Categories
E2E: Scale

THE MISSING MILLION $

Note: This blog was originally published by Julian Castelli on Growth Scaling.  

 

Why hitting the most important customer “nerve” is the key to sales velocity.

The other day I was speaking with the growth team at an exciting SaaS company. The Company had the best product of its kind in the market. In fact they had just been declared the best product by a leading industry source – woohoo! Yet, sales velocity was good but not great…

After discussing all sorts of potential reasons, I suggested that maybe they hadn’t yet “nailed the value prop”. This drew all sorts of eye-rolling and sighs by the team. “How could that be possible? We have over a hundred happy customers! Just look at our pipeline and how it is growing! Look at these names!”

While I wasn’t trying to create a controversy, nor downplay any of the Company’s achievements, I knew that there was a difference between the success this Company was having and what it feels like when you are “In the Zone” with a great Value Proposition that is crushing it. Being in the Zone is also referred to as having great Product Market Fit. When you are in theZone, you are like Michael Jordan who just knows he can sink any shot or make any play – just give me the ball!. For a SaaS company you just know that you can close almost any deal or train any good sales rep to beat quota consistently. Confidence in these capabilities is exactly what allows SaaS companies to scale growth predictably and efficiently. This attracts VC money like bees to flowers– just give me the money! – which of course provides those companies with more resources to grow even faster and improve their products to the point where it just doesn’t seem fair. That is why you have to get into the Zone and do everything you can to stay there!

A few years ago, I was lucky enough to experience what it feels like to be In the Zone. Our team got there by selling money. In fact, we called it selling the missing $1million. I recently caught up with Michael de la Torre, our CRO, who led the effort to get there and coined the term Selling the Missing Million to recap what we did differently.

“Our historical approach was to either lead with our demo or talk about what we could do for them. This approach did not get us anywhere because no one wanted to hear about what we did. But once we discovered their biggest pain point and then reframed our entire pitch around having a discussion about that pain point, our sales took off. For our customers, it was about revenue growth. An extra million in revenues would mean much more margin in their pocket and it would mean the difference between barely scraping by and a massive windfall. In other words, another million dollars at the margin meant everything. So we recrafted our pitch to reliably get to that point. We crafted our whole selling motion around engaging them in a conversation about current revenues and current approaches to revenue growth – occupancy, daily rate, and other key revenue components – and then we would use those numbers, their numbers, to frame a strategy where we could help them find their ‘missing million’. We would often transition our conversation by saying ‘based on what you’ve told me, it seems like you are missing a million dollars’. The response almost always cycled quickly from confusion, to interest, to excitement, to action. The ‘missing million’ completely changed the tone and energy of the customer conversation, and we sold many deals without even demoing our software. Once we understood the true nerve, and we crafted a pitch that could reliably hit that nerve, we almost always won the deal.”

Steps to Finding Your Pitch

Are you selling your product features or are you selling to their biggest, and often unarticulated, need? Here are some tips to help you discover your “Missing Million” value prop.

  • Deep Customer Knowledge: It is not enough to define an ideal customer profile and personas. You really need to know what keeps your customer up at night. What are their most important problems that they encounter every day? What challenges do they encounter trying to solve them today? Is it revenue? Is it cost? Is it risk? Is it peace of mind? Is it quality? Is it scaling for growth? Or it could be some combination of all of the above. If you can solve one of these problems you have a chance at reliably hitting that nerve. At LeisureLink, we hired industry SMEs versus traditional sales reps, because they could easily have the simple conversation with the customer that reliably and inevitably uncovered the ‘missing million’!
  • Iterate and Test Like Crazy: You are not likely to get it right the first or second or even the third time! It will take time, and lots of “at bats.” Make sure your team is trying multiple approaches and you are listening for what works. Weekly sales debriefs and learning sessions are critical to uncovering what may work. Remember, many to many conversations are exponentially more efficient than one to one coaching sessions, where great ideas may be missed or not connected to other discoveries to form the critical hypotheses! In other words, design your sales and marketing process to optimize discovery!
  • First Things First: Don’t lock in your website messaging right away and then waste a year or two pitching a message that doesn’t resonate. You need to nail the value prop first, then support it across all of your messaging channels. Keep things relatively light and malleable until you have nailed it for sure. And keep iterating!
  • Avoid the Rocks: Just because the customer wants to talk about something doesn’t mean that is the right path to closing. Recognize and ID the rocks, indulge them shortly if customers bring them up, and then have the courage to “reframe” the conversation to whatever value proposition is closest to selling money in your world.
  • Nail the Re-Frame: Reframing takes courage and skill. It can’t be done clumsily or it will feel awkward. You need to know enough about the customer and her pains/needs that you can lead the conversation towards solving them. Even better if you can get them to realize how to solve their problem using the socratic method! Then they’ll “ask you for the money!

I am a Venture Partner with Next Coast Ventures and COO/CFO at Voxpopme. I spend my time helping technology companies scale the Growth Mountain.

Categories
E2E: 20/20

Communicating During a Crisis

Five Actions from the Frontline of Entrepreneurial Leadership

For many entrepreneurs, the last month has been the most challenging time in their careers. Having to balance health concerns for everyone in their personal and professional vicinity, along with a crushing change in the economy, has pushed business leaders to the edge.

But it’s also a time when employees, customers, and colleagues are looking to company founders for leadership and guidance. What should you say to people who are concerned about their jobs and their future? I’ve been talking with leaders and founders at companies both large and small over the past few weeks about how to communicate in a crisis. After hearing their concerns and constraints, I’d like to offer some suggestions based on years of work with more than 500 companies.

1. Find Your North Star

One of the first things to recognize is that not everyone has this figured out. Big companies may battle with a lot of input for various business units. Meanwhile, smaller companies may struggle to establish a position of calm leadership while feeling like waves are crashing around them.

Nearly everyone’s first reaction is that more communication is better than less. Not so. The most important aspect is to be in alignment around communication at all leadership levels. Decide, “What are the things that matter for the future of our business?” Identifying those non-negotiable things that you will always stand for—ethics, values, how you treat others (both team members and customers)—as a starting point will allow you to communicate from a position of clarity, strength, and sincerity.

2. Recognize Generational Differences In Communication

The current global pandemic is an unprecedented time for everyone. Some of your team members and customers have been through deeply challenging times before: wars, recessions, the dotcom bust, and terrorism. Other team members may have just taken their first job with your company and never experienced a macro-economic event like this while in the workforce. As a leader, it’s important to be sensitive to the views, perspectives, and experiences of other generations if you want to drive trust and engagement in your communication.

“As a leader, it’s important to be sensitive to the views, perspectives, and experiences of other generations if you want to drive trust and engagement in your communication.”

At CGK, our generational research and strategy center, we call this Generational Context. Without this context, the way you approach and communicate may not line up with your audience—both younger or older. The more you can put yourself in their mindset and perspective, the better you can serve and support them.

Generational Context is especially important when communicating with your team members. We find it helpful to step back and ask yourself, “What are their fears and concerns right now?” For some, it will be that they’re going to get laid off or lose their health insurance. Some may not be sure how to pay their rent, car payment, or help out another family member.

Great leaders realize that their top priorities and the top priorities of those on their team may not be the same. In times of crisis, people often move towards what’s most important to them, both in terms of overcoming fear and providing security. It helps to understand that not everyone is aligned and moving in the same direction as the organization’s leaders, but they can be with the right communication and leadership.

3. Choose the Right Medium for Your Message and Audience

What works with one group of team members may not work well with others, yet everyone must get the message you’re sending. A Zoom video or Slack channel may be efficient, but if the information you share in that video would also be of interest to an employee’s spouse or significant other, include another way to share that information outside the organization, such as an email or post on your company intranet.

Choosing the communication method is particularly important because people are afraid and anxious right now with so much uncertainty swirling around. That makes it hard to hear a message, remember the message, and then accurately repeat it to someone else who wasn’t there. FAQ pages and other mobile-friendly resources are effective ways to reinforce messages that are delivered internally by video, chat or email.

4. Don’t Fall into The Trap That Crushes Trust

Because we’re all under stress, you may feel additional pressure to fall into the trap of reassuring people by telling them what they want to hear. Resist this temptation. If you don’t know whether everybody will keep their job, don’t go out and tell people that they’re all going to get to keep their job. Because if you end up having to do layoffs two weeks later, you’ve significantly hurt your trust and credibility with those who stay on. As a leader, you must decide the key points that you can message based on the best information you have.

When it comes to communicating with customers, there can be a sense that your product or service is just what they need right now to deal with the current pandemic. It’s critical not to come off as an opportunist and sound tone-deaf to the difficult reality facing so many people and organizations. That’s one of the fastest ways to lose trust and credibility and ultimately lose customers. People don’t want opportunistic sales pitches or marketing pitches right now.

“It’s critical not to come off as an opportunist and sound tone-deaf to the difficult reality facing so many people and organizations. That’s one of the fastest ways to lose trust and credibility and ultimately lose customers.”

Instead, people want a resource they can trust and want to know that you have their back. Let them know that you’re there for them, working on their behalf, and ready to jump on the phone or on Zoom to talk. You understand it’s tough, and you’re there to help.

People will remember if you took the time to reach out and check on them—even if it’s just to say hello and that you’re thinking of them. You don’t have to mention your brand, product, or the latest sales pitch. They know where you work, and they’ve received 87 sales pitches in the last week, all with COVID-19 in the email subject line—so be different and connect with them as a human. If you have resources that might be helpful, make them easy and free to access. We’re all in this together. The more you show you are there for them, the more they’ll buy when they’re ready because they know they can count on you.

5. Deliver Bad News With Empathy

Even if you do everything right, circumstances may still force you to deliver bad news. Layoffs, furloughs, and unfulfilled commitments are in the headlines every day and will likely stay there for a while.

Keep in mind that when you deliver bad news, it’s not the only bad news your audience has received in the past few weeks. That makes it more critical than ever that you deliver the news with empathy and candor, and remain available to answer any questions. How you deliver bad news not only impacts those you are delivering the news to, but also word will travel to everyone else about how you handled the situation.

The worst thing you can do for company culture, trust, and buy-in right now is to deliver bad news in a generic email because that makes people feel like you don’t care about them. I would go so far as to say that if you have the choice of sharing bad news by email or Zoom, share it by Zoom. Show people you took the time to talk with them personally whenever possible. Hiding behind a mass email makes it easier for them to have a very negative response versus actually seeing you, talking with you, and getting treated with dignity.

Most of All—Remember That We’re All In This Together

It’s okay if your communication isn’t perfect. People are more forgiving right now, whether for a child walking into the background of a Zoom meeting or memos that are not grammatically perfect. We all are in this health and economic tornado together. When in doubt, lean on your own humanity, candor, and desire to get your message across quickly, honestly, and clearly.

Last but not least, it’s always good to remember that effective communication is two-way, so avoid making your message one-directional. Let them know who they can talk to, whether that is you, their direct leader, HR, or another person who can answer their question or respond to their comment. People appreciate being in conversation, not just being told what is going to happen and what to do.

Remember, in times of crisis, often the most effective message is not just what you say, write, or send, but what you do that shows your humanity, integrity, and that we’re all in this together.

Jason Dorsey is a member of the Next Coast Ventures’ Entrepreneur Council. He is president of The  Center for Generational Kinetics, a Gen Z and Millennial research and strategy firm. Dorsey has served on the board of directors of both public and private technology companies and is passionate about helping leaders scale companies.

Categories
E2E: 20/20

The Top Actions Entrepreneurs Should Take Right Now

Our way of business at Next Coast Ventures is “built for entrepreneurs, by entrepreneurs.” And while we’re going through this unprecedented time in history, we know we don’t have all the answers. But we do have experience and empathy. We asked members of our Entrepreneurs Council and leaders of the firm about how entrepreneurs should think about their business right now. Some actionable highlights are listed below - we hope these help.

Cash Is King

“The most obvious is cash. I am close to a company that has seen its receivables literally balloon overnight. Payments down 50%+ year-over-year. All the old assumptions have to go out the window. Slow your payables, skip a rent payment, cut non-essentials, etc. If you are out of business, you can’t help anyone.” (Cotter Cunningham, Founder, former Chairman and CEO, RetailMeNot)

Over-Communicate

“Consistent communication across all levels. Not only from the CEO to their teams, but double- and triple-check that all managers are having consistent video calls with their teams and that they are sharing the key messages. It is so easy to get isolated or disoriented when everyone is working from home.” (Julian Castelli, Chairman, Chargeback)

“Engage your board. Sometimes entrepreneurs feel like going into their board with problems or challenges or not knowing an answer is a sign of weakness. But right now, this is a real sign of strength. The businesses that are going to survive and thrive will do so based on their collective strength, talent, intelligence, and experiences of everyone involved.” (Jason Dorsey, President, The Center for Generational Kinetics)

Make the Call

“Call your customers and vendors. Start at the top and call 'em to check in. I wouldn't push for cash on the first call—unless you have to, but remember they will be sitting in a Zoom meeting later this week with the topic being ‘what do we cut?’ and if they just heard from you with a supportive message, it should help. I know some people subscribe to ‘out-of-sight-out-of-mind.’ I do not.” (Cotter Cunningham, Founder, former Chairman and CEO, RetailMeNot)

“Too often, what gets overlooked in times of crisis is the customer. As a CEO, you can make ‘just checking in’ calls with your key contacts and do so without an agenda. This will build trust, develop personal relationships and strengthen your value as a vendor. There will be a time when you do make these calls with an agenda in mind. Not now. Make the relationship calls—as many as possible—with some of the time freed up from working from home. Schedule it on your calendar and make it a priority.” (Mike Smerklo, Next Coast Ventures Co-Founder and Managing Director)

Keep Selling

“Keep making sales calls. It's easy to go into 100% defense mode. Don’t. Someone REALLY needs your product soon. Get in front of them!” (Cotter Cunningham, Founder, former Chairman and CEO Founder, RetailMeNot)“Keep making sales calls. It's easy to go into 100% defense mode. Don’t. Someone REALLY needs your product soon. Get in front of them!” (Cotter Cunningham, Founder, former Chairman and CEO Founder, RetailMeNot)

Have a Plan for the New Normal

“Figure out the offensive plan and make sure everyone knows what it is. Hard to do so when you don't have whiteboards and group meetings. Be explicit and have cross-functional meetings so all who are necessary can take part in playing offense (growth/sales) instead of just hunkering down.” (Julian Castelli, Chairman, Chargeback)

“Finish scenario planning and decide what the new normal looks like. The last two weeks have been consumed by projecting different scenarios and modeling P&L and cash-flow impact. We’ve taken the obvious actions (e.g. cost-cutting, etc.). Now the teams are starting to drift back to scenario planning, and the truth is we don’t yet know what will happen.” (Zeynep Young, Founder and CEO, DataNarrative)

Get Aligned, Stay Aligned

“I think in times like these (if your business is negatively affected) it's essential that your management team gets aligned on your top priorities, in order, to weather this crisis and come out strong on the other side. Some of the obvious things, like conserving maximum amounts of cash, preserving goodwill with employees and continuing to serve your customers at the highest levels can be at odds—and you have to wrestle with these tradeoffs as a team and get aligned.” (Brian Sharples, Co-Founder, former Chairman and CEO, HomeAway)

“I’ve had to spend time to get the leadership team off of discussing additional scenarios and into an action plan that allows us to move forward beyond the obvious immediate actions. We’ve explicitly outlined some mile-markers that will give us more direction in the next couple of weeks about where our specific industry is headed and we may revisit scenarios when we know more. But the biggest challenge has been to define an action plan for what comes after ‘immediate no regrets moves.’ I think the job of the CEO is to start defining what the new normal looks like until we know more” (Zeynep Young, Founder and CEO, Data Narrative)

Stay Productive

“Assuming workplace safety rules and procedures are in place (with work from home being the new standard), you need to put a massive focus on measuring and driving productivity under this new paradigm. Productivity is the fuel that allows you the latitude to preserve cash while continuing to serve customers and drive sales at adequate levels, and it deserves daily communication and attention by management across all functions.” (Brian Sharples, Co-Founder, former Chairman and CEO, HomeAway)

Stay Productive

Manage Your Time Wisely

“Working from home is a new paradigm for most people. It’s easy to get lost and work away without prioritzation. For me it’s somewhat therapeutic to do this, but at the same time, I already find myself going down ratholes of things I’m wasting time on that I shouldn’t be. My time mix is now easily talk to entrepreneurs 40% of my time (portfolio company execs, other entrepreneurs in network, etc.) but try to limit the calls to 15 minutes tops.” (Thomas Ball, Next Coast Ventures Co-founder and Managing Director)

Take Care of Yourself

“Look out for you. It’s so easy to get stressed out right now and worry 24/7. Get some exercise and/or fresh air every day!” (Cotter Cunningham, Founder, former Chairman and CEO, RetailMeNot)

“Showing up as a confident, enthusiastic leader is hard in the best of times. Now with all the added stress and uncertainty it is even harder. Meditate, exercise, call your mom or just read a good book. Whatever it is that brings you calm and comfort—make sure you don’t neglect yourself in these stressful and uncertain times.” (Mike Smerklo, Next Coast Ventures Co-founder and Managing Director)

Empathy is your biggest asset during this time of crisis, so don’t be afraid to deploy it widely. We hope this post helps in some way and would love to see your comments and suggestions so that the entire entrepreneurial community can benefit. There’s a lot of fear and anxiety out there, but it’s important to remember that we’re all going through this together.

Categories
E2E: News

A VC, an Entrepreneur and a Serial Killer Dial Into a Virtual Sports Bar

How entrepreneurs and investors can use their respective insanity to work together and drive better alignment and results

(A version of this post appeared on Forbes)

Fund-raising is always tough. I originally wrote a version of this post a month ago to help entrepreneurs navigate the always trepid waters of fund-raising. In the past few weeks, with the outbreak of the COVID-19 pandemic, the challenges entrepreneurs face raising capital (along with everything else) have been magnified a hundredfold. Yes, you can still raise capital, but in these unprecedented times, it’s going to be a lot harder. Having been on both sides of the table in good times and bad, I’d thought I’d share some insights on how investors and entrepreneurs can work together in this uncertain environment. For some perspective, let me start by recounting two recent video conference calls…

At the end of a very long day, I logged out of my Zoom account for the day and shook my head. How did two video conference meetings on the same topic produce two totally different perspectives and agendas?

We were considering leading the Series A capital raise for a seriously innovative company. The first call, with a partner in another firm who was considering joining us in investing, was business-like, almost clinical. “This is a really exciting deal,” they said, “and we would be interested in investing if the valuation and terms make sense. Given this COVID-19 thing, we could probably jam them a bit more on terms, especially valuation.” Cold, impersonal and without emotion—just like any good serial killer in the Stephen King novels that fill my sleep with nightmares.

The second call, with the company’s founder, was packed with energy and emotion. “We want to build an amazing company, and we feel like we have established product-market fit,” they said. “With some more capital, we can continue to make our life mission a reality. Yes, COVID-19 is a real consideration but should have no long-term impact on our business model.” Highly emotional, passionate and enthusiastic—just like any of the great entrepreneurs who likewise must be partially insane to deal with maddening highs and lows of starting a business.

So, which was it? Was this a “deal” or a “life mission”? The answer depends on your perspective. Now, more than ever, it is incredibly important to understand the difference between the mindsets of the entrepreneur and the investor. As we all work through the panic, troubleshooting and adjusting financial projections, it is hyper-critical to be as balanced as possible. For both sides to achieve the outcome they’re looking for, it pays to understand the other side’s perspective. We all miss sports, among other things right now, so maybe a quick analogy will help…

The Golfer and the Quarterback

Sports fans know how to appreciate different perspectives. I like watching both golf and football (or at least I used to...now I try and remember what a live sporting event is actually like). But there’s a big difference in how Rory McIlroy (currently the #1 ranked professional golfer in the world) and Patrick Mahomes (Kansas City Chiefs quarterback and Super Bowl MVP) go about their jobs.

When McIlroy is about to tee off, he considers the variables (distance, wind, club selection, etc.) and then he takes an isolated action (the swing). When the ball leaves the club, the result is already determined, and he can only watch and contemplate the outcome. Even with a bad shot, he knows he’ll get 60-70 more shots that day. Consideration, decision and action, then watching the results and knowing that while each shot is important, no single shot will make or break the match. That’s the approach and mindset of an investor with a portfolio of investments to oversee.

Contrast that to a typical play in the NFL. Patrick Mahomes calls a play based on the current down and distance. He takes the snap, and all hell breaks loose. He must make multiple decisions based on the huge number of events quickly unfurling around him. After that play, he huddles with his team and quickly calls another one, all the while knowing one bad pass could cost him the game or he could be knocked unconscious—or worse—by a 350-pound linebacker who literally is trying to kill him. Chaos, uncertainty, making decisions on the fly: That’s a day in the life of a high-growth company. Every plan feels like it could be his last—he has no “portfolio”—and tomorrow seems like a meaningless consideration.

Rising Tensions at Investment Time

The contrasting approaches of investors and entrepreneurs meet head-on when it’s time for a company to raise a funding round. And if each side isn’t careful, what should be a momentous event in a company’s history can strain relations long after the deal is done.

It begins with the process of determining a point estimate, essentially the best guess at how much the company is worth. It’s almost ridiculously difficult, building a specific business case that takes into consideration terms, price, ownership and dozens of other factors. When markets and valuations are experiencing incredible volatility - as they are now - these differences get magnified dramatically. But the process is critically important to the investors. The sad part is that 99% of an investor’s success will be determined by the investment she chooses to make and the price that is to be paid for that investment. Just about everything else is noise.

While entrepreneurs are certainly on board for any deal that maximizes their price and minimizes the dilution of their shares, they also know that the details really won’t matter that much if they execute on their vision and plan. They don’t see much point in painstakingly determining a fixed point estimate when conditions change every day. The bulk of her success will be determined by the execution during the years after the investment—and if she is successful, the valuation and price paid at the time of the investment will be largely meaningless.

See the contrast inherent here?

It’s also critically important to note that investors are dealing with a portfolio of companies. They can afford to be wrong every now and then, provided there’s a big win mixed in along the way. For entrepreneurs, the success of their business is all or nothing. There’s nothing for them to fall back on. This simple fact can magnify an already conflict-ridden environment.

A Simple Solution For Both

When we consider leading an investment, we try to do a couple of simple things to bridge the gaps between us (as investors) and the entrepreneurs we are backing. It starts with an open dialogue. We sit down with the entrepreneur before any investment and share our business plan, our perceived investment risk and our expected valuation outcome for their company.

We also ask the entrepreneur to share with us what he or she most wants to happen with the business over time: hopes, dreams, aspirations and best-case and worst-case outcomes. At the end of this discussion, my favorite thing to do is to ask the entrepreneur one simple question. “Five years from now, we are sitting in a bar, and we are either celebrating a great success or drowning our sorrows. Tell me why either happened.” This question more than any other helps both of us get a shared view on what could go right AND what could go wrong – and start the relationship from the same perspective on both.

“Five years from now, we are sitting in a bar (not watching each other sip beer on our webcams), and we are either celebrating a great success or drowning our sorrows. Tell me why either happened.”

We also ask the entrepreneur to share with us what he or she most wants to happen with the business over time: hopes, dreams, aspirations and best-case and worst-case outcomes. At the end of this discussion, my favorite thing to do is to ask the entrepreneur one simple question. “Five years from now, we are sitting in a bar, and we are either celebrating a great success or drowning our sorrows. Tell me why either happened.” This question more than any other helps both of us get a shared view on what could go right AND what could go wrong – and start the relationship from the same perspective on both.

We also write an investment memo for every deal and share it with the entrepreneur. The memo spells out our thoughts on the deal—both the upsides and downsides—so that there’s full transparency.

When we do this, we get reactions like, “Holy cow. Thank you! I never understood how this works, and this helps me plan my business and board updates accordingly.” The entrepreneur understands our perspective, risks we see in the business and the outcome we are focused on achieving. From day one, we have a shared perspective.

Both a Hole-In-One and a Touchdown Are Worth Celebrating

The very best investor-entrepreneur relationships are based on trust and openness, along with a shared vision, goals and expectations.

It’s so important for entrepreneurs to know the key assumptions, financial metrics, and risk factors that the investors are considering. It might be scary to hear, but it establishes the right level of trust and communication with the investment team.

It is equally important for investors to get into the mind of the entrepreneur and understand what she does (and does not) want to do with the business over time.

A shared perspective and understanding not only builds trust and openness from day one, but it also provides a shared viewpoint when things do and do not go as planned. Maybe, just maybe, it can also cut down on the therapy bills for both—but that concept will require a much, much longer blog post to really do it justice!

Categories
E2E: News

Leading Through Difficult Times

Clear Direction and Consistency with Strong Values Can Build Enduring Cultural Advantages

In 2008, I was running a travel technology company called VacationRoost when the Financial Crisis absolutely crushed the tourism market that we served. Seemingly overnight our revenues were cut in half and our break-even operation became a loss generator. Our growth ambitions and strategy were quickly shelved for the necessity of survival planning. Cutting costs through operational retrenchment, pay-cuts, and painful layoffs was miserable. It was during this challenging time, however, that we built strong cultural foundations that helped us not only survive, but thrive during the recovery and later growth stages.

I remember huddling with our management team in the war room making these difficult decisions. Many of us wondered if it was even worth it. None of us had joined the Company with the expectation of shrinking operations and the hardships that went along with it both financially and psychologically. Wouldn’t it just be easier to admit defeat and go pursue opportunities in different companies or industries? “Hey, good idea, good effort. This slowdown isn’t our fault, and there is nothing we can do to change it in the short term. Let’s cut our losses and call it a day.” Some of my more courageous team members shared these thoughts with me. I knew everyone was thinking about it – heck, even I was at times. I remember wanting to assure our team that everything would be ok. That if we pushed through these difficult times, we’d survive and thrive as a Company and everyone would do really well professionally and financially. But the truth was that we had no assurance of that. Maybe we would….but there was also a very good chance that we would not.

After many sleepless nights, I decided to focus the team on what we could control. I brought the leadership team together and shared a vision for success that was attractive while remaining honest about our chances and the things that were out of our control. Then I challenged our team to do something that was completely in our control: Let’s build a Team, a Culture and a Company that we are proud to be a part of. Win or lose in the long term, we are going to create an organization that we are proud of—one that’s worth fighting for every day. We weren’t going to wait until we got through the crisis, had more resources or had more time. We were going to do it immediately so that every day moving forward would be spent in an environment we could take pride in.

After many sleepless nights, I decided to focus the team on what we could control. I brought the leadership team together and shared a vision for success that was attractive while remaining honest about our chances and the things that were out of our control. Then I challenged our team to do something that was completely in our control: Let’s build a Team, a Culture and a Company that we are proud to be a part of. Win or lose in the long term, we are going to create an organization that we are proud of—one that’s worth fighting for every day. We weren’t going to wait until we got through the crisis, had more resources or had more time. We were going to do it immediately so that every day moving forward would be spent in an environment we could take pride in.

Formation

And so began one of the most surprising transitions of my professional career. We worked as a group to create a Vision for what we wanted to become as a Company and how we wanted to impact our industry. After a lot of debate, we agreed to the Core Values that would define how we behaved, how we would recruit team members of certain character and how we would hold each other accountable. We then inserted a Strategy element that would tie the practical plans of the Company to both the Vision and Values.

Getting Started

I can remember to this day the awkward feeling I had trotting out our new Vision-Strategy-Values framework at an all-company meeting during the downturn. We had just laid off 40%+ of our team. These were friends and colleagues that we were close to and were concerned about. Our team was scared for their own security and the future of the Company. My self-conscious “little voice” sat on my shoulder whispering in my ear saying: “Really Mr. MBA dude… people are worried about survival here and you choose now to bring out the MBA 101 Mission/Vision/Values BS??” “Really? That’s the best you’ve got? People are going to roll their eyes. They want to hear that they’re safe, that there won’t be more layoffs. A better leader might give them that assurance.” I pushed beyond the inner voice and gave the presentation. I wasn’t sure how it was received.

Consistency of Communication

One of the practices that we put in place during the downturn was more frequent and consistent communication with the entire Company. We implemented monthly company-wide meetings and weekly leadership team meetings that included a broader group beyond the executive team. I remember making a point to start every presentation with my 4 slides which included the framework and a slide on: Vision – This is Where We Want To Go- This Doesn’t Change; Values – This is How We Behave – This Also Doesn’t Change; Strategy – This is how we are going to move towards our Vision – This year, this quarter, this month – This changes based on what the world throws at us. I recall changing the order of the slides to re-position the framework as Vision-Values-Strategy as it flowed better that way. Then we would go on with our briefing.

I started making analogies comparing our journey to a trip. The Vision is our Destination. We are all going to drive from NY to CA, for example. Arriving in CA is our Vision. Our Values are the ground rules regarding how we are going to go about doing this. They represent agreed-upon behaviors like: we are going to drive, we will obey the speed limit, we will make sure to stop to see something interesting at least once per day, we won’t spend more than 8 hours driving per day, etc… The Strategy is how we navigate each stage of the journey. We are going to take Route 80, We expect it to take 8 days, We will stop in Chicago overnight, etc… This may indeed change. If we see Route 80 closed for construction, we will change the Strategy and take a different road. If the weather is bad, we may alter driving times. If we discover an incredible attraction along the way, we may stop to enjoy it and drive some additional hours the next day, etc… This helped everyone understand how our Vision and Values don’t change – we are going to arrive in CA and we are going to drive in a responsible manner to get there. Within this framework, it was logical that the Strategy might change to accommodate new information, or any new challenges, but it always provided the path towards the Vision/Destination and didn’t conflict with our Values/Ground Rules.

I eventually got more comfortable with the flow of kicking off each meeting with this 5-minute overview of our framework. A key driver to the company-wide success of the framework was asking each manager to start doing the same with their teams—both to hold weekly meetings and to start each meeting with the Vision-Values-Strategy framework. After a while it became routine, and eventually… we started working out of the economic downturn and began to grow again.

The Unexpected

As time went on, our Vision-Values-Strategy routine continued and we slowly started growing again as the market improved. The little voice on my shoulder, however, returned. “Hey, buddy…. Give this Values stuff a rest. It was a nice tool to help you get out of a jam, but we are really busy now. The team is growing again, we have tons to do, and you are starting to sound like a broken record up there. Besides, you even painted the Values and Vision on the wall! We get it already!” (What would we do without our little voices!) Well it finally got to me. I recall one meeting when we were starting late and had a packed agenda. I jumped past my first 4 pages on Vision-Values-Strategy and gave the floor to one of my colleagues to get started. As I looked on, a hand raised in the back of the room. I was annoyed. Doesn’t this person know that we are in a rush here?

“Hey, what happened to our Vision/Values discussion? Me – Ahhh… well, we are short on time today so I skipped it. Colleague – Well, I was really looking forward to it today. In fact, I wanted to share a story about our Values. One of my team members did an extraordinary thing for a client last week. They really went above and beyond to fix an issue to ensure that our client had a great experience, and they didn’t even ask me permission to spend the money doing so. When I asked them why they hadn’t come to me, they answered by reciting a couple of our Values – Customer Service and Accountability. They said – “doesn’t this mean that we’re always supposed to try to live up to these values in our day to day jobs?”

I was floored during the brief silence that followed. Here I was thinking that my team had endured enough of my MBA mumbo-jumbo and that I should give it a rest. In actuality, the consistent Vision-Values-Strategy intros might have been the most important things that I had been saying as a leader. I thanked my colleague for sharing the story, and then looked around the table and asked the question: “Does anybody else have a similar story?” 3-4 hands shot up immediately. The stories were powerful. The alignment was awesome. Then more hands went up. Everyone had a story. The impact at the table was palpable. Eyes teared up. More stories were shared. Management members started explaining how sharing the values had given them something to take pride in and lean on during the difficult times, and now was being noticed by people outside the organization. Recruits came to interviews citing our values as a reason why they wanted to work with us. Partners complimented us on it and chose to work with us because of it. It had happened, and I hadn’t even noticed it. Our team was taking pride in their workplace, their colleagues and the values of the Company. Our managers were proudly sharing the values and reporting on their stories. Our team was getting stronger and the shared values were building a powerful culture. We were in no way ”in the clear” financially, but we were well on our way towards our goal of building a company that our team was proud to be a part of.

This post focuses on building culture as a key strategy for difficult times and is the first of three blog posts on the topic of culture. Here are a few other things to consider when leading your team through difficult times.

Honesty – This is non-negotiable as a leader. Be honest with your team, even when you desperately want to make them feel better. You’ll never build trust without it.

Speed – Move quickly and take action. You may be tempted to wait for more information or to defer difficult decisions, but that costs valuable time. Bite the bullet, figure out what is best for the company and take action. Your team will appreciate it.

Create Your “Burn the Boats” Plan – You will undoubtedly be evaluating multiple scenarios and response plans. Build the worst scenario first. Rather than agonizing over layer after layer of cuts, start with nothing. Then determine what the minimum amount of resources you would need to keep the operation afloat in order to weather the storm while “burning all the other boats”. You may not need to go to this plan right away, but having it built will give you comfort that there is always a safety plan to go to in the next worst scenario.

What Can You Control – You can’t control markets and external events, but you can control your response. This is your move, make it count. Event + Response = Outcome!

Forge Your Steel in the Heat of Adversity– Like our story above, many companies develop core competitive advantages and strengths through the decisions they make during difficult times. What will yours be? Choose your Steel Weapons wisely.

Categories
E2E: News

NCV’s Top 9 of ‘19

1. Closed our Second Fund: NCV II

In November we were incredibly proud to announce the closing of our second fund, which brings $130 million in new capital to NCV. We are thrilled to have assembled a great group of investors – a strong combination of investors from our first fund and new investors who believe in our ambitious goal to become one of the best firms providing early and growth-stage capital in what we call ‘Next Coast markets.’ Like any fundraising effort, it took time, travel and a lot of hard work. But truth be told, this fund was really made possible by the hard work of all the entrepreneurs we have had the privilege to work with since we founded Next Coast Ventures over four years ago. Learn more about NCV II here.

2. Made our First NCV II Investments

In July we were proud to announce that, as our first investment from NCV II, we led the $12.5M Series C in TrustRadius, the leading software review platform. This was a great moment for the Austin ecosystem: Two experienced, local entrepreneurs creating a differentiated product supported by a great Texas syndicate. We’ve been following TrustRadius’ progress since we started NCV in 2015 and are thrilled to have the chance to officially partner with them during this new phase of growth. Learn more about TrustRadius here.

Since July, we’ve made additional NCV II investments in other portfolio companies that are in stealth mode. More to come on these soon!

3. Added Six New Portfolio Companies

We know we are only as good as the founders we back. In 2019, we added six more incredible teams to our portfolio. We were thrilled to announce that we led the $10M Series B in Montana-based Submittable, the leading submission review platform – it was one of the top-10 largest Series B rounds in the state’s history and our first deal in Montana. We were also proud to announce that we participated in the $8M Series A in Enboarder, an experiential employee onboarding platform that was founded in Sydney, Australia – we were especially excited to bring the company to Austin. We also invested in Backtracks, the Austin-based podcast analytics and hosting platform that helps businesses of all shapes and sizes understand their audience and monetize their podcasting content. Our other new portfolio companies of 2019 are TrustRadius and two stealth mode companies mentioned above.

4. Had Two Portfolio Exits: Finery and Brava

Our portfolio companies Finery, the wardrobe operating system, and Brava, the smart countertop oven, were both acquired in 2019. Finery was acquired by online fashion styling service Stitch Fix. We are so proud of Whitney Casey and Brooklyn Decker and the innovation they bring to the world of fashion technology. Brava was acquired by kitchen equipment manufacturer Middleby. The smart countertop oven will continue to cook delicious home-cooked meals alongside Middleby’s existing residential and commercial kitchen appliance portfolio. Congratulations to the Finery and Brava teams!

5. Doubled our Entrepreneurs Council

We are always looking for new and innovative ways to support our portfolio leadership. This year, we doubled the size of our Entrepreneurs Council, which consists of industry-leading entrepreneurs in Next Coast markets who directly advise and mentor our portfolio leadership. We were so thrilled to announce that we added iconic entrepreneurs Cotter Cunningham (founder of RetailMeNot), Brian Sharples (founder of HomeAway) and Julian Castelli (former CEO of LeisureLink and VacationRoost) as the newest members of our Entrepreneurs Council. Learn more about our Entrepreneurs Council here.

6. Grew our Investment Team with Zaz Floreani as Principal

After years of running business and corporate development at various startups in Austin, Zaz joined our deal team this fall and immediately became an integral contributor. She helps execute our strategy in our early stage investments, with a focus on sourcing entrepreneurs and identifying investment prospects in markets outside the coasts. Zaz also supports our portfolio companies by providing advice and introductions around potential hires, investors, customers and strategic partnerships. Learn more about Zaz here.

7. Added Sarah Puil as Entrepreneur-in-Residence

It has always been important to our firm’s culture to have a strong entrepreneur in our office to bring their unique perspective on emerging market trends and work with them to discover their next project. Hence we were so excited to announce that we added experiential marketing and podcasting expert Sarah Puil as our Entrepreneur-in-Residence. Learn more about Sarah here.

8. Brought on Jonathan Kaplan as Chief Operating Officer

We mean it when we say that we are building out a firm for the long term. We were excited to finally announce the addition of Jonathan Kaplan as our COO. He brings an incredible wealth of startup experience to NCV and our portfolio. Jonathan is responsible for all operations of our firm and the firm’s diversity and inclusion efforts. He is also integral in the formulation and execution of our investment strategy and supporting NCV’s portfolio companies by providing advice regarding operations, corporate development and compliance. Learn more about Jonathan here.

9. Austin VC Investment Reached Two-Decade High

While we know we can’t credit for Austin’s record-breaking year of VC investment, we couldn’t be more thrilled about the incredible growth we’ve seen in Austin and our other Next Coast markets. As investors focused on rising innovation hubs, we know that we wouldn’t be able to invest in our incredible founders without the support of these booming ecosystems. We’re very proud to be Austin-based investors and are committed to continuing to give back to the entrepreneurial markets we serve – we look forward to seeing what other records Austin’s investment ecosystem breaks in 2020. We have a feeling it will be plenty.

Categories
E2E: News

NCV’s Top 10 of Summer

“New deals, new exits and new team members. Needless to say summer slowdown is not a thing for Next Coast Ventures.”

10. Summer Kickoff Meat-Up

We love any opportunity to bring Austin’s entrepreneurial ecosystem together, and we are firm believers that it shouldn’t take an industry conference or panel of experts to do it – that’s why we founded our series of ‘Meat-Ups’ in 2018. We have truly enjoyed bringing Austin’s founders, investors and service providers together in our backyard for great BBQ. We can’t think of a better way to kick off summer.

9. Three Entrepreneurs Council additions

We were so thrilled to announce that we added iconic entrepreneurs Cotter Cunningham (founder of RetailMeNot), Brian Sharples (founder of HomeAway), and Julian Castelli (former CEO of LeisureLink and VacationRoost,) as the newest members to our newly-branded Entrepreneurs Council, which advises and mentors our portfolio leadership. Learn more about our Entrepreneurs Council here.

8. New Chief Operating Officer

We were excited to finally announce the addition of Jonathan Kaplan as our COO and couldn't be more excited for what he'll bring to NCV and our portfolio: “I was drawn to the opportunity to join Next Coast Ventures because of its differentiated commitment to supporting entrepreneurs in markets throughout the United States and the quality of the firm’s investments to date." Learn more about Jonathan here.

7. Led the $12.5M Series C in TrustRadius

We were proud to announce that we led the $12.5M Series C in TrustRadius, the leading software review platform. This was a great moment for the Austin ecosystem with two experienced, local entrepreneurs creating an a differentiated product supported by a great Texas syndicate.

6. Led the $10M Series B in Submittable

We were so psyched to announce that we led the $10M Series B in Montana-based Submittable, the leading submission review platform. It was one of the top-10 largest Series B rounds in the state’s history and our first deal in Montana. It was right up our alley: an entrepreneur with deep domain expertise creating a full-stack business model in a Next Coast market that solves a big pain point for numerous industries.

5. Added Enboarder to our portfolio

We were proud to announce that we participated in the $8M Series A in Enboarder, an experiential employee onboarding platform that was founded in Sydney, Australia. We’re especially excited to bring the company to Austin to open its U.S. headquarters and grow its team as they continue to change the HR game for companies big and small.

4. Phlur raised Series A, acquired Texas Beauty Labs

We were thrilled to be follow-on investors in Phlur, the leading sustainable fragrance and beauty brand that acquired fellow Texas-based clean beauty manufacturer Texas Beauty Labs to expand their offerings from fragrance and candles to now include a line of clean beauty and deodorant products. And yes, they smell just as fabulous.

3. Added Backtracks to our portfolio

We were proud to announce that we are investors in Backtracks, the Austin-based podcast analytics and hosting platform that helps businesses of all shapes and sizes understand their audience and monetize their podcasting content.

2. Added an Entrepreneur-in-Residence

It has always been important to our firm’s culture to have a strong entrepreneur in our office to bring their unique perspective on emerging market trends and discover their next project, which is why were so excited to announce that we added Sarah Puil as our Entrepreneur-in-Residence. She’s an experiential marketing and podcasting expert that’s going to explore the changing world of digital assets. Learn more about Sarah here.

1.Had a portfolio exit

Our portfolio company Finery, the wardrobe operating system, was acquired by online fashion styling service Stitch Fix. We are so proud of Whitney Casey and Brooklyn Decker and the fashion technology they have created to empower both consumers and female founders in the tech community. Congratulations to the Finery team!

Categories
E2E: 20/20

NCV’s Top 8 in ’18

We are so incredibly grateful to have so many great milestones in our short history — and 2018 was no different. We founded NCV on the idea that the best entrepreneurs are building companies outside the coasts, and with the support from our great investors who believe in our mission, we have found that to be even truer than we imagined. Through numerous strong additions to our portfolio, expanding our Venture Partner program and ramping up our E2E programming, we couldn’t be prouder of our entrepreneurs’ accomplishments in 2018. In no particular order, here are some of the highlights.

8. Meat-Ups

We love any opportunity to bring Austin’s entrepreneurial ecosystem together, and we are firm believers that it shouldn’t take an industry conference or panel of experts to do it. That’s why we founded our series of ‘Meat-Ups’ in 2018 — with pig roasts, grilling demos and fresh meat from Austin’s finest ranches courtesy of Rosso & Flynn. Whether it’s kicking off summer or discussing the rapid developments in the world of eCommerce, we have truly enjoyed bringing Austin’s founders, investors and service providers together in our backyard for great BBQ, and even better conversations.

7. SXSW

SXSW has always played a large role in Austin’s innovation ecosystem and has done a tremendous job putting the Texas capitol at the forefront of people’s minds when they think about startups and entrepreneurship. That’s why we were so thrilled to put on our first-ever SXSW panel featuring our portfolio CEOs Julia Cheek of EverlyWell and Eric Korman of Phlur, as well as Localeur CEO Joah Spearman. Our panel focused on one of our major investment themes: digital natives disrupting time-honored industries. The panel’s great turnout and lively Q&A showed us that this shift in consumer behavior isn’t going anywhere anytime soon.

6. First Annual Meeting

One of the more never-wracking parts of 2018 was our first-ever Annual Meeting. Our mission is to source and support the best entrepreneurs in Next Coast markets, and none of it would be possible without our incredible investors. We were so pleased to have the opportunity to share our firm’s progress over the past year and give our investors the chance to hear directly from out portfolio CEOs. Their enthusiasm for our founders’ business ideas and development as leaders makes our whole mission possible, so our first-ever — and successful! — Annual Meeting was certainly a highlight of 2018.

5. New Venture Partner Jason Dorsey

At NCV, one of our main goals is to leverage our network and industry expertise to provide our portfolio with the best resources to scale their businesses, and our Venture Partner program is a key part of that. This year, we added an atypical Venture Partner, bringing on Jason Dorsey to advise our portfolio on consumer trends, brand building and customer acquisition. Jason is an expert on digital natives and generational behavior, and he has helped us refine our investment themes and evaluate big trends that impact our investment decisions. Jason is not a garden variety Venture Partner, and we’ve already seen his incredible impact on our firm and our portfolio.

4. New Talent Venture Partner Jeff Browning

As early-stage investors we know that one of the key parts to successfully scaling is having a strong and well-suited executive team at the helm. That’s why we brought on Jeff Browning as a Talent Venture Partner in 2018. Jeff has helped our portfolio companies with all aspects of organizational design, talent acquisition and executive development — as well as helping our founders round out their executive teams. He has 30 years experience in executive talent acquisition and spent 15 years as the Recruiting Partner for Austin Ventures. He’s already been an invaluable resource to our portfolio companies as they rapidly scale their companies.

3. Clarity Money Acquisition

We were absolutely thrilled to have our first exit in our short history from our portfolio in 2018. Clarity Money, a fintech startup that helps consumers manage their personal finances, was acquired by Goldman Sachs. Clarity Money’s sticky traction with digital natives and intuitive UI made it an incredible addition to Goldman Sachs offerings as they seek to reach Millennials and Gen Z with modern banking platforms. Founder Adam Dell created an intuitive product that’s disrupting a massive market, and we were so excited to be a part of his journey.

2. OnRamp Acquisition

We had not one, but two exits in 2018. Our portfolio company OnRamp, an Austin-based data center and cloud computing company, was acquired by Des Moines-based IT company LightEdge. LightEdge now runs one of the largest interconnected data centers outside the coasts in key Next Coast markets. OnRamp didn’t just have a great suite of products, it was also led by two great entrepreneurs: CEO Lucas Braun and President Ryan Robinson. Helping them through the acquisition process and their excitement around thinking big made an exhilarating liquidity moment even greater — and reminded us of why do exactly what we do.

1. 11 New Portfolio Companies

There were so many great milestones in 2018, but to us one of the greatest has been expanding our portfolio with the top founders in Next Coast markets that are building innovative companies disrupting massive markets. Investing in these types of entrepreneurs is exactly why we founded this firm. This year, we added 11 new companies to our portfolio in everything from SaaS to at-home health testing to blockchain platforms. Our collaborative approach has allowed us to source some of the best glass eaters in a wide variety of industries, and we couldn’t be more excited to help them scale and grow as leaders in 2019.

Categories
E2E: 20/20

10 Things Our Founders Are Grateful for this Year

The holiday season is often about taking time away from work to spend with family and friends, but as entrepreneurs ourselves, we know that is no easy feat for a founder. The entrepreneurial journey is 24/7, and with all the ups and downs, it can be an isolating experience fraught with burnout. But with the right support system, being an entrepreneur and scaling a company can be an incredibly rewarding experience. So we decided to speak with our portfolio leadership to see where they get their support from, and what they’re grateful for this holiday season.

“I’m most thankful for the entire EverlyWell team this year — which has grown from 13 to 50 since last holiday season. As a solo founder, I’m so grateful for colleagues who will run alongside me and who care deeply about our mission. It’s been a great transition to watch this year!”

“I am extremely thankful to NCV for allowing 101 to incubate in their offices for many months. Not having to worry about an office or rent allowed us to focus and blast off quickly. Perhaps just as importantly, the daily casual collisions with the NCV team also helped us solve problems and form our own thoughts - super helpful value add. The second thing I am extremely thankful for: NCV allowing us to completely overstay our welcome - helped us solve even more problems and form more thoughts!! Thanks NCV!”

“I could not be more thankful and appreciative for the amazing people on the AlertMedia team. Everyone here, some of them taking great risk to join us when we were small/early, has been an absolute pleasure to work with, and each has contributed meaningfully to AlertMedia’s success. Finding the best people has been our focus from the very beginning, and it remains our focus. That approach has resulted in a surprising and spectacular level of productivity, efficiency, customer success, and employee happiness (#3 on ABJ’s Best Places to Work!!). I’m thankful every morning I come to our office, because the people at AlertMedia are making my job so enjoyable and rewarding!”

“Just last week, we had 8 new employees start on the same day. It was our biggest new hire group to date, and we had to get a little creative with seating arrangements. We started the year out with 30 employees and could fit into a corner of our office space. Now, our office is bursting at the seams. Moments like this, when we’re compelled to look up from the work and take stock of our growth, inspire a lot of gratitude. This team we have built is amazing and I’m thankful to be their leader.”

“I'm incredibly thankful for my new wife (as of September) and all her support during the highs and lows of leading a high-growth startup. Her patience, perspective, and unwavering backing let me tackle each challenge with confidence. Beyond her… I'm thankful for a very long list of people.. including Next Coast for supporting us last Winter and the incredible partnership consistently demonstrated by Mike and Tom.”

“I’m grateful for my collective team - and that means our investors, employees, advisors partners, and families. It’s very challenging to go through a pivot, especially when you have raised capital and your profile to run after something else. To keep your team intact, and then to execute against a different set of goals, takes a tremendous effort and I’m lucky enough to be surrounded by the best people I could be associated with.”

“This year we are most thankful that Gen Z has finally(!) become the emerging “hot” topic when it comes to consumer and employee trends. We’ve been talking about Gen Z – and leading original research – on the generation as consumers and employee trendsetters for several years. Our new book on Gen Z comes out next year. Seeing this new, fast-emerging generation finally starting to get the buzz and attention we believe they deserve is very exciting for us as researchers and strategists, and we’re thankful for the interest because we believe this new generation will change the world. The sooner and more accurately we can share our understanding of this new generation, the sooner leaders can better unlock the generation’s tremendous potential.”

“My team as a whole. They are fantastic and their hard work and dedication make it much easier for me to sleep at night than if I didn’t have them.”

Categories
E2E: 20/20

The Rise of the Female Founder and Robotics in the Human Environment with Andrea Thomaz

Diligent Robotics is an Austin-based NCV portfolio company developing a suite of artificial intelligence that enables robots to collaborate with and adapt to humans in everyday environments. Their service robot works together with teams of people in healthcare and is currently operating at a hospital in Dallas, Texas. The Diligent team began with just three female engineers and one prototype of a robot arm working out of NCV’s office. Now, they are a team of 12 engineers with their own robotics lab and fully-operational hospital robot: Moxi.

It feels like just yesterday that the Diligent team was working at NCV’s offices with one, single robot arm. Now you have Moxi, a fully operational robot – how did you guys approach the design process to make the first-ever hospital assistance robot?

We worked with a fantastic designer that I had designed previous robots including Simon, Curi and Poli with and we began by digging into what we imagine Moxi is going to do, along with how people will perceive and feel around Moxi based on the thorough industry research we’ve done. The product design is a very visual process, so we do storyboard sketches of the robot in hospital environments and in various human interactions, almost like it’s a movie. While storyboarding is crucial to designing the robot, our designer has a concept called ‘body storming’ – instead of brainstorming you actually physically move to think about the scenarios where we need Moxi to perform and interact with humans. So we actually dress somebody up as the robot and dress people up as nurses and literally act it out.

How did you decide on the name Moxi?

We didn’t want to it to be human name nor did we want it to be gendered, so we ran a program that searched for all two-syllable words that end in ‘i’ or ‘e’ and it generated about 50 names. Then we had everybody on the team bring pictures that should be used as inspiration for the robot, the design and the brand. One of our engineers brought in a picture of the Rosie the Riveter and so we thought that was a ‘she’s got moxie’ type of image. That’s when we landed on Moxi.

What has been the reaction to Moxi?

We’re so thrilled and surprised at how overwhelmingly positive the reaction to Moxi has been so far. Typically you’ll see robots in factories, but not in a public space, so we’re one of the first companies to put a human-size robot and have it manipulate things in a human environment. The staff at our 1st beta testing hospital, Texas Health in Dallas, just love Moxi, they even threw it a welcome party complete with cupcakes and a brand of soda called ‘Moxie’ that’s from Maine. They also awarded Moxi ‘HRO’(Honorary Coach Recognition) risk assessment award after Moxi demonstrated that it asks a person for help when there was a task it didn’t know how to complete. Their nursing team doesn’t want Moxi to leave! It’s been so satisfying to build a thing and then see it move in the world.

What has been the most surprising reaction to Moxi in a human environment?

Well, the funniest thing is we were doing a sales pitch at a children’s hospital and the nurses were like: ‘Could the robot make fart noises? The kids would absolutely love that.’ I’ve been in the field of human-robot interaction for 15 years, and I’ve never had to think if an appropriate HRI element would be fart noises. But that’s just one comedic example of how unpredictable and how out-of-the-box you have to think when creating a robot for a human environment. (The robot can, in fact, make fart noises).

You often hear about robots taking over humans’ jobs, how did you sell the idea of Moxi in the workplace?

The challenging, but exciting part with investors and with hospitals is trying to get them to see the sweet spot of what robots can and can’t do – and how those abilities can be useful now. And even more importantly with us, we’ve realized our biggest focus is reiterating what value humans bring that robots will never be able to match, such as the ability to connect with other humans and the critical analysis of human behaviors. We’ve designed Moxi with that concept in mind. Core to our mission is for the robot to be a successful member of the service team – it won’t and should never replace the human-aspect of clinical care, but it will actually give clinical staff more time for that human care by autonomously doing their non-patient facing tasks. In the hospital world they describe this as ‘performing at the top of your license,’ meaning nurses shouldn’t be doing a task that doesn’t require a nurse’s license. Nurses should be caring for patients and learning the latest developments in their field, not fetching water or taking out the trash. Across the industry, hospital administrators feel that if they could get all of their staff performing at the top of their license, they would be more effective organizations – and Moxi’s goal is to help them achieve that.

Not all of your investors have deep domain expertise in robotics, how have you still found them useful?

Our conversations with Michael have been really interesting because even though our product is a robot and not software, we’re really doing a B2B sale. Both Michael and Tom have been super helpful about what milestones to hit and what metrics to look at so we can grow into this huge B2B business and scale the sales process. Additionally, we have an investor who has worked with a robotics company before and he was very helpful when we were undecided about whether to do PR around the launch of Moxi. In robotics, a lot can go wrong with these beta pilots and there’s so much public perception with people infusing too much sci fi and overblown expectations into robots’ useability. We consulted with this investor and ultimately decided to do a PR push for our Moxi launch. Moxi isn’t working behind the scenes in an industrial warehouse somewhere, it’s working in a human environment and interacting with patients, so we thought it was important to show the public how it operates and interacts.

Diligent has an all female-founding team in the STEM field, an uncommon phenomena – how do you feel it’s helped drive your mission?

We definitely didn’t set out to be an all-female founding team, but I do think that there is a big gender difference in robotics and the STEM fields, and I think it’s hard to keep diversity top-of-mind when you’re growing fast. I’m proud that we now have 12 people and we have both women and minorities on the engineering team. So we’ve done a good job, but we’ve had really to make that a priority. I could see how if you weren’t making that a priority, you would ‘accidentally’ have no women on your team given the gender disparity in STEM educational fields. I do feel as though being an all-female founding team has also helped our business development. We’re selling to the nursing industry that is a very female-dominated field, so I think there is something to be said about these two women – Vivian and myself – coming in and selling technology made by women, for women.

What advice do you have for women that are thinking of becoming engineers or entrepreneurs?

One thing that Vivian and I are really passionate about is setting an example and showing that we’re women working on very, hard technical problems and we’re hoping that inspires women to go and get their degrees in hard, technical fields. In academia, many women don’t believe that they can succeed in these fields, I tell them: ‘Look to your left and look to your right, one of you is going to be a professor one day,’ and their reaction often is ‘Really? You think I could do it?’ They typically see only male professors, so they just need somebody to tell them they can do it. And they can.

How has your background in engineering prepared you to become a founder?

Working in an academic lab is great preparation for starting a company: you have a small team of graduate students, you have a strict budget and you have to sell yourself and your idea to find funding for your team. All of that system-building knowledge has really helped us be thoughtful about how we scale and encouraged us to think five steps ahead. Additionally, being female engineers and founders in an industry where that isn’t the norm and having our founding mission validated by investors and successful beta testing have given us a lot of confidence. Entrepreneurship is all about sticking your neck out even if you’re worried in the back of your mind, so the confidence we’ve gained has been invaluable.

What was the biggest lesson you learned when you were pitching investors?

My advice to women for entrepreneurs is to forget the standard Airbnb pitch deck. You have to sell yourself to the room first, then they will listen to the rest of your pitch. When we went on a week-long pitch-fest in the Bay Area, the first few meetings we spent the first third of our time just going over our idea for Moxi and walking them through the market opportunity. We didn’t show them the slides with our backgrounds and who we were until about halfway through. We met with a female investor and when she saw our deep domain expertise in robotics she stopped us said: ‘Oh my god, you guys need to lead with this instead.’ Maybe it’s different for women because people assume you don’t have all the credentials you have, but we decided to flip the order of the deck and led with our backgrounds and it was like night and day.

What was bad advice you received as a founder that you’re glad you ignored?

I had this complex for a long time that we had to find this business person for our founding team. Both Vivian and I are technical founders and people are always saying you need to have a technical mind and a business mind for a founding team to be successful. But, I believed that Vivian and I were the best people to sell this idea because we had been developing these types of robots for years – we weren’t going to oversell it, we knew the use case and its limitations better than anybody. In the end, people don’t need to always listen to what people think is the ‘perfect’ founding team or the ‘perfect’ way to start your company. There’s so much advice out there, but in the end every founder’s story is so different and unique. We’re lucky that we found investors who believed in our vision and that we were the right team to execute Moxi at the right time.

About Andrea Thomaz

Andrea Thomaz is CEO and Co-Founder of Diligent Robotics and recognized for her expertise and research in AI and social robotics. She was awarded Kavli fellow by the National Academy of Science, served on the US President’s Council of Advisors on Science and Technology, recognized on Popular Science‘s “Brilliant 10” list with her robot Curi appearing on the magazine’s cover and recognized on MIT Technology Review’s “The Next Generation” of Innovators Under 35 list with her robot Simon appearing on the magazine’s cover. Andrea’s passion for social robots started during her time at MIT Media Lab where she was inspired by AI industry experts and developed a keen interest for taking AI computing one step further into the real world with robots, specifically with social robots that work seamlessly with people in every day environments. She co-founded Diligent Robotics to pursue that vision of socially intelligent robots working collaboratively with people. Andrea earned her PhD from MIT and spent 15 years in academia and as a professor in AI and social robotics at UT Austin, Georgia Tech and MIT.

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E2E: Scale

Are You a Glass Eater?

By Next Coast Ventures

We often get asked what an ideal investment looks like for us. What metrics do we look at to assess a business model? What’s our sweet spot? What makes us write the check?

Listen to our co-founder Michael Smerklo’s full breakdown of what makes us write the check:

We joke that we have a highly proprietary secret formula, unique to us, that’s been developed in a lab after years of trial and error. We joke because so much of venture investing relies on going with your gut and focusing more on the people you choose to work with than on the business ideas you choose to work on.

But when we get asked about what makes our firm write a check, we reveal that our “secret formula” boils down to: Is it a big market? Is their solution disruptive? Is it a business play or sector we know about? And most importantly: is the entrepreneur a glass eater?

This is where the gut part comes in. If the business model is disruptive, the market is huge and the margins are great, none of that matters if the entrepreneur is not relentless about improving and growing the business. We spend a lot of time on entrepreneur-to-market fit, more than other firms in our opinion, and that means more than just determining if the entrepreneur well-positioned to build a great business.

“Glass · eat·er (noun): an entrepreneur that simply will not quit”

We have that term that we call a glass eater. If you’ve ever met an entrepreneur that will not quit, where he or she is committed day in and day out to building an amazing business, that’s a glass eater. It’s almost maniacal. But frankly, that’s the type of mentality you HAVE to have because the odds are so stacked against you in this business.

Just think of how many panels have you sat through where you hear CEOs talk about how “tough” it is to be a founder and the “challenges” and “difficulties” of starting a business. And those are the people who have had great success! Those are glass eaters that have reaped the benefits of swallowing all that glass and have tasted success. Imagine what it takes to keep swallowing all those hardships and sacrifices when you still haven’t gotten to that point. And to wake up every morning and it all over again.

That’s the commitment and the drive we’re looking to partner with. That’s what makes us write the check. So before you make the decision to quit your job, you have to do a gut check to make sure you’re ready for the glass-eating level of commitment entrepreneurship will ask of you.

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E2E: Scale

I Am the CEO, Why Am I Confused About How I Should Spend My Time?

How a simple 2 x 2 matrix can help you become a better entrepreneur by understanding the key differences between efficiency and effectiveness.

A recently published New York Times article talked about how our brain tricks us into doing less important tasks, shining a light on how complicated the delicate art of time management can be.

You’d think that, living in an era of technology-enabled efficiency like we do, it would be simple to manage our time. We have time management apps to handle deadlines, reminders, workflows and all the nitty gritty details of delegation. But most of these solutions are focused on EFFICIENCY (doing things right), not on EFFECTIVENESS (doing the right things).

As an entrepreneur, this problem is multiplied exponentially. How and where you spend your time is more valuable than anything you have in your control. Before you ever get to automated workflows and collaborative calendars, you first need to figure out the basics of delegation.

I struggled with this topic as a young entrepreneur and tried every trick imaginable. I found myself wasting hours on tasks someone else could do better, perhaps because I enjoyed doing them. Other tasks I mindlessly handed over to others in the spirit of delegation, even though I was uniquely qualified to complete the task myself.

Unless you are acting as a sole proprietor, the challenge of balancing time management, capital utilization and strategic priorities is a never ending tug of war. And as your business starts to grow and scale, this tug of war becomes increasingly complex. You are faced with countless things to do with limited capital, time and team members.

Michael Smerklo, Co-Founder and Managing Director of Next Coast Ventures

At some point along my entrepreneurial journey—about the time that I was about to either get fired or committed to a mental institute—one of my mentors shared with me a simple four-step process based on the Eisenhower Matrix that helped me with this never-ending dilemma of time management. In fact, this exercise became an annual obsession for me as I sought the optimal formula for entrepreneurial success – in a growth company, the CEO’s job changes almost every three to four months

Step One – Use a 2×2 matrix to figure out what you are uniquely qualified to do

First, create the following 2×2 grid, with the y-axis describing your skill (either good or bad) and the x-axis describing your passion (love or hate) and list a couple of business functions that fit in the various boxes. The key is to figure out exactly what box a particular skill should fit in.

Here are the high level definitions in a bit more detail:

  • Upper Right – I am good / I love it: What task are you, as CEO, really good at doing? Not the things you think you are good at, but rather things that you have verifiable proof that you are uniquely qualified to complete. The key here is not only to determine what you are good at, but to assess how much you enjoy this part of your job.
  • Upper Left – I am good / I hate it: What are the tasks that you are actually quite accomplished at (naturally or from prior training) but bring you no pleasure? For example, I started my career as a CPA so I was actually very good at the financial part of the business, but I dreaded the annual budgeting process. The key here is to feel okay with this box too—not one loves every aspect of the job, not even the CEO.
  • Lower Right – I suck / I love it: This is a pretty dangerous quadrant and one that is likely the hardest to have an accurate read. Do you love engaging in deep product reviews … but flunked out of CS early on in college? Do you see yourself as a natural born sales person, but have never carried a quota in your life? Look long and hard at this box — as it is really, really is an important exercise in self awareness.
  • Lower Left – I suck / I hate it: Usually this seems to be an easy box to fill out, but this quadrant can be a real trap for a lot of entrepreneurs. The key is to make sure you really do suck at the function versus just don’t enjoy it. It is really easy to confuse these two emotions (enjoyment versus proficiency). Challenge yourself to make sure you aren’t actually quite good at something you don’t enjoy or vice versa.

Step 2 – List your company’s top priorities for the next six to twelve months

This should be pretty straight forward from your budget or business plan. Think of the four to five things that if completed will really move the needle for your business. Do you need 20 paying customers in the next 12 months? Is launching the next version of your product critical to moving the business forward? Or maybe your key outcome is centered around international expansion?

As a guide, these should be the tied to key metrics that you have shared with your board or that you have decided are critical for your next round of funding. Basically, your goal here is to list the four to five things that really are “make it or break it” for your business in the next 12 months. Here is an actual list I kept on my desk as a CEO—I called them the “Things That Matter” or TTM.

Step 3 – Compare your grid with your top priorities

Next, take a quick look at your grid. Take special note of how many of the top priorities for the business fall into the upper right quadrant of your grid. Here is an image of my grid from the early days of my CEO tenure:

By reviewing this grid against your top priorities, you can quickly determine where the gaps are and make decisions as to what you will focus on personally. You can also see where some big gaps might be and these should be your immediate focus as it relates to your team.

If your top goal is to acquire 10 new customers, but you hate selling, you better have a great sales leader on your executive team. If not, get hiring ASAP! On the other hand, if “get MVP in the market” is your key goal and you just happen to have spent five years in Product Management at Google, chances are that you can drive this outcome without a big external hire.

Step 4 – Allocate your time based on the grid

One mantra I learned early on was another simple concept: It is far easier to use the skills you already possess than to acquire new ones. In short, spend your time playing to your strengths and hire a team to overcome your weaknesses. For the grid, this means spending as much of your time in the upper right quadrant (good, love) and building out a team for the other areas of the matrix.

By using this quick four step process – and comparing it to your top business priorities – you can quickly see what areas you should engage in (even temporarily) and what areas you should quickly seek help in. This is, after all, the essence of effective delegation and time management.

NOTE: This post was originally published on Richtopia.

Categories
E2E: 20/20

Blockchain is the New Social Network with Dave Hendricks

Dave Hendricks is the Founder and CEO of our portfolio company SeriesX, an Austin-based company that turns traditional assets into a security token for blockchain application. As part of our E2E: 20/20 series with our portfolio CEOs, we spoke to Dave about the hype around blockchain, its applications and their new blockchain-based platform, Vertalo.

‘Blockchain’ has become one of the hottest tech trends, did you set out to create a blockchain company?

I think a lot of the problems that you see in this new blockchain craze is that you’ve got people who come in and say: ‘Blockchain is really cool so now I’m going to find something to do with it.’ We didn’t do that – we backed into blockchain. I was rolling off of the last company I had co-founded and I was thinking about some of the problems that I saw in the years of building out a company. We started working out this one problem that started with this Series D funding round. These investors are about to sign a $25 million check and they ask for a list of everybody who had worked at the company and every document they had signed. I had cleared six diligences before this, but we almost blew up a round because we couldn’t tell a VC what documents our employees had signed. We had to repaper the entire company, it ended up costing us $1 million in dilution and it almost blew the round. So we got together and built a platform to create a ledger for companies and their associates to share and document all of this, that’s how we got to blockchain – we wanted ‘truth’ and decentralized ownership.

Dave Hendricks, Founder and CEO of SeriesX

Blockchain is pretty intricate, how complicated was it to get the business going?

In order to create a blockchain company you have to become an expert in securities law. It’s not as simple as saying: ‘Oh this is an amazing idea let’s do that on blockchain.’ Because as soon as you introduce the token, you immediately have to make considerations that you wouldn’t have to make if you were just starting a mobile-app company. The operating team required to issue a security token requires a completely different set of skills and you certainly can’t do it without a securities lawyer on staff. Luckily, one of my co-founders is a former SEC attorney and he worked with our lawyers, and one of our another advisers is an expert in patent and tax law. We spent the last six months figuring out a way for our users to actually use the product and be in compliance with securities law. So not only did we have to come up with an amazing idea for applying blockchain for normal people, we had to structure it a certain way so that users can actually use it. So we skinnied our platform down to what would work on the blockchain and ultimately created a network based on truth of work history and association.

Courtesy of SeriesX.com

Where are we in the lifespan of blockchain?

Some people think we are in 1993 in internet terms. I think we’re 2008 and Twitter or Facebook. I think that we’re not at the genesis, but we’re in the second inning. The only reason we’re not in the first inning is regulators know about this technology and took action. Your grandmother has heard of it so it’s got mainstream acceptance and awareness, with likely adoption over the next two years, but there’s still a lot of work to be done.

Your past headaches as an entrepreneur led you to your latest venture, what advice do you have for entrepreneurs given your experience?

I would say it’s never too early to think about due diligence – full stop. As a business leader, you are only as good as the people you work and associate with. If you don’t start early, you’re never going to catch up. You’re going to get so busy, especially if you’re successful, that if you don’t have your human-data hat on, whether it’s HR or investment, you’re not prepared for the luck of somebody saying they want to invest. You’re going to miss that opportunity. So it’s critically important for entrepreneurs to get their house in order, you have to have your documents straight. I think it’s also an excellent indicator when you accept $10 million bucks from somebody when you’ve shown them you know how to run a business, that’s the start of a great relationship.

Your company is focused on changing how people work, what does the future of work look like to you?

Well, our platform – called Vertalo – is allowing us to combine the qualities of a cap table with the features of a social network – it’s a certified investor relations network. Our platform uses two-sided attestation to certify the real-world work or education history of a startup or project team members so that investors, hiring managers and other parties can properly diligence the investment. It leverages the ‘trustless’ elements of the blockchain to help people work together and solve the problem of association – to help investors assess a team. It can not only prove that somebody worked for a company, but prove what the shared knowledge or shared expectation was in whatever role they had, whether it was as an advisor, investor, temp or full-time employee. As we move from the ICO era to the security token era, it will be critical to understand who is working and investing in a project. But it goes beyond that – as the world shrinks, and the concepts of the gig economy takes hold, payment and investment based on tokenization will also take hold. I think everybody in the tech investment community will be paying their associates partly in crypto by 2020. It won’t be weird, it will just be another thing that changes the way money changes hands, like Venmo.

“As a business leader, you are only as good as the people you work and associate with.”

About Dave

Dave Hendricks is a career entrepreneur and technologist at the intersection of identity and marketing. In 2016, SeriesX was founded to solve problems related to HR and Finance data. Named one of NY’s top technology innovators by Business Insider, Dave worked with his SeriesX/Vertalo cofounding partner William Baxter in 2000 at ExperianCheetahMail. Prior to founding SeriesX and Vertalo, Dave was the cofounding CFO/COO of LiveIntent, one of the top ad technology platforms in the world and the inventor of programmatic advertising in email.

Dave Hendricks

About Vertalo

Vertalo is the first networked platform that helps crypto investors, entrepreneurs and their associates to manage their ‘stakeholder communities.’ Based on an attestation framework, Vertalo helps people prove themselves by smart contracts that establish agreements related to time-bound accomplishments such as investor status, employment, investment and education history. Projects that use Vertalo can certify, communicate with, and distribute documents and tokens to community members.

Categories
E2E: ATXnology

November Dose of ATXnology

As entrepreneurs, we like to share all the content we can’t seem to put down. We send you this content in our Quarterly Dose of ATXnology newsletter, but here’s some monthly content we’re loving as well. This is what we can’t stop obsessing over this month.

Diversity and Inclusion with Erik Larson

As we continue to roll out our new original content platform: E2E, check out one of our latest posts with one of our portfolio CEOs on the effect diversity and inclusion, or lack thereof, can have on ROI.

Thank You for Being Late

Pulitzer Prize-winning author Thomas Friedman writes his “optimist’s guide to thriving in the age of accelerations,” one of the greatest books we’ve read in years. How did we get to where we are? This book seeks to explain.

Know Thyself, Know Thy Leader: Steps To Hiring A Successful Sales Leader

Our co-founder Mike Smerklo writes a piece for Forbes about his experience as a CEO trying to build a well-oiled sales team – and all the roadblocks he hit along the way.

As Silicon Valley Gets ‘Crazy,’ Midwest Beckons Tech Investors

The New York Times wrote a great article that hits on something we already knew to be true: the tech scenes in Texas and the Midwest are booming, and investors are taking note.

Why I Decided to Leave Silicon Valley for Austin

In his ‘Ask Me Anything’ on Reddit, thought leader Tim Ferriss goes through the thought-provoking reasons why he relocated to Austin, sparking a conversation among Reddit users on the trend.

Don't want to miss any of the content we're obsessing over each month?

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E2E: ATXnology

October Dose of ATXnology

Next Coast Ventures

As entrepreneurs, we like to share all the content we can’t seem to put down. We send you this content in our Quarterly Dose of ATXnology newsletter, but we’re going to start sharing some monthly content we’re loving as well. Here’s what we can’t stop obsessing over this month.

The Defiant Ones

A true portrait of what it takes to be a creative genius and a revolutionary businessman – and how it’s a result of hard work, not of genius.

Principles: Life and Work

Narrated by Ray Dalio himself, the entrepreneur shares the unconventional principles he has developed and utilized over his career to make him a successful investor – and a happy human.

On the Shoulders of Giants

The Atlantic started very powerful series on mentorship in the workplace and the crucial role it plays. We especially liked: building mentorship out of trauma and the importance of women mentoring women.

After the End of the Startup Era

Does Silicon Valley think the era of golden startups is dead? “We live in a new world now, and it favors the big, not the small,” says TechCrunch.

Don’t want to miss any of the content we’re obsessing over each month?
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E2E: Scale

Serial Entrepreneur and Next Coast Ventures Partner Zeynep Young Gives Tips on How to Succeed as an Entrepreneur

Zeynep Young is a serial entrepreneur who just became a venture capital partner with Next Coast Ventures.

In this Ideas to Invoices podcast, Young discusses what it takes to succeed as an entrepreneur and what she looks for when making an investment.

Previously, Young founded and served as CEO of Double Line Partners, an educational technology startup in Austin. And before that, she was portfolio director at the Michael & Susan Dell Foundation and an associate principal at McKinsey & Company.

Young is currently the CEO of milk + honey, a wellness and beauty company with a portfolio of day spas, salons and products in the organic, luxury market.

Alissa and Shon Bayer founded milk + honey in 2006 in Austin. The spa business has grown to five locations in Austin and Houston. Milk + honey is launching nationally, Young said. They also sell organic products like a natural deodorant online and through their stores, Young said.

After selling Double Line Partners to a private equity company, Young took a year off to spend more time with her kids and family. But she didn’t stay away for long.

“I think if you enjoy what you do it gets boring to be away from it,” Young said. “I love tech and I love spas and I love startups and I missed that. And it’s really fun to get back into business and starting talk about ideas that you’re really passionate about and working with people you really like.”

In the partner role at Next Coast Ventures, Young is looking for ideas where she can add a lot of value. The firm is built for entrepreneurs by entrepreneurs, Young said. Tom Ball and Mike Smerklo, founding partners of Next Coast Ventures, are both entrepreneurs who have built companies and taken them to an exit. Next Coast Ventures recently closed on a $85 million fund and is looking to invest in early stage entrepreneurs in the Austin area and similar tech markets.

“We look to invest in things that we really understand and have expertise in where we think we can add a lot of value beyond just the capital,” Young said.

At Double Line Partners, Young launched the company from zero dollars and grew it to $20 million in revenue from her dining room table. She spent six years as a bootstrapped entrepreneur building up the educational technology company before selling it.

Young will be looking at software, educational technology and retail startups.
Under 10 percent of venture funded companies are founded and led by women, Young said. There is opportunity there for VCs to reach untapped markets, she said.
“I think we should definitely have more women in venture capital and more women should get involved in,” she said.

That’s one thing that differentiates Next Coast Ventures. It is intentional around building diversity of experience, Young said.

Entrepreneurs pitching Young should have a customer focus. That’s the number one thing she looks for when making an investment.

“I think part of the thing I see missing in the space right now is that people who are first time entrepreneurs get very focused on raising the capital,” Young said. “And then the second thing they think about is how do I build a minimum viable product and then they start to think about the customers.”

As a bootstrapped entrepreneur, Young had to think about the customer every minute of ever single day.

“I think if that is sort of your third or fourth priority, it’s going to be very difficult to be successful,” Young said.

She doesn’t want to hear a pitch targeted to capital or how they are going to get the product done. She wants to hear about how they are going to reach customers.

What doesn’t play well with her is an entrepreneur talking about getting one percentage of a huge market. She wants to hear about specific customers.

It’s also important for an entrepreneur to understand the industry they are working in, Young said. They must have industry experience on their team, she said.

“I love innovative ideas that disrupt industries, but I think you have to know a little bit about the domain and the industry before you disrupt it,” she said.

Young also recommends that entrepreneurs work their network to find customers for their products and services as extensively as they work their network looking for capital.

And in the process, entrepreneurs will have to deal with a lot of rejection. But they should be open to the feedback from customers as well as investors.

“When you hear no, it doesn’t mean that the idea is bad,” Young said. “It’s just not for that person. Not every concept is right for every person.”

The sales process also is easier if an entrepreneur is passionate about what they are creating, Young said. But if an entrepreneur isn’t comfortable with that part of the business they need to add a team members who is, Young said.

“There’s no success without sales,” she said.

Categories
E2E: Scale

Next Coast Founders discuss fund raising (among other things)

Next Coast Ventures’ Founders Give Fundraising Advice

April 5, 2017 by Laura Lalorek

Publisher and Reporter with Silicon Hills News
Host of the Ideas to Invoices Podcast


Next Coast Ventures might be able to afford to lose $1 million on an investment, but can an entrepreneur afford to lose five to ten years of their life working on a startup that doesn’t hit it big?

That’s the kind of deep thinking unearthed in the latest Ideas to Invoices podcast featuring Mike Smerklo and Tom Ball, co-founders of Next Coast Ventures, an Austin-based Venture Capital Firm that invests in early stage companies. It just closed on a $85 million fund last month.

In the podcast, Ball and Smerklo discuss how difficult it is to build a company.

One of the things that sets them apart from other VC firms is that both Smerklo and Ball are experienced entrepreneurs who have taken a startup from idea stage to exit.

Before launching Next Coast, Smerklo ran ServiceSource and took it from a small startup to a public company with more than 3,000 employees. Ball was a general partner with Austin Ventures for a decade. But he also founded Tahoe Domains and Co-founded Openfield and Razorgator Interactive and founded eCoupons.

Next Coast Ventures looks at a lot of attributes when evaluating a business plan including team, the founder, market fit and if the founders match up to the opportunity, Ball said. They also look at the domain the business is operating in and what theme it approaches, he said.

“We look at is it a good use of our time and can we add value to the investment,” Ball said.

Entrepreneur to market fit is a key metric, Smerklo said.

“There’s great ideas and sometimes the entrepreneur isn’t well qualified to run that business,” Smerklo said. “So we spend a lot of time thinking about can he or she take this business from this concept and really drive it to the next level. Is their passion, their energy and their domain experience a good fit for the idea they are trying to bring forward.”

They also look at the risk and reward balance in the business plan, Ball said. Next Coast Ventures wants to get a ten times return on its investment, Ball said. So it looks for ideas that can provide that kind of return, he said.

The best way to pitch Next Coast Ventures is through a qualified introduction from someone they respect, Ball said. They get a lot of cold email pitches to info@NextCoastVentures.com and they try to respond to most of them, but the best way to pitch them is through someone in their network.

“There’s a vast number of ideas and opportunities we can spend our time with and unfortunately or fortunately, our job is to say no 99 percent of the time,” Smerklo said.

To make it easier to find the deals Next Coast is interested in, the firm looks at certain themes. It plans to invest in business models designed for digital natives as well as innovative companies in the education, retail, business to business and business to consumer sectors.

Next Coast Ventures has already invested in four Austin-based startups: Umuse, Dropoff, OnRamp and Phlur and one San Francisco-based startup Cloverpop and one New York-based startup Clarity Money. It has also invested in two more local startups, which it has not yet publicly announced.

Next Coast Ventures had conversations with more than 600 entrepreneurs last year. Ultimately, the firm plans to invest in 20 to 25 companies during a three to four year period, Ball said.

The number of investments any firm makes is really small compared to the number of deals it looks at, Smerklo said. That’s why entrepreneurs should cast a wide net when looking for funding, he said.

There’s a lot of variables that come into play when a VC firm says no other than the idea, Ball said. It might be the stage the fund is in or whether they have made an investment in a competitor, he said.

Next Coast Ventures doesn’t use a “Moneyball for analytics” system to evaluate entrepreneurs.

“Ninety percent of the decision is the entrepreneur,” Smerklo said.

Both Smerklo and Ball have extensive networks in Silicon Valley from time spent working there. They take entrepreneurs they invest in to Silicon Valley early on to meet with syndication venture capital partners there, Smerklo said.

“You can never start that process early enough,” he said.

The Next Coast Ventures market it invests in isn’t geographically defined, it’s “spiritually defined” Smerklo said. They look for deals in Austin, which has great ideas but not as much institutional capital that is available on the coasts, he said. They will also invest in the Midwest, Boulder, Salt Lake City and other markets that are similar in size and mentality to Austin, he said.

Both Smerklo and Ball have raised money as entrepreneurs. It’s never easy, Smerklo said. They spent a year raising $85 million from private and institutional investors for the Next Coast Ventures fund. In the end, the fund was oversubscribed. They initially planned to raise a $55 million fund. They also put their own money into the fund.

“It’s planes, trains and automobiles,” Smerklo said. “It’s being passionate about what you are doing and reaching out to every opportunity.”

The funding situation in Austin is better than it’s ever been from a competitive dynamic among the investors, Ball said. It’s very healthy versus having one big investor, he said.

“Having multiple options in a bonus,” he said.

In Austin, seed financing is better than it’s ever been ever, Ball said. There are a lot of people here who are accustomed and attuned to investing in early stage companies. And Capital Factory, Techstars, Galvanize, WeWork and others have helped to build the local technology ecosystem, he said.

Entrepreneurs who know how to sell are at a key advantage in the marketplace, Ball said.

“You have to know how to sell and get the word out about your product,” Ball said.

Next Coast Ventures also recently added Zeynep Young, founder of Double Line Partners, as a partner. She brings tremendous entrepreneurial experience as well as diversity of thought, Ball said.

For more tips on how to get VCs to back your startup, tune in to the podcast, available for download on iTunes.

Categories
E2E: Scale

How entrepreneurs can think like venture capitalists

This was originally posted on Ventureburn on Feb. 14, 2017. 

As an entrepreneur involved with two highly successful full-stack technology businesses, I spent fifteen years curiously wondering how venture capitalists make decisions. When I wasn’t focused on delivering value to customers and employees, I focused on how I could demonstrate that value to VCs in order to raise capital.

Often the process felt like it was shrouded in mystery—conjuring images of tribal gatherings, Shark Tank-like voting sessions and perhaps an Ouija board or two. Even after I secured capital with several of the best firms, I still felt like an element of luck was involved.

Now that I find myself on the other side of the table after founding my own VC firm, the mystery has been revealed. In short, I have discovered that successfully presenting your company is a skill that can be learned by understanding the venture capitalist point of view, and gaining clarity into the VC approach is different from understanding how to be an entrepreneur.

The biggest difference between an entrepreneur and a venture capitalist comes down to mindset. Entrepreneurs specifically tend to take an insider’s view of their business and then extrapolate that view to the market while venture capitalists do the opposite—take in the market landscape first. Understanding this difference is the key to securing critical capital necessary to keep dreams afloat.

The following chart illustrates what those views look like in practice:

The differences are subtle but important. Entrepreneurs that understand these framing devices can modify their approach to raising capital by crafting a compelling story that appeals to investors’ practical market sensibilities.

A winning story should address all of the following aspects:

1. Be conservative and detailed when you talk about the market you’re addressing.

Spend a significant amount of time thinking about who exactly will be your customers, making sure to differentiate between total available market, serviceable available market and serviceable obtainable market. Be accurate and realistic.

2. Give VCs a balanced view about potential competition.

Don’t just make a simple competitive landscape grid that magically depicts your business in the upper right quadrant. Instead, think deeply about current and future competitors, and show that your company has a plan to handle competitors as well as to discourage substitutes. Explain why you are winning today and why you will continue to win tomorrow.

3. Give VCs a view into the customer’s mindset.

Why are customers buying your product and how satisfied are they? What steps are you taking to maintain or increase that satisfaction? Explain to us what your average customer is thinking as they buy and use your product.

4. Help us understand how you are building your team.

We’ve already read your biographies and know about your past work experience but we are looking for more context. Be prepared to tell us why your current team is relevant to your strategy and talk openly about future executive needs.

5. Spend time on key business metrics, not just financials.

Financials are helpful, but at an early stage, money may not be the best indication of future success. Focus instead on spelling out the key unit economics that will be crucial to financial success as your business grows, such as gross margins, the cost of customer acquisition, and the lifetime value of a customer.

6. Be thoughtful about what could go wrong–both internally and externally.

My favourite question to ask is a simple one. Let’s say we are in a bar, two years from now, drowning our sorrows because this business failed … what happened? Think about external factors and internal factors. This isn’t being negative, it is being thoughtful and showing a critical mindset about how you will grow and expand your business and what obstacles you imagine you will have to overcome to do so.

7. Passion might not win the day, but it is incredibly important.

If you, as the entrepreneur, are not personally convinced that the idea you are pursuing is worth every waking moment of your professional life than you cannot expect others to get excited either. VCs are looking at both the idea and the entrepreneur’s personal commitment to making an idea a success. Do not underestimate how critical your passion, commitment and enthusiasm is to making your dream a reality.

An entrepreneur’s job is to educate potential investors

Any presentation that follows all of the above guidelines will help to close the massive information gap between an entrepreneur and a source of capital. Too often, entrepreneurs feel like venture capitalists “just don’t get it,” but this idea usually stems from the fact that no one has done a thorough job of explaining it to them. VCs’ tough questions or reticent attitudes are often just ways to push entrepreneurs to give a more comprehensive and outward-facing view.

An entrepreneur who gives potential investors what they want understands better how investors evaluate potential and assess risk. If you can show us that you understand and appreciate our interests and the VC point of view, we will be more eager to work with you to help you grow and improve your business in ways that appeal to the market.

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E2E: 20/20

Are you truly ready to be an entrepreneur?

This article was written by Tom Taulli based on an interview with Mike Smerklo and published on Forbes.com on Nov. 5, 2016.

Co-founder/CEO of Uber, Travis Kalanick, speaks onstage during ‘The Übermensch’ at the Vanity Fair New Establishment Summit at Yerba Buena Center for the Arts on Oct. 19, 2016 in San Francisco, California. (Photo by Mike Windle/Getty Images for Vanity Fair)

Being an entrepreneur may seem glamorous and exciting.  But the reality can be much different. Hey, I talk to many entrepreneurs – and I often hear words like “tough,” “challenge,” “difficulties,” and so on. And these are often from those people who have had tremendous success!

So before making the decision of becoming an entrepreneur, you really need to do a gut-chuck. Are you willing to make big-time sacrifices? Ready for lots of unpredictability?

Yes, this is all inherently personal. But it is still a good idea to get some insight from those who have been in the trenches.

And one such person is Mike Smerklo, who is the co-founder and managing director of Next Coast Ventures (his firm makes venture investments in early-stage tech companies – with a focus on megatrends). But before this, Mike was a successful entrepreneur, having founded ServiceSource, which he took public. The company was a pioneer in the cloud space and grew at a hefty 40% CAGR (compound annual growth rate) for a decade. ServiceSource also returned over $100 million to investors before even becoming public.

OK then, what are some of his takeaways when thinking about making the jump?

First of all, you need to truly understand the amount of work that is required. “Think 80-hour work weeks, a ton of stress and riding a virtual roller coaster on a daily basis,” said Mike. “Starting a business is likely the hardest job in the world – so make sure you are personally ready to take this challenge on and give it 100% commitment.”

As for his own experience with ServiceSource, Mike jokes that in the early days of chasing his dream his apartment furniture consisted of one chair, a bed and a TV in the bedroom. “The apartment was strategically placed at just under a mile from the office so I could get there as early as possible and I could walk back late at night if necessary,” said Mike.  “I was 33 and ready to take on the world. I didn’t own a car, house or dog. I worked 100 hours a week. I flew around the world on a moment’s notice.”

Kind of brutal, right? Definitely. But it is what needs to be done if you want to be a successful entrepreneur.

But then again, hard work is just one part of the puzzle. You also need to think about how to most effectively spend your time. What is the best strategy?

According to Mike: “Do you have a really great business plan or just a neat idea? Given how much risk and hard work it takes to be an entrepreneur, think long and hard about how differentiated your business plan is and make sure to stress test this with as many smart people as possible.”

You do not want feedback from those who will give you mostly happy talk. Instead, you should seek out those who are dogged skeptics (if anything, this will provide good preparation for dealing with potential customers).

For example, it would be downright suicidal to try to create a rival to Uber or Airbnb. While the market opportunities are massive, it would take huge amounts of capital to get an edge.

In other words, try to focus on those categories where there is still lots of pain points and customer dissatisfaction. It also helps if you have a background in the industry. And if not, why not work for a company in the category and gain some experience? In fact, this was critical for Mike, who worked with Marc Andreessen and Ben Horowitz at LoudCloud.

And finally, Mike recommends that you need to make sure your friends, family and mentors are really behind you as you jump into this head on. You need as much support as you can get – because there will certainly be several near-death experiences for your venture.

“You need the right mindset when heading into the wide open and turbulent seas of being an entrepreneur,” said Mike.  “There is so much written about business strategy, building a team and raising capital – all of which are critical to taking your business from idea to the next great thing. But I would assert that getting yourself ready to take the daily ups and downs of running a business, both mental and physical, is equally as important and might have more to do with your success than coming up with a better mousetrap.”