myself?

 

Scott Dorsey:  Sure, that was a fun part of our growth strategy.  We completed six acquisitions, three that were product expansion and three that were geo-expansion.  Scott McKorkle, who you know who led R&D in technology development for us, always felt like we could everything.  We could build anything and everything and we had a huge passion for R&D and it was actually very important to us as we grew in scale as a company that we continued to invest 20% into research and development.  So, we kept that level of investment all the way through the history, all the way through the scaling of our company.  Where we started to see opportunity for M&A were really areas in which we didn’t have expertise and areas where we thought we could bring technology in that we just hadn’t been able to prioritize, perhaps, or we just didn’t have that expertise.  To your point, the first one ever was CoTweet.  So we acquired CoTweet and that put us in a first mover position of combining email and social together.  Social was just coming of age, so it was an innovative move and did two things for us.  One is it repositioned the company as more than email, and that was really important.  And then two, it gave us a presence in San Francisco that was important.  Being in Indianapolis was home base and always home base, but it was important that we started to branch out around the U.S. and globally and there’s so much tech and development talent in San Francisco it gave us the beach head that we could build from.  The other acquisitions were really something special.  Our geo-expansion acquisitions were resellers.  So, when we were thinly capitalized and scrappy our best path of international expansion was to work with resellers that agreed to sell our product and represent us in market and it was a much lower cost and lower risk way of us entering markets like the UK, Australia, and even Brazil and what happened in all cases is that these resellers were doing so well.  They became a part of our family.  They build the customer base with us and it became really logical then to acquire them once they started to scale.  So three successive years we acquired a firm in London, then we acquired a firm in Melbourne and then one in Sao Paolo, Brazil and that really built out or global presence and then our last two acquisitions were done in the same day October of 2012 we announced, it was really fun actually to see Spotify announce two acquisitions it the podcasting space yesterday because it’s really rare you see two acquisitions get announced at the same time and even as we were looking for precedent around a press release or how to announce as a public company you’ve done two acquisitions on the same day, we couldn’t find it back in the day.  So, we did two that all kind of came together in October of 2012 and that was iGoDigital.  That was a big move into predictive analytics and then Pardot and Pardot was a really big move for us to acknowledge that the B2B marketing space was something different and something additive and that turned out to be a wonderful acquisition for us as well.

 

Dave Knox:  And one that has continued this day because both of those were founders you still work with.

 

Scott Dorsey:  Yes, exactly.

 

Dave Knox:  Which is pretty fun.  Talking all kinds of different part of ExactTarget, you guys had an amazing product, but you also had, what’s arguably the best culture I’ve ever seen, and that was intentional.  You guys went and said orange as a culture is something you’re going to build the company on.  What led you to think about culture as a differentiator for a tech company?

 

Scott Dorsey:  Sure, so when we started we wrote down our core values right from the very beginning and core value one was basically the Golden Rule, treat people well and we had it in our mind that we were going to be competitive but we were going to be kind and we really wanted to build a team and a culture that treated people well and we would speak about treating people well not only your customer, but one another, and prospects and partners and even competitors.  So, we had this idea of treating people well and those core values created something special and provided a framework.  I always describe it as a framework for hiring and a framework for decision making.   And as we became larger as an organization and I couldn't be involved in every decision, nor could the leadership team, the core values were kind of the guiding principles to help our team know when they could go quickly and what we cared about and what we valued.  So that was our first big wave of thinking about culture was really through the lens of the core values.  Interesting enough, prior to me getting into the world of technology, my first job right out of college was with an amazing company called Steel Case, and I started my career thinking about how physical space impacts productivity.  Physical space can drive collaboration.  Physical space can shape culture, so that was something I wanted to bring into ExactTarget as well.  And then I’d say the final piece is really our friend Tim Copland.  We hired Tim as chief marketing officer.  He really brought the view point that marketing is not only marketing out, but it’s actually marketing in and we talk often about marketing from the inside and if you can build evangelists who love the company, love the people, love the brand, that’s the best marketing you could ever have.  So, it really was Tim’s idea to brand the culture orange, because we were hearing over and over, they’d be like we love your team, everyone’s so positive and energetic and smart and hardworking.  We could feel the vibe when you come into an ExactTarget building or work with an ExactTarget team, but we didn’t have a framework for it.  We knew it was something special, but we didn’t have a great way to describe it.  It really was Tim’s idea to take our brand color orange, turn it inside and create a culture called Be Orange and that became the cultural framework that drove the company and going back to our last topic around M&A, culture really helped us integrate companies and cultures into one, if you will.  So, every office and geography had their own subculture, but we all stick together by this feeling of orange and it was really really special and our team in Australia would do a team building event and they’d all wear orange and they’d be so proud or maybe they’d run a marathon that had nothing to do with work and they’d be wearing orange and they’d send me photographs and the same thing in Brazil.  We had a loose framework of how we spoke about culture, but beyond that it was more of a feeling.  It was a sense you had that you were orange and were a part of something really special together and the last comment I’ll make here is one of my favorite stories is about maybe a year and half or two years after the Salesforce acquisition when really the ExactTarget brand really started to dissipate and for many good reasons Salesforce wanted the team to feel Salesforce and Salesforce Blue, one of our team members spun up a Facebook group called Orange Crush, and literally Dave, over one weekend over a thousand members joined and over 2500 pictures were posted and I thought, that’s pretty awesome.  If that happens even after that company no longer exists, and you’ve got that kind of alumni network, you know you’ve done something pretty special on the culture side. 

 

Dave Knox:  That’s wonderful.  Let’s talk about that alumni network, because you left Salesforce 2014.  You are not one to go sit on a golf course and hang out, so a year later you started High Alpha and started it with several of your fellow executives from the days of Exact Target.  Tell us a little bit more about what is High Alpha, what is High Alpha Studio, what is High Alpha Capital, what are you guys doing?

 

Scott Dorsey:  I’d be happy to.  Your question, I want to tell you a quick little story.  My wife, Erin, we’ve been married for over 25 years.  She’s phenomenal, she’s every reason for any little ounce of success I’ve had.  When we wrapped up at ExactTarget and Salesforce, she said don’t forget I take great pride in having a hard working husband and that said it all.  That said it all.  I take great pride in having a hard working husband, so that’s all I needed to hear.  That was code for don’t think you’re going to play golf and tennis five days a week.

 

Dave Knox:  That’s a lot, my daughter who’s six years old, now that I’ve left WPP and I’m doing my own, she goes, Daddy doesn’t get to go to work anymore and hang out with his friends.  So explaining entrepreneurship to a  young child is an interesting thing. 

 

Scott Dorsey:  Right, but I love working hard.  I like tackling difficult challenges and more than anything I love supporting entrepreneurs and love coaching and mentoring and I had an infinite number of people help me in so many ways along our journey that it’s such a privilege to be able to help others.  So, High Alpha really started with the four founders, Mike Fitzgerald, Christian Anderson and Eric Tobias were friends.  We knew we wanted to do something together.  We had all worked together in one way or another and we complement each other beautifully and we started saying that we just love helping to found SAS companies and cloud companies and boy if we could do that, rather than nights and weekends as a hobby, if that became like our full time job, our full time motion, could we build a company that started companies?  Could we build a platform that became really really good at starting new cloud companies, that would be something that we’d love to do?  And through a little bit of serendipity, we ended up talking to investors and friends about what we were thinking about and we ended up having a number of term sheets come in and fortunately a lot of wonderful investors who wanted to support us and one of the investors was Emergence Capital and another was Greenspring and we’re actually out here at the Greenspring conference.  What became evident was Greenspring was more aligned around helping us start a fund and Emergence was more aligned around helping us start an operating company.  So we thought, let’s do both.  Let’s but the best of all worlds together and the logic which has really proved itself is in markets like Indianapolis, it’s very difficult to raise capital.  It’s very distracting for the entrepreneur to spend so much time raising capital and not enough time frankly building their team, building an amazing product and building those early customer relationships.  So having the startup studio and the venture fund in tandem, created some real competitive advantage for us and in many ways creates and 18 or 24 month funding road path if you will, for the entrepreneur and helps them focus where they can make the biggest difference in starting their company.

 

Dave Knox:  Talent is a big part of Predicting the Turn.  And as we talk about talent, I wanted to mention one of our sponsors, Hunt Club.  Imagine the power of the best marketers in the world, helping you to find your next marketing leader.  That's the power of Hunt Club.  Hunt Club is a new category of talent company that powers the network of experts, connectors and business leaders to help you find the best talent.  Let's face it, recruiting hasn't changed with the times. Hunt Club is changing the recruiting game by leveraging technology, and crowdsource referrals to find you the best people possible for your company.  Stop paying job boards that don't work, or recruiting firms that recycle the same active candidates.  Partner with Hunt Club.

 

Dave Knox:  So let’s talk a little bit about some of those people, one of the hearts of High Alpha has been the ExactTarget alumni network and these amazing people that helped you guys build what it is and now are joining the entrepreneurial side.  Making that switch though from a big company like Salesforce, jumping into the world of a High Alpha startup.  That’s tough, not everybody can do it.  So when you’re looking at talent and you’ve got that person raising their hand or you’re looking to recruit somebody, how do you decide and your gut tell you they’re going to be able to switch?

 

Scott Dorsey:  That’s an amazing question.  In High Alpha we have 35 team members, so I’d say small environment.  Even smaller is go join a startup, right?  Be cofounder, that’s really really small and very difficult.  So it does take a different make up.  I heard a wonderful term yesterday I loved was an entrepreneur  in corporate clothing.  And that’s really what we’re looking for.  We’re looking for individuals who are entrepreneurial in how they think, how they act, how they can assert themselves and really make something happen from nothing.  I think what’s most difficult in transitioning from a large company environment to small.  When you’re a large company, you’re really playing triage all day, so many opportunities and communications are coming your way, you’re trying to sort and sift through them and pick areas of prioritization.  When you’re in an early stage company, nothing is coming your way, zero.   You’ve got to make it all happen and being able to search yourself, being able to see a little crack of an opportunity and know how to run through that door is a really different skill set, so it’s a great gift actually, Dave, that we’re able to work with so many former colleagues because we had shared success.  We know what success looks like.  In many ways we can kind of finish each other’s sentences.  We have a common vocabulary.  So it really does help you go faster, but it’s finding a special person that’s ready to go from big to small and make a bigger impact and maybe do it with less security and structure than they’ve had before.  So, it’s somebody that’s very driven, knows how to take initiative and probably has done things throughout their life that are entrepreneurial.  There’s got to be some kind of entrepreneur track record that they can leverage and pull from. 

 

Dave Knox:  With that mode, we get a lot of people that come for advice, I want to do a startup or I want to entrepreneurial.  Sometimes those people don’t necessarily have those skill sets that you just described, but their dead set, that’s what their heart wants to do.  How do you mentor and coach somebody that maybe doesn’t have that complete skill set?  Can they develop it or do you have to give them the hard truth?

 

Scott Dorsey:  I think you have to give them the hard truth and I think we have to be as candid as possible about how difficult start up life can be.  It’s difficult and you have to be ready for it and your family’s got to be ready for it and you’ve got to know you’re heading into a situation where there’s more risks than you’ve probably had in the past.  Now we like to think at High Alpha that we de-risk a startup because of our experience and our access to capital and all the good network that we’ve built over time, but there’s still risk and it can be lonely really getting started so, we try to be as candid and upfront as possible, and then one area I’ve been spending a lot more time working on and thinking about Dave, is the idea of cofounders.  In many of our companies, we’ve started with one single co-founder and then maybe over time we’ll start hiring their leadership team and I think having two or three cofounders out of the gate can be really really valuable because then you have the support system built in.  High Alpha is a support system, but we’re still different.  We’re cofounders early and then investors late.  There’s no substitute for people in the trenches with you where when something really good or really bad happens, like the first phone call you make, that’s got to be your friend and cofounder.  So, some of those individuals that may not be as entrepreneurial as required to be the startup CEO still could play an important role I think on a founding team.

 

Dave Knox:  I love that, makes a ton of sense.  Let’s talk that emergence of corporations and startups.  This week you guys had a great event called Alloy that was out in San Francisco where the theme was around startup engagement and the premise of that is the going forward big companies need to place as much importance on engaging with startups as they’ve historically done on research and development or mergers and acquisitions.  So what’s been your experience of the Fortune 500 and big companies overall understanding that and be willing to embrace it?

 

Scott Dorsey:  Thank you for speaking at our conference, by the way, Dave, you did a great job.

 

Dave Knox:  Thank you.

 

Scott Dorsey:  Especially in the sweet spot of what you’ve written about and what you speak about with Predicting the Turn.  In our experience, we started with several idea sources.  One was just our own ideas that are a problem we desperately want to solve in the world of B2B software.  Second would be entrepreneurs approaching us with an idea.  Third, our venture partners, maybe CFE, Mura, new market or new technology trend where we could start a company.  And then the fourth, which really surprised me was large corporates coming to us wanting to start new companies or wanting help in shifting their culture to be more agile and more entrepreneurial.  Now, not all companies can do that, but I’m definitely finding that big companies, they’re fearful of disruption.  They know they have to keep reinventing themselves.  Leaders, even a younger generation of leaders think about digital in a brand new way and are trying to infuse those principles into their business.  So in some ways, we’re almost reluctant consultants that we’ve kind of gotten pulled into this world, but we’ve been happy to do because it's allowed us to learn a lot about different companies and industries and find new sources for ideas to start companies in brand new industries.  We’ve seen the shift over time of companies focused heavy on R&D and some of those returns are starting to dissipate and the second going really to M&A that if you can’t innovate, just buy your way to innovation and I think that still plays a role.  The third is this idea of start up engagement and not being afraid to start new companies and really not being afraid to start new companies outside the four walls of BigCo because as you know first hand, it’s so hard to innovate inside the four walls of big company. There’s so much structure and an aversion to risk, rightfully so in many cases, that you can’t do what you need to do as a startup, of taking risk and moving fast and raising capital from outside sources and breaking some of the rules.  So, we’re starting to see a trend of big companies partnering with studios like High Alpha or other avenues to start new companies.  And boy can they make a difference as maybe a first customer or an equity investor and also equally as powerful, big companies can learn a lot from startups and when big companies become a customer of an early stage company they can shape product road map.  They can infuse that start up ethos into their company and they can completely change the trajectory of that early startup.  It changes everything.  It can make the company more fundable.  It can make the company grow faster.  It could create jobs.  It can grow their local tech communities.  So I encourage a lot of big company CIOs to create an environment where you can test and experiment technology being built by early stage companies.  That can be quite powerful.  The other element is if you want to create radical enterprise value for a BigCo, you should be looking at startups and you should be looking at startups that are disruptive and you look at, just as one example, what’s happened with Lineman Bird here over literally the last year or two.  Those two companies are valued at well north of a billion dollars.  They’re transportation companies.  Why did the bicycle companies or the auto companies not start those firms or not get in the game?  They just didn’t see the opportunity. 

 

Dave Knox:  That’s exactly it.  Probing that one a little bit more, some of our peers in the world of venture capital could not disagree more about big companies engaging with startups, more because they think the big company is going to send that startup on bad path.  Some of the most famous on the West coast and the East coast have be very vocal about it.  What’s your view on that?  Are they just flat out wrong?  Have they been swayed by bad experiences and we’re in a different time today?

 

Scott Dorsey:  That’s an awesome question and I think not all big companies are created equal.  So, I think some big companies think that they want to be friendly to startups, but they don’t have the mindset.  Or often, here’s what happens is maybe an individual at a senior level kind of thinks it’s a good idea, but it gets down into the team that’s got to implement it and you can’t break through the clutter, the organizational inertia to get something done.  But, I’m seeing, I think it’s company specific.  I’m seeing big companies that have the right frame of mind can be amazing partners for early stage companies, but I do agree, you can’t say that for all companies and there are plenty of big companies that can be too much of a time burden and far too difficult for the startup to work with and the startup entrepreneur has to be so careful not to spend time in the wrong places or not be chasing a big enterprise in a disproportionate way because they’ll likely just be disappointed and spend a lot of cycles that they could have better utilized in a different direction.

 

Dave Knox:  That’s the value of having someone like High Alpha as a partner because you can give that advice, play that buffer, help that entrepreneur realize maybe something is going a little off tract now. 

 

Scott Dorsey:  We’re learning all the time too.   So we’re getting better and better at pattern recognition and learning from our own mistakes. 

 

Dave Knox:  So you mentioned there are the four areas that kind of inspired you, the things you create with studios and the spaces you invest.  One of the things that comes out of those four areas is something called sprint week.  Tell me more about that.

 

Scott Dorsey:  Yeah, I’d be happy to Dave and I think this has been one of our most impactful developments in the three or four years we’ve been doing this at High Alpha.  At the highest level we created sprint week, we run four sprint weeks a year to, this is going to sound silly, force us to start a new business.  So we realized you can just come up with a hundred reasons why not to start a new company, it’s so easy to throw, splash cold water on an idea.  It's not a good idea.  That’s already been tried.  There’s too much competition.  You’ll never get funded.  So we had to create a mechanism that created a cadence for new company creation and that really lead to sprint week and it’s been magnificent.  So we take our 4-6 best ideas.  We run them once a quarter.  So, throughout the quarter we are filtering.  We’re bringing lots of ideas into the top of the funnel.  We’re vetting them.  We have business analysts that will do work in research.  Ideally we start to create a pool of cofounders who might be well matched for the idea that we think has merit.  And then we role into sprint week into 4-6 teams, typically each team is led by one of the High Alpha partners and it’s a mix of High Alpha team members, so all 35 team members participate in sprint week, regardless of your roles in the business.  We’re all company creators.  And then we bring a lot of outside guests in.  That could be maybe a subject matter expert, maybe a potential cofounder, maybe a potential investor.  We mix those teams together and we literally try to compress 3-4 months of worth of work into three days.  So Monday tends to be a focus on the problem we’re solving.  Are we clear on the problem that we’re trying to solve or the opportunity?  Day two tends to be designing the product and the solution and then day three tends to be designing the business and the business model.  At the end of those three days, we present to one another on day four, so it’s like an internal pitch competition or business plan competition and the decks that are built are remarkable.  Like you can’t imagine they’ve been built in three days.  So, we’ll develop the brand, the digital presence, and the constraint of time can be a wonderful thing actually.  So, we might prefer to spend two months trying to come up with a company name, but we might only have an hour in sprint week.  So, come up with five ideas, do some domain searching, pick one and go.  That would be just one example.  We do high fidelity product design.  We build a resource plan.  We build the financial plan.  We do a competitive landscape analysis.  And we do a whole lot of customer development.  Ideally, we’re going to talk to 20, 30, 40 customers and get a real sense for what they might be interested in and hopefully line up 5-10 of them that want to be early Alpha customers.  So, that whole methodology has served us really well and ideally we’re going to come out of sprint week with one or more ideas that we’re ready to hit the green light and go ahead and start those companies.

 

Dave Knox:  There you go.  That’s awesome.  And so final question I want to spend some time, because we’ve got a happy hour here for Greenspring to go to.

 

Scott Dorsey:  Excellent.

 

Dave Knox:  One of the concepts I’ve been playing around with is this idea of continuous beta.  The idea that companies, but really the people at those companies, the world is moving so fast that no one can be comfortable with where they’ve been.  They have to be continuously moving forward and evolving their skill set, their mind, their thinking.  You’ve done that with your career going from Steel Case to being a founder of a tech company to becoming an investor and now really being a community change agent, in a lot of ways.  How have you thought about that idea of continuous beta in your own life?

 

Scott Dorsey:  Yeah, I love that term by the way, continuous beta.  I think that’s a state of mind that everyone should have.  For me, it’s really interesting when we started ExactTarget, I knew nothing about starting and scaling software companies.  I was a sponge.  I was on the learning side of every interaction I had and even the venture firms that invested in us would hold quarterly conferences and I attended every one I could.  There was like a benefit of knowing that there was just so much I didn’t know.  So I really went into ExactTarget company building with a learning mindset and just became a sponge and never passed on a learning opportunity.  Somewhere along the way, then you end up being the mentor.  You end up being the panelist.  You end up being the speaker.  And I try to be really conscious about making sure that I’m still learning and you can mentor lots of people, but you still need to be mentored and the real blessing for me over the last 3-4  years of High Alpha has been around learning the world of venture capital.  So I knew the world of venture capitalism as an entrepreneur, I really didn't know the world of venture capitalism as an investor.  So that’s an example of an area where I seek out mentors, I have mentors.  I’m asking for advice all the time.  I’m attending conferences.  I’m reading articles and listening to podcasts.  I still have a long way to go, so I’m learning as much I can about the world of venture and just try to keep myself fresh and sharp and setting good example for others that you regardless of age and experience, you got to keep learning and stretching yourself and your point D, things are moving so quickly, you have to be careful you’re not operating out of an old play book and I worry about that.  ExactTarget, we sold in 2013, it’s been more than five years, so I have to be careful to implementing new playbooks and not just relying on one that worked in a different era.  So those are really important things.  I’m not sure I’ve got it mastered, but I’m conscious of it and trying to work on learning and stretching myself in every way possible.

 

Dave Knox:  That’s wonderful and that’s such a powerful self actualization because I think a lot of successful entrepreneurs, they forget that lesson, that the world is moving so fast that what worked in 2000 and 2005 and 2013 might not work anymore.

 

Scott Dorsey:  So true.

 

Dave Knox:  That’s wonderful.  Well, thank you so much, time is the most valuable commodity, so you taking an hour to do this, really means a lot.

 

Scott Dorsey:  It was my pleasure.

 

Dave Knox:  Thank you for being such a mentor and an inspiration to the Midwest and everything else.

 

Scott Dorsey:  Well, right back at you Dave, I appreciate everything you’re doing in Cincinnati and the more we can work together and lift up communities like Indy and Cinci, I think we’re all going to be better for it.  So this was an absolute treat.  Thank you.

 

Dave Knox:  Thank you. 

 

Thanks so much for listening.  If you like the show, hit that rating and make sure to subscribe so you don't miss a single episode.  And for more resources, head over to predictingtheturn.com.

Episode 08 - Ignoring Hype, Trusting Data, and Disrupting the Venture Industry w/ Paul Martino of Bullpen Capital

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Episode 8 - Ignoring Hype, Trusting Data, and Disrupting the Venture Industry w/ Paul Martino

SHOW TRANSCRIPT:

Paul Martino:                Venture is a very funny business. Even though we're funding disruption, the vast majority of people in venture do it all the same way.

Dave Knox:                   I'm your host, Dave Knox and this is "Predicting the Turn," a show that helps business leaders meet their industry's inevitable disruption head on.

                                    Welcome to another episode of "Predicting the Turn." Today I'm here with Paul Martino the founding partner at Bullpen Capital. Paul start off, love if you could tell us a little bit more about your background and what led you start Bullpen.

Paul Martino:                So I'm a now, I guess, six time founder. I was a four time founder at the time at which I started Bullpen. Then I started Bullpen which was number five and then we actually incubated a company in our office, that's number six. I did my Ph.D work in the mid-90's and everything that people would call big data, I did at Princeton University in '95, '96. I grew up in the Philly suburbs and I started my first company when I was still in high school, which was a game company in the old bulletin board days. So that gives you an idea kind of what the background looks like.

                                    Always wanted to be an entrepreneur. Never ever wanted to be involved in a career path that was assigned. Like my brother's a doctor and it was like well, when I'm this old, I'll do this and when I'm this old I'll do this and when I'm this old, I'll do this. Don't get me wrong, God bless him. That's exactly ... We need a lot of doctors. I just knew anything that was that prescribed was never gonna work for me. So I had to be on that, let's go make it up as we go along path and sure enough, entrepreneurship was the right way to do that.

Dave Knox:                   I love it. So one of the things you've talked about is that venture capital is all about disruption. But, it's an industry that for 50 years, never disrupted itself. How are you doing that disruption with Bullpen and then mention of this post seed round as you call it?

Paul Martino:                We're just one of a very small number of funds that actually in my opinion do anything different. Venture is a very funny business. Even though we're funding disruption, the vast majority of people in venture do it all the same way. They have a better knowledge of a business or as I kind of jokingly say, they look better than the person next to them, therefore; you'll take my money. And it becomes a branding exercise.

                                    And my ratio is about the following. I can give you 10 venture people in a room, nine of them are trying to look better, sound better and know more about a category than everybody else and you're gonna get that one out of 10 people who's actually trying to do something different. So Bullpen is certainly doing something different. Josh Kopelman was doing something different. Andy Rachleff when he started Benchmark was doing something different.

                                    But the list is short and of this last decade, of the now 4 or 500 micro funds, no way there's more than 20, 25 of us who I would sit down and say, "Let's start from a blank sheet of paper. Let's go figure out what's broken in the business and try and fix it." I find that to be unacceptable in the business. I find it just ridiculous that there isn't more self introspection in our business. Especially since our businesses are out funding disruption. There's a certain deep irony to this.

Dave Knox:                   Yep, without a doubt. So one of the ways we've gotten to know each other is through Fullpen, which is one of your ways of doing something different. Outside advisors you bring in. So what is Fullpen and how is that part of the fund of what you do?

Paul Martino:                You know what? That's the first time I've gotten that question. Obviously you're perfectly qualified to ask it, but it is actually quite on the mark. So, when we were thinking about what we would do about venture partners at Bullpen, we're like, well, I was in EIR once. I was a venture partner once. Actually most of us in the fund, we had either done an EIR gig or had done ... With an EIR gig, it doesn't make any sense. You quit your day job to go and sit in somebody else's office for six months. Wait a minute dude, isn't the value you have where you work? So quit where you work and access you have to come sit in my office, oh by the way, none of the partners would show up to?

                                    So Duncan and I and Rich in the early days were sitting around going, well, what would our riff be on a venture partner program? We said what if we had 6 or 10 domain experts who were a virtual management team. Someone who was really good at branding. Someone who was really good at marketing. Somebody who's really good at sales. Basically a virtual management team and they had carry in every deal. That's another thing I think a lot of firms get wrong. The venture partner riff is you get carry in the deal you help. No dude, I want Dave Knox bought into my whole portfolio.

                                    And so we said, let's do an informal program where all the participants are actually carry members in the entire fund. Let's meet once a month and let's have them keep their day jobs. You weren't allowed to quit your day job. If you quit your day job, I don't want you anymore because the main value you had was that you were the Chief Executive at such and such. You were the Chief Executive at Topix. You were the Head of Customer Acquisition at Zinga. You're the Head of Digital Advertising at Rockfish. Whatever it was. That was the value proposition.

                                    And then by the way, we inadvertently solved another problem. Another problem you have a lot when you run a venture fund, is you run into an old friend or someone who's looking for a job or their next gig and they go, "Wow, I'd love to kind of network with you and meet you and talk everybody." So what do you do? You have them come to the office and maybe one or two of your partners is around. Well guess what? Once a month, everybody including Fullpen is in the office. 20 of us. Fullpen, 10 to 12 people, all the partners, all the employees. There's 20 of us. So guess what, I can invite one or two friends every month to a Fullpen session, they can meet everybody in one fell swoop, raise their hand and go, "I'm looking for a job." And if we can introduce you to 10 opportunities by the end of the day, shame on us.

                                    So in a weird way ... This is what's funny about being an entrepreneur. We were out to solve one problem, which is having more value and impact for our portfolio and we solved another problem, which is networking outsiders into our pool better and that's why more people in venture should actually be entrepreneurs again, because maybe you'll go solve a new problem.

Dave Knox:                   Yep. Love that. One of my favorite things of the Fullpen is that it's probably every single month, one of the companies get done with their meeting and they go, "That sure as hell wasn't what I was expecting." So how do the companies ... What do they even get told when they're about to walk into this room

Paul Martino:                Yes. So the meeting is so different and unusual that we've gotten ... I read the riot act to whoever the inviter is. Frequently the partner and then general head of operations will follow up. Because I don't want anyone sitting there going, "I don't understand this. Why are there 20 people in this room?" I'm like look, the pitch is simple. You've got the partners, you've got the advisors. Everybody in this room is someone who potentially could either invest in you or help your company. And you know as well as I do, how many times did you become and advisor to a company that the Bullpen did or did not invest in?

Dave Knox:                   Exactly.

Paul Martino:                And so once we explain to the people who come in, the two to three companies every month, that you're in a unique spot to be showcased to a much broader part of the ecosystem. But they're confused. Christine Herron who's a venture person from Intel is sitting there like, "I don't understand." Intel's with another fund, why does she sit here?

Dave Knox:                   Am I pitching Intel?

Paul Martino:                Yeah, am I pitching Intel? And so we have to do a good job explaining why this is such a valuable hour of your day to our entrepreneurs. And yes, every once in a while we do a poor job of that. And the poor entrepreneur is like, "What the frick is this?"

Dave Knox:                   I love it. So one of the things you talk about is Bullpen is about ignoring hype and trust new data.

Paul Martino:                Yes.

Dave Knox:                   So that's a lesson any company can learn. Big, small, investor, marketer, etc. How do you really use data to ignore hype? How do you put action behind those words?

Paul Martino:                So what we figured out was remarkably simple. And this is only because so few other funds do it. I am imagine if we were in a more data driven business, this wouldn't have worked because the low hanging fruit would have been picked already. Let me tell you the secret of what we do. It's actually remarkably easy.

                                    So, we're looking for companies that no one else is paying attention to, but there's a reason you should be paying attention to. We're looking for the false negatives of the ecosystem. Those false negatives fall into a couple categories. The founder is from an unsexy school. The company's in a weird geography or the category is out of favor. You know the venture [inaudible] guys deemed that to be a bad category this particular year. That's like pink being in and purple being out, or whatever it is. There's a little bit of fashion associated with it.

                                    So if you want to find companies that are doing a good job in spite of being off by one of those three characteristics, why don't you start with actual metrics of the business. So what we do is we invert the screening funnel of the way most venture funds do it. Most venture funds say, who are you, where'd you come from, how did you meet me? How warm was the lead? Is this a founder who can move mountains? By the way, we ask all those questions, but we ask them at the end, not at the beginning.

                                    So a normal venture fund, who are you, where'd you come from, how do I know you? How warm is the lead? Oh, do I like the business? Down the funnel, down the funnel. Oh, analysts, go look at the financial model. We do the opposite. Oh analyst, look at the financial model before we even take the meeting. And so now, by starting with the financial model which is usually the bottom part of due diligence, we're able to screen a completely different subset of the companies. And oh by the way, this is not automated. Some people every once in a while come to our office, they're like, "Let me see your super computer." I'm like, No, dude. No."

                                    It's remarkably simple. Any analyst can be trained in a week on the key metrics that we're looking for to say this is a company even though the founder used to be cocktail waitress in Florida doing cosmetics, this is one you need to look at. That's Ipsy, right? We have companies that look like that, but if you start it with the background of the founders, you wouldn't have ever looked at that company. But like the true money ball ... Money ball's approach wasn't find guys who can hit home runs, it was find guys who get on base. But guess what Billy Beane, had to go do? He still had to go watch the guy bat.

Dave Knox:                   Talent is a big part of predicting the turn. And as we talk about talent, I wanted to mention one of our sponsors. Hunt Club. Imagine the power of the best marketers in the world, helping you to find your next marketing leader. That's the power of Hunt Club. Hunt Club is a new category of talent company that powers the network of experts, connectors and business leaders to help you find the best talent. Let's face it, recruiting hasn't changed with the times. Hunt Club is changing the recruiting game by leveraging technology and crowd source referrals to find you the best people possible for your company. Stop applying job boards that don't work or recruiting firms that recycle the same active candidates. Partner with Hunt Club.

Paul Martino:                So this is where the art meets the science. The science says which company should I look at that no one's paying attention to, but the art of it is, I gotta still go watch that company swing the bat. And so if I look at a different subset but then make venture decisions at the bottom of the funnel because they get on base, we're gonna find a completely uncorrelated set of companies that actually match the venture screen, but I'm gonna go look at a set that no one else looked at, and that's the magic of Bullpen. Isn't that there's a super computer, it's that's if I start with the numbers and go with the gut last, I'm gonna play the game the opposite order almost everybody else in the field does it.

Dave Knox:                   I love that. So talk about place where you played different. So one of my favorite posts you ever wrote was, "Vice, Virtue and Vision." And you talk about that at Bullpen, on a rare occasion, we attempt to predict the future. While our bread and butter is stage and milestone based investing, i.e, post seed, everything you just talked about, we do occasionally play in the traditional venture sandbox of the manic investing. What did you mean when you said, that "The history of venture capital is filled with bold predictions of a future world?" So start there.

Paul Martino:                So first off, it is, and almost all of them are wrong. Right? That to me is irony. This is why it's almost verboten. It's not completely verboten, it's almost verboten to predict the future in the office. Because we find that it's pretty dang difficult to predict the future. And oh by the way, there's a certain of ego and uberis that you fill yourself with if all day you're attempting to predict the future.

                                    Now if every once in a while, you literally are sitting in the cat bird seat and you're the only person who can see it, well damn it, go with it. You know this happens a lot in enterprise software or in deep tech. Literally, there's only three people in the world who could build the thing. I know one of the three people that can build the thing, guess what? I have unfair knowledge.

                                    So in the case of vice in general, in particular around gaming and gambling, we were inbettible, we were [inaudible] we were in jack pocket, we were in derby jackpot. So we had horse racing, we had lottery, we had fantasy sports and you know what? A case comes in front of the Supreme Court that's likely to legalize sports betting, you know, maybe this will happen once in my career, maybe twice in my career, where I really wasn't predicting the future. I actually knew something nobody else knew.

                                    To me that's the big difference. Predicting the future is I have a thesis about how the world should be. I don't have any thesis about how the world should be. I just knew that there were a couple things that were likely to happen because I had unfair knowledge over everybody else. And to me, that's the difference in if you show up Dave to my office with unfair knowledge about something, God bless you. If you show up saying, "Well, you know, self driving cars are gonna change the universe in this way 20 years from now." I'm gonna kind of laugh a little bit. I mean we're in SpotHero which is one of my favorite examples of this.

                                    So everyone has these thesis's around self driving cars. They're gonna do this and do that and CEO of SpotHero comes into my office one day, and this is before SpotHero had become the big time winner, which it looks like they're the winner in on demand parking. He said to me, "Yeah, that's awesome, but you know eventually all those self driving cars have to go park somewhere right?" It takes a Midwest guy from Chicago with simple sensibilities to cut to the chase. Eventually the car's gotta go park somewhere. So I don't care what the future of self driving cars is, I have a good business. And so that kind of much more practical application of the future is interesting to us than what the actual geography of cities will look like 20 years from now because self driving cars will be blah, blah, blah. That seems really hard to do.

Dave Knox:                   Yep. I love that. So, playing up on that one more. So you talked about sports gambling, but what you talk about really in that post is that what happened is yes, this piece of legislature, but the place before that was the recession. 2008 happened, that meant the government needed to look at new revenue streams. New everything. I talk about that's second order of consequences. As human beings, we're really good at cause and effect. We're really shitty at thinking about this happened, so here's the potential things that might play out for it. What led you from great recession to renewed revenue streams to these vices that might be out there?

Paul Martino:                So again, I don't want to get too much credit and I mean that not in a humble, brag way at all. I want to make sure you understand what direction the arrow goes at Bullpen. Because the arrow really does go the opposite way at Bullpen. So we're sitting there waiting at 4:00 in the morning for the State of New York's legislator to decide to legalize or not, FanDuel. We got people in the State House at 4 in the morning. So it wasn't so much that we needed to predict the future. We saw what was getting horse traded at 4 in the morning between the groups and understood the way that legalization would go to both oversight as well as taxation, which would be a cash cow for the states that were strapped.

                                    So the arrow again, kind of goes in an opposite order. Not that, "Oh my God, there's a great recession. What will be the businesses that we need to go in?" Which I think is the unknowable, impossible thing. On the other hand, while I'm sitting in the State House, I have unfair knowledge about what these legislators are doing. Oh by the way, this is gonna happen in California next, it's gonna happen in Pennsylvania next. Oh by the way, they asked us to help draft the legislation.

                                    Oh, I see why all this is happening. It's because they're so upside down in their pensions and they need the money. So it's much more pedestrian. Where as other people in the business give us some great application for how forward thinking we were. No dude, we were just in the trenches and got the data. Guess what? If you had the data Knox, it's not that hard.

Dave Knox:                   I love that. So let's talk about that ... You know, because predictions can't [inaudible]. You're a card player though. You love playing poker, go to the casino. So how do you get those advantages when you look at playing cards? It's not the hands in your ... The cards in your hand, it's knowing the table, knowing the players. Knowing where the turns gonna be about not knowing what card it's gonna be, but knowing how other people might react. How do you play that? How do you read people, industries and that's a science and an art that you're doing at the card table.

Paul Martino:                Yes. And I think the best analogy is the following and I've heard this said many times. I don't know who properly to attribute it to. In a start up, there is always at least one lucky break that happens. And the difference between that startup being the winner or not is how well they capitalized on the lucky break. This is where poker and startups are absolutely the same. If the turn card is the ace of spades, which I need. Am I gonna be able to pounce? And if it is, did I have enough money on the table to lay, the right read, did I set the game up right so if my card comes, I'm gonna make a lot of money. Or I'm gonna have a great company or I'm gonna build an awesome product.

                                    That's where poker and startups are just the same. Because people I think, again, start having this I can will the future, I can make my lucky break happen. You know what? Every once in a while, you can. I'm not gonna discount that. And there are a few entrepreneurs I've met in my life who really can almost break space and time. But you know what? For us mere mortals, I'll play enough games so that when my card hits, I can pounce. That seems like a better way to make money in the long run.

Dave Knox:                   Yep. I love that. End of the day, that's what predicting the turn is about. It's not about predictions. It's not about being a futurist and hoping. It's you put yourself as a company in position. Whether you're an emerging company, a big company or anything in between. So related to that, you've had a lot of portfolio companies, amazing successes that have gotten to that point of time to start partnering with a big company. You talked about SpotHero, they announced one with Hertz. FanDuel, which you sat on the board with, did a lot. From the NBA to Comcast, to etc. What do you tell all those companies when they start going down these partnership paths of working with legacy companies that might not understand innovation? What are the coaching you give them? The watch outs?

Paul Martino:                So here's the first stat that you might be surprised by even though you've been involved with our fund for so may years. 30% of the rounds we lead, we have a strategic investor as a co-investor. So one in three that we've done 90 companies, 30 times the strategic was actually in the round when we first met the company. So this is critical to our DNA. So we've invested with Microsoft and Salesforce and Intel. God knows how many times because a lot of times the company comes to us and says, "Intel will give me $2,000,000, but they want a third party lead, will you help me?"

                                    So this has been bread and butter for us. So if a third of them have it at the time of our investment, another third of them have a strategic show up in the first year. And then guess what? By the second year, 90% of them have added strategic to the table. And we have by and large embraced this. Again, breaking the mold of venture. A lot of times, don't have the strategic come into the round too early, etc., etc., etc. But since we invest after product markets that a strategics's almost never too early for us to come in.

                                    Now if you have an oligopolistic business and you want to pick one and alienate the other three, that's potentially a problem. You gotta be smart. If you're doing business with an ad tech company and you partner with Omnicom, well guess what? You might not be able to have WPP at the table, because they don't like each other. So there are issues with partnering with strategics. But 9 times out of 10, most of the issues that you come into are in your own head as opposed to in the actual business practice of what you want to go get done. So we enjoy partnering with strategics and we have found that [inaudible] strategics is actually a core value proposition what Bullpen does.

Dave Knox:                   It's so true that the whole thing of Sand Hill and traditional VC when we're starting to brand [inaudible], I can't even begin to count the number of times people said, well why would you want a P&G or a Nestle or somebody else involved too early? Aren't they just gonna influence badly, do bad behavior. It's kind of one of those analogies that a lot of big ... Or a lot of VC's say isn't good.

Paul Martino:                So I'll give you another one I like. This one I'll attribute properly. Mike Maples of Floodgate, good friend of mine. We're actually hosting fun event in December called "No Fleece." Mike is how I got in the business. He actually offered me a job to join him at Floodgate, which led to the brainstorming that eventually became Bullpen. So I turned down the job and joined the business anyway.

                                    He once said the following thing to me. "Whenever I meet someone who's card says Director of Innovation, I run." And so I kind of at first thought that was funny, but then more and more, I meet the person whose card said Director of Innovation and I find out that they literally were on some island so that somebody felt good about themselves in the big company. Whereas the business unit owner who had a problem to solve, was always the person you wanted to deal with.

                                    Sure, maybe the Director of Innovation can play tour guide for the company. But that's it. They don't have the budget, the importance and the wherewithal. I'm sure there's some examples and so someone out there is listening whose title is Director of Innovation. I'm sure a couple of you ar super awesome at that and make things happen and make green for your company. But most of the time, you're the tour guide until the business owner really gets engaged. And I see too many of the startups get engaged with the innovation lab of the company as opposed to the B.U., who really needs your thing. So make sure you understand you've got strategic alignment with the person whose business and life and bonus you're gonna affect.

Dave Knox:                   So true. So we've talked about innovation, we've talked about Bullpen. So you've talked ... You've got Bullpen, you've got the playoff fund which you just announced. You've talked about Money Ball. What led to all the sports analogies? And why has that been at the core of what you've done, besides just being a Philly guy?

Paul Martino:                It's actually really funny. It wasn't by design. It wasn't wow, I'm such a sports fan that I need that to be part of my life. It wasn't like that really at all. It just seemed like every time we were doing something, it showed up again. So the story of Bullpen, how we even got our name is attributed to Chad Durbin who was a pitcher for the '08 Phillies, who's an LP in the fund. Before Bullpen had a name, he was in our office pitching us, in between seasons, it was between 10 and 11 seasons, he won the World Series with the Phillies in '08. He was doing a sports recruiting website to match scholarships with high school athletes, called Showcase Youth Sports.

                                    We were as experimental as he was. We didn't even have a name yet. It was me, Duncan and Rich kind of screwing around in Rich's office acting like we had a fund. And Chad said something to us that went something like, all these things become myth at some point. But Chad said something like, well, you know you guys kinda do for the seed funds what I do for the starting pitchers. We're like actually, you're a bullpen pitcher and the starting pitcher runs out of gas, you go in to get him to the closer and we're like, yeah, we're the middle reliever between the starting pitcher who's a first round or a floodgate and the closer who's the [inaudible] or the sequoia.

                                    And so we went with it. And then it turned out we were doing Money Ball style analytics and then we invested in FanDuel and then next thing you know, we're in a whole bunch of sports stuff, but it wasn't like we stood up and said, "Wow, we're sports enthusiasts, let's find a way to do sports that are fund." Kind of happened the other way around.

Dave Knox:                   Like you said, every once in a while you have to be at the table and know when to pounce. And you guys pounce in the right way. So, awesome. It's been a pleasure. I feel fortunate that I've been involved with Bullpen as long as I have. I tell everybody, I think I learn more out of the meetings than I ever give in to them, so I appreciate the time.

Paul Martino:                Knox, glad I could come. Thank you.

Dave Knox:                   Thanks so much for listening. If you like the show, hit that rating and make sure to subscribe so you don't miss a single episode. And for more resources, head over to Predicitingtheturn.com.

Episode 07 - How Companies Get and Keep Talent w/ Nick Cromydas of Hunt Club

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LISTEN TO THE EPISODE ON ITUNES:

Episode 7 - How Companies Get and Keep Talent w/ Nick Cromydas of Hunt Club

SHOW TRANSCRIPT:

Dave Knox: 

I’m your host, Dave Knox, and this is Predicting the Turn.  A show that helps business leaders meet their industries inevitable disruption head on. 

 

Welcome to another edition of Predicting the Turn.  Today I’m excited to welcome my good friend Nick Cromydas, who is the CEO founder of Hunt Club.

 

Nick, welcome to the show.

 

Nick Cromydas:  Thanks for having me.  Always a pleasure. 

 

Dave Knox:  Awesome.  Let’s talk to you a little bit more about your background.  You’ve packed a lot into the last decade from varsity college athlete, to management consultant, to venture capitalist, into startup founder.  Why don’t you tell us a little bit more about that path and what led you to today, running Hunt Club?

 

Nick Cromydas:  It’s a very non-linear path that doesn’t make a whole lot of sense.  So happy to unpack it.  I graduated in the 2009 right during the peak for the recession and my whole life was tennis.  I wanted to be a professional tennis player when I graduated and when I grew up.  So what I did, was I ended up playing my first professional tournament out in (Cader) 1:05, Illinois.  I’ll never forget it and basically was there for about seven or eight days and got an actual ATP point and basically looked at my entire eight days and realized that I had spent something like $1200-1500 on the entire week of training and rackets restringing and new shoes and made about a $600 check for the entire effort.  So I quickly realized that professional tennis wasn’t a feasible route for me and so I really started thinking about what’s next.  In my first job out of school I coached the Northwestern Women’s Tennis Team.  Great experience, they were number one in the country, Big 10 Champs.  And leveraged the experience to get into consulting shortly after.  Met a bunch of great people that helped me transition from professional tennis and college tennis into actual consulting and then really through a series of building different companies and ideas and projects and getting to know you through the Brandery, had a miscellaneous path into failing a business, restarting and doing some consulting work.  Shortly after, having the pleasure of getting to build some technology for a local family office in Chicago and they really loved the idea of venture investments and startups and supporting early stage companies and I knew everybody at this point, you should let us help you do that and the whole idea kind of stemmed from there.  So, what we built today is potentially a business called New Coast Ventures is a hybrid venture studio where investment startups start our own companies and build software for big companies and small and that led us to the second company we’ve incubated, which is Hunt Club.  So, a lot, it’s a weird journey and a weird story, but it’s been fun transitioning from sports to consulting to early stage tech companies to investing back to founding.

 

Dave Knox:  That’s wonderful.  I love that.  It’s interesting with the college athlete, because when I look at startup founders, a lot happen to be former varsity athletes or come from the military and backgrounds of that nature.  What do you think you learned during your time really competing at that highest level of sports that has helped you at the highest level of sports that has helped you as a startup founder and as an investor as you evaluate founders and other startups?

 

Nick Cromydas:  I think if you look at why I think former athletes make great professionals, general in the business community and startups and venture back companies sound supported, it’s really two things it comes down to.  One, most college athletes, or most athletes really understand the concept of winning and losing on a daily basis, but coming back to compete the next day and I think that’s a really big important part of building a company, is you’re going to win a major customer, you’re going to lose a major customer, your best employee is going to leave.  You’re going to recruit an incredible person to come join and build a company.  It's really tempering the highs and lows and I think tennis is a really interesting sport for that.  You can make it to the quarterfinals in the biggest tournament, at Wimbledon, but you still got eighth place.  There’s only one winner.  So I think having that daily win and loss and understanding how to measure those ups and downs and still progress forward, I think is a huge part about what makes athletes great founders or investors or people that understand the highs and lows in business.  I think the second thing is consistency and improvement.  So, at a young age, you’re trained to continue to get better at something regardless of the results and come in and just keep working on your craft, whether it’s you missed a bunch of forehands in your last match and you lost, well then you come in and work on your forehand every day for a year.  Or, your serve isn’t really improving, you come in and work on your server.  So, I think you look at a lot of data points of what makes people successful and entrepreneurship in general, I think it’s resilience and consistency of getting back to work.

 

Dave Knox:  Makes total sense.  Talking about Hunt Club, that’s your latest venture and in full disclosure, it’s a company where I’m both an investor and Hunt Club also happens to be the inaugural sponsor for this show.  Can you talk to us more about Hunt Club and what inspired you really to start that business?

 

Nick Cromydas:  In 2014, when I was really working on new codes, what I realized is I kept referring people who got hired by executive recruiters.  It was the summer of ’14 and what happened almost with the same recruiter three or four times and a couple others where they’d reach out to me.  They’d see somebody that I was connected to on LinkedIn and they’d ask for an introduction.  And I’d say sure, you know, Tom meet Sue, Sue meet Tom and I’d shoot it off without really thinking about it and 90 days later I’d actually get an email from the person I introduced to the recruiter, saying thank you so much for that introduction, I actually would have never considered this opportunity had it not come from you, but I’m taking the job now and I’m really excited about.  And it happened multiple times and it just got to point where I started to realize, if this is a primary way, the best recruiters really kind of activate talent is really through subject matter experts, vetting and introducing people through their network, there’s no real platform or system or methodology to do that kind of at sale, so really started studying the industry and realizing that the best executive recruiters do this just really manually and then realize the worst recruiters, a lot of folks, primarily in the contingency world don’t really care about relationships.  They care about making a transaction.  So we kind of set out to build something different by using the power of the network and best relationships. 

 

Dave Knox:  Perfect, and that’s such a common of that inspirational story of I saw a niche and it’s what makes an entrepreneur different is a lot of people see something and have an idea, but an entrepreneur is actually going to take that idea and go say, I’m going to start a company with that.  So it’s great.  So, let’s talk about talent then and the things you discovered as you’ve started becoming an executive recruiter and learning this world of what talent is.  Why do you think talent is so important to companies both big and small as they look at this world of change that we’re facing and as they try and predict the turn?

 

Nick Cromydas:  Yeah, I mean it’s the most important thing, so I think one of the things we believe at in Hunt Club is there’s a clear mismatch between how important that talent is to a company versus generally the types of folks that are serving it and providing that type of service, so as large enterprise go through massive digital transformation as the next Dollar Shave Club is being born somewhere else.  Getting the right people that know how to grow and move and be adaptable at a rapid pace and speed to really keep pace with all the different things that are happening with technology transforming the world is the most important asset to the future.  So, I think traditionally when you look at a lot of larger companies and there’s a very clear and defined corporate structure and path and hierarchy and ways to grow and I think technology has thrown a wrench into all of that.  I think one of the best examples is it took decades and decades and decades for Proctor and Gamble to become a public company and Dollar Shave Club reached a billion dollar plus valuation now come in sub six years.  Getting the right type of talent in today’s world that knows how to keep pace with that change needs to be top of mind for every company, whether they’re Fortune 50 or someone starting with their budding idea.

 

Dave Knox:  Let’s double click on that a little bit.  We’re in a tight labor market, probably the tightest ever we’ve seen for top talent and that means the best talent is passive.  They’re not actively searching for their next role.  They’re happy probably where they are.  What has Hunt Club learned about how do you attract this top talent to leave an opportunity that they’re happy with to go take a risk on something new?

 

Nick Cromydas:  Really two really critical things.  The first thing is all the channels today are totally saturated.  What I mean by that is 5-7 years ago if you wanted to reach out to somebody and introduce an opportunity to them, the probability of them responding on email or via LinkedIn or whatever, text message, however you trying to get access to them.  It’s flattering to receive an opportunity.  So, people would respond.  In today’s world with getting billions of marketing messages pushed your way across all these channels, there’s so much noise that if you don’t use a real relationship, one that has trust, it’s nearly impossible to get somebody to actually listen to what you’re working on and what the opportunity might be.  So, point one is always think about leveraging best relationships to introduce opportunities.  It’s the best way to attract passive talent.  Because the truth of the matter is there’s always 5-10 people in your life that no matter what stage in your career you’re at, if they call and say I have something you should listen to, you listen.  The second thing I think is really rethinking the candidate experience.  So in the tightest labor market ever, people have a ton of options.  If you’re not rolling out the red carpet as you invite people to learn about your company, educate them on why it’s a great opportunity, really introduce them to the people driving a lot of the levers in the business, really introduce them to creating transparency and to where you’re going and really make them feel bought in to everything.  People will join.  There’s too many options out there.  There’s too many distractions out there, so you need to be somebody emotionally invested by rolling out the red carpet and creating a great candidate experience.  Two things, one leverage the best relationships to act with the talent that you want to talk to and two, really roll out the red carpet as you get them into your process. 

 

Dave Knox:  Love that.  So, on the flip side, the Fortune 500 is really many cases, competing to keep this talent and sometimes even attract the talent in the first place because they know they need somebody different to help them in this new world.  So, how do blue chip companies need to evolve their approach to keeping talent from going to an Amazon, a Facebook or that next great kind of Dollar Shave Club?

 

Nick Cromydas:  I think bluechips have two problems.  One is retaining their top talent and two is actually attracting a new class of talent to help push their business into the next generation.  And both of them are equally challenging for them.  So I think for retention perspective, companies need to introduce opportunities that are atypical and don’t have a set career path and what I mean by that is the reason why people leave Proctor and Gamble, Coca Cola, Boeing to go join the next VR, AR, Facebook, Amazon, Starship, whatever it might be, is because the opportunity to expedite their own career path and growth given the opportunities they’re given internally at a company are an order of magnitude more from a responsibility perspective based on the pace and how fast the company is growing.  So, in order for larger blue chips to really compete with the best talent of today, it’s no longer about dollars and cents.  It's about giving somebody and opportunity to achieve and understand what they’re feeling as they continue to push the threshold and limits within a company.  And not being adhered to a traditional promotion schedule of every two years.  You are stuck in an associate brand manager until you achieve X,Y and Z in two years.  And I think that’s the difference between going to fast burn company in the tech sector versus kind of being shackled to whatever traditional structure the company has, a larger company has.

 

Dave Knox:  That’s dead on and it is that progression, that pyramid of the outer up that’s been the life blood of those companies.  Have you seen any that are willing to take that risk yet and think about the labor market differently within the Fortune 500?

 

Nick Cromydas:  I’ve seen many talk about it.  I’ve seen many standup their own venture initiatives and their own venture studios.  I’ve seen many try adapt startup methodology and lean principles.  I’ve seen very very very few that I believe are doing it in a compelling way that’s actually going to impact their future.  I think some of the most interesting in my mind that come to mind immediately is if you look at what Unilever and what Kroger are doing where they’re actually acquiring large brands.  So think of Unilever acquiring Dollar Shave Club and a number of other digitally native brands and letting them continue to run as their own separate companies.  Their own separate entities, just leveraging the resources of multibillion dollar companies, public companies.  So, I think another great analogy is Kroger acquiring Home Chef, which is another Chicago startup, letting them continue to build their infrastructure and company, leveraging all of Kroger’s many assets.  So I think the ones where I’ve seen it do incredibly well are actually acquiring from the outside in and then using their infrastructure to help grow.  It’s really really difficult to build that internally and totally transform a business from the inside out at that size and scale.

 

Dave Knox:  Talent is a big part of Predicting the Turn.  And as we talk about talent, I wanted to mention one of our sponsors, Hunt Club.  Imagine the power of the best marketers in the world, helping you to find your next marketing leader.  That's the power of Hunt Club.  Hunt Club is a new category of talent company that powers the network of experts, connectors and business leaders to help you find the best talent.  Let's face it, recruiting hasn't changed with the times. Hunt Club is changing the recruiting game by leveraging technology, and crowdsource referrals to find you the best people possible for your company.  Stop paying job boards that don't work, or recruiting firms that recycle the same active candidates.  Partner with Hunt Club.

 

Dave Knox:  If we’ve got one of those big companies listening or a startup that’s thinking about where they’re going, Hunt Club is playing in this space of human capital.  So what are the big trends that you see coming in the next five years when it comes to human  capital in this whole space?

 

Nick Cromydas:  I think it’s a couple different things.  So, it’s one, is the type of practical skills that an elder millennial or a Gen Yer has are quite a bit different than previous generations.  So I think it’s really figuring out how to tailor make corporate structures and tailor make opportunity to those types of profiles.  So what that means specifically is the next generation wants flexibility.  They want the ability to work from anywhere.  They want the ability to do work on really meaningful problems.  They want transparency.  They want to understand what the output of those efforts look like and they want to understand how it impacts the greater company.  They’re demanding things and asking for things in ways that traditional corporate America has never seen.  So I think as companies think about really trying to create the next class of business leaders within their organization, they really need to be honest and transparent about do they have the right structure to let a top performer continue to rise through their company in an expedited path that accomplishes those things.  Otherwise, they’re going to jump to the next tech company.  I think that’s a huge trend.  I think the other trends are really thinking about leveraging technology and automation, machine learning and artificial intelligence, to amplify the skills and the work of the traditional employee in person.  You’re seeing a lot now where new types of services, new types of products are all rolling out to help turn one person to have the ability to do the work of 2-3-4.  So I think you’ll see a big trend there where if you don’t have native technology skills and understand how it works, you’re going to be left behind.

 

Dave Knox:  Makes sense.  Another trend that I hear talked about quite a bit lately is increasingly high growth companies and investors as well really starting to look outside of Silicon Valley and maybe the traditional hot beds of startups whether that’s to relocate or to move the company or to even just find that next destination.  Do you think this is wishful thinking for guys like us that are really champions of the Midwest, or is it something that you’re seeing first hand with the Hunt Club clients and talent?

 

Nick Cromydas:  No, I think it’s the reality of where the world’s moving.  I mean, granted this is biased because I’m a Chicago boy, grown and home raised and have been here pretty much my entire career, but yeah, it’ s a big trend that’s happening.  I think it’s really being driven by a couple reasons.  The first is for the first time, venture capitalists are realizing that it will have great ideas and a lot of great companies can be built off of the infrastructure that the Midwest has to offer and a lot of concepts in agriculture and construction and health care really the heartland is an incredible place to tackle those types of ideas due to access of customers.  So I think a lot of people are taking notice to that.  I think the second thing is, people on the coast are starting to realize as they’ve been there for a decade or two, that it’s really difficult to have a high quality of life.  So, you can be excited about the problems you’re working on at the company you’re at, but if you’re living in a 1400 square foot apartment with two kids and aren’t really saving anything for their college, it becomes a really difficult equation versus moving to one of the suburbs of Chicago land or moving to Cincinnati or Indianapolis where you can buy a house and start to work on some really interesting problems that are being started here.  So, I think the previous decade, we didn’t have the types of companies that could support high aptitude folks locally, and as businesses grow and as we get more capital allocated here and there’s more opportunity, I think you’ll see quite a few people start to migrate back and I think it’s going to change the dynamic of the Midwest.

 

Dave Knox:  Speaking of those people that are migrating back.  You and I have talked about this concept of boomerangs and some of the best talented roles that Hunt Club has placed over the years have been those boomerangs where an amazing talent comes back to the Midwest or to their home town or something of that nature.  What do you think local communities and local startup ecosystems should be doing to think about identifying and promoting an attracting those boomerangs to come back?

 

Nick Cromydas:  I think it’s really about two or three different things.  One is awareness.  So you talk to people in San Francisco or New York or other coastal towns about what’s available in Chicago and Cincinnati and Indi and in the greater Midwest, a lot of them don’t know that there are incredible companies being built here.  So I think phase one is just really making them aware of what’s here and what’s going on and the types of companies that are being built here and the success stories and the fundraising and all that.  So I think once you generate enough awareness then I think it’s really championing an introductory and relationship building process where you look at a lot of local funds now, they’re actually building a talent partner function to go out and create relationships with great talent that isn’t in the Midwest, so that at some point when their life gets to a threshold where they don’t want to live in that 1400, 1200 square foot apartment, they do want to work on interesting problems and come back to a place they love and know, it’s great place to do it.  So, I think really it’s continuing to build awareness and then two, like developing and pipelining relationships so that when you have the perfect opportunity for the perfect person that has roots and relationships and maybe went to college or grew up here or has in laws here or whatever it might be, you’re able to present it to them at the right moment.  So I think the more that we can do that, the more we’ll continue to foster the talent ecosystem.  

 

Dave Knox:  Let’s dive in a little bit more about that people side of human capital.  For the longest time, the best training for a future marketer, business leader, was to go spend 5-10 years doing what you and I did, either start in big CPG like a P&G or a General Mills or go into the consulting world with the McKenzies, the KPMGs, etc.  But, today the talent coming out of that Fortune 500 often times they’re realizing that it’s a new generation of skills that they need, things like performance marketing, and other things that maybe aren’t necessarily being taught in those traditional places.  What do you think that these leaders and future leaders of the business world, what should they be doing when they face these situations?  What can they do to prepare themselves and how do they really think about this next generation of skills that are needed?

 

Nick Cromydas:  I think it all comes down to really understanding the future of your business and how to hedge against either being disrupted or continuing to pen your business with acquisition to make sure you’re continuing to get digitally transparent form to really engage and find the best talent.  So what I mean by that is, if you have to provide opportunities that are as interesting as the ones that are in market that aren’t at Fortune 500 companies, so, if venture and private funding continues to grow at the rate that it does, then without those dollars become more and more opportunities where people can go join a company that’s growing multiple 100% year over year and keep getting more responsibility that a young millennial ever should based on the nature of picking the right startup or the right growth company.  Larger companies are going to have to compete with that.  In order to compete with that, they’re going to have to work off of the same thing and by offering the same thing, they’re going to have to provide talent with an environment where there are no ceilings aside from how good somebody individually is at the pace that they want to move.  So I think it’s a really tricky challenge for larger companies to think about how to transform their internal talent base when so much of it has almost fallen apathetic to what their day to day is at this point.  Where it’s very much a routine, it ’s very much a paycheck, they know exactly what the promotion schedules are.  They know exactly the politics they have to play and I think that the thing I love about fast growing venture back companies and tech companies and entrepreneurship in general is it’s just democratizing the work force.  There is no, pedigree doesn’t matter.  Sure it gives you a leg up.  You can start on second or third base if you went to Harvard Business School and have a trust fund and you can start your own company, but if you have a great idea and you have enough hustle and grit and you believe in something, there’s no reason why you can’t be a CEO of a large company one day that you build.  So I think that’s the beauty of tech entrepreneurship is it’s really kind of democratizing what someone can do versus being lumped into a traditional corporate hierarchy.  So I think, in summary, large companies need to figure out a way to provide the same type of fast paced environment that does not put a governor or ceiling on somebody in a large company.  And that’s going to allow them to attract the talent, because there’s so many interesting things about joining a big company, problems at scale, resources and infrastructure.  You just have to give people the ability to move at a speed that they can find at other places.

 

Dave Knox:  Yep and what about the people themselves?  So take the person that has worked 10, 15 years at that same company.  They’ve risen through the ranks but they realize that they’re ready to go try something new, but they realize that they might have a mismatch of the skills that go them to where they are today aren’t necessarily the skills that that high growth company is looking for.  What can they do to better prepare themselves for that next opportunity or to position themselves as they look at that next opportunity?

 

Nick Cromydas:  We have this conversation all the time with thousands and thousands and thousands of people annually across some of the biggest companies and it always comes down to a couple different things.  With obviously the access of content and information today on the internet, someone can get really skilled and intelligent in a multitude of different topics really quickly, so if you’ve been a brand marketer your entire career and you’re obsessed with performance marketing and you want to learn what to do to kind of acquire the skill set to take it to the next level, there’s millions of courses online now where you can hop in and just quickly learn.  You can spin up your own Shopify site, buy a product from Alibaba and start testing $5 a day on Facebook to see if you can drive traffic towards selling something.  So I think creating your own business to acquiring the skills that you want to learn on the side.  I think it’s an excellent way to introduce yourself to something new and something that’s really tangible and resonates well with the startup community.  I think the second thing is advisory roles.  So, where large companies sometimes haven’t moved an employee of talent at those companies haven’t moved at the speed that startups have, they do have a wealth of information on how things work at scale, how to sell into a large company, how to politically align yourself to whatever they’re getting from a strategic initiative wise.  So I think if you’ve been working at a company for 10-15 years and you have ambitions to go into something at another stage or faster paced, start really digging in, doing the work to help a lot of the venture ecosystem, the talent and the entrepreneur ecosystem succeed, and so through that, you’d be shocked at the multitude of opportunities that come your way.  I think a third really interesting way is write a small angel investment check.  Write a $5-10-15,000 check into a company locally that you believe in, that you want to support, that you think you can learn a lot from, especially to my own investing career, I think I’ve learned in order of magnitude from just supporting great entrepreneurs and getting to sit on the sidelines and cheerleading them as much as I have building.  So, I think if you’re in a larger company and you really want to figure out a way to start acquiring some of the skill sets to get out and to do something different, I think it's the more you can get some skin in the game, whether it’s personal time, learning online and testing or starting your own startup, or small business on the side to acquire those skills or come and invest and giving back into the community in which is already doing it, but the closer you’re going to map yourself to actually one of those opportunities. 

 

Dave Knox:  That’s perfect.  On those, the last two points of those, you and I both have a lot of coffees with people that are looking to get involved with the startup world and they want to be an advisor or they want to do an investing, but they just don’t even know where to start.  How do you advise people kind of get going in that?  Like I talk a lot about Angel List and it used to be you had to write a $25,000 check and find that company, but today you can do a syndicate and maybe do a $1000 or $2000 check to learn.  What else do you suggest, how does somebody even find out about these companies that might need their help?  How do they raise their hand and say, I want to help be an advisor?  I want to write a check and get involved.

 

Nick Cromydas:  I think there’s three or four different ways.  So Angel List is an awesome one.  They have a ton of the venture backed community that’s filterable by location, by industry, by product type, by business.  So, it’s an incredible resource for people to jump on and see what’s going on.  A couple other ideas, at this point, every single region or major city has an accelerator program, obviously, you think of things like Brandery, Text Stars, Y Combinator, understanding and getting involved in that ecosystem, whether as a mentor or advisor or someone that’s really trying to add value is another great way to do it.  I think the third is really canvasing the local venture capitalists and really understanding what venture capitalist or private equity funds are in that market, understanding what portfolio companies they’ve invested in and then really building relationships there to try and drive value and access and help and I think the final thing and the most important thing in my mind is actually helping, right ?  Everyone wants to play entrepreneur, for some reason it’s really sexy and it’s a fad right now.  Everyone acts like they want to add value, but actually do it.  Introduce somebody to a customer.  Right them a small check, introduce them to another investor.  Help them actually spend 5-10 hours with them actually going through and building a product road map.  Help them with their market positioning and actually have a deliverable, an output.  So I think a lot of people talk the talk.  The way that you really can get a startup founder or CEO’s attention or venture capitalist’s attention is to actually drive value in a real and deliverable way.  And I think that’s going to make you jump off the page and that’s going to help you set yourself up differently than most of the community.

 

Dave Knox: That’s perfect.  I love that point and something that not enough people are doing to really think about how they position what they do with it.

 

Nick Cromydas:  Totally.

 

Dave Knox:  I really enjoyed the conversation as always, it’s always great to get your mind of where the world is going, how you’re thinking about talent and startups.  If a company wants to learn more about Hunt Club or if an individual wants to become involved as part of your influence or network or anything else, how do they get in touch with you and where do they start?

 

Nick Cromydas:  The best way is to head out to our site at www.huntclub.com or shoot me a note at nick@huntclub.com.  I’m here to help on any angle and love conversations with people trying to drive impact, especially in the talent space. 

 

Dave Knox:  Awesome, well always a pleasure Nick.  Thank you and I appreciate your support for Predicting the Turn as always.

 

Nick Cromydas:  No, thank you Dave, you’re the best.  Thanks for having me.

 

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