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The Entrepreneurs Radio Show 082 Brad Feld

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The Entrepreneurs Radio Show 082 Brad Feld

  1. 1. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 1 of 22 Episode #82: Brad Feld http://theentrepreneursradioshow.com/82-brad-feld-millionaire-investors-advice-growing-business/ In this episode, Travis speaks with successful business owner and dynamic investor Brad Feld. Brad's experience spans years of helping budding entrepreneurs get their business on track through angel investing. Brad has helped start hundreds of companies as well as establish his own businesses such as the Foundry Group and TechStars. His drive and determination to help other entrepreneurs establish their own business has launched first-time entrepreneurs reach the success they wouldn't have achieved if not for trustworthy investors such as Brad to help them during their startup phase. Brad and Travis shares valuable insights and gives their ideas on many topics that would make entrepreneurs re-think their ideas on many aspects of the business. Brad also shares his thoughts on the advantages of investing on brilliant and promising entrepreneurs, and doing calculated risks of investing more in order to have higher probability of gaining profits from those businesses. In addition, Brad gives his tips on things to do in order to make your business successful. These are just some of the things that entrepreneurs would benefit from in this episode of the Entrepreneur's Radio Show. Brad Feld – Rockstar investor’s advice on growing your business Travis: Hey it's Travis Lane Jenkins, welcome to episode number 82 of the Entrepreneur's Radio Show, a production of Rock Star Entrepreneur Network, where each and every episode I'm going to deconstruct the path to success for each of our guest so that you can see what they've done to become successful. Now the reason why I do this is I want you to model what other successful business people have done so that we can help you fast track your business to that next level. Now, I want you to notice how imperfect their journey is each and everytime, okay? So, don't be too hard on yourself if you get off-track, just learn the lesson and take constant action to move forward. So again, it's not always a straight, upward climb, there's many deviations along the way. So, anyways, anyways, I'm going to introduce you to rock star entrepreneur Brad Feld. Now Brad sold one of his first businesses for millions of dollars, plus he's been an early stage investor and entrepreneur since 1987. Now, I wanted to bring you this episode so that you can see how outside investors look at businesses and what his opinion is for building a successful business today. Now one
  2. 2. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 2 of 22 of the things I like about Brad and this interview is he thinks in a very different way, which encourages you to go deeper in your beliefs and your attitude on many preconceived notions that you may have had from the past. Now he's been a part of several successful start-ups, you'll hear about some of those in there, some very famous. He's also going to tell you what he believes are the most important things you should be doing to become successful. So be sure and stay with us until very end if you can because I want to share some inspiration with you, plus I've got a contest that I want to tell you about where you'll have a chance to win $73,000 that will be centered on helping you ramp your business up to the next level and find incredible levels of success, and also a chance to win a Lamborghini. So be sure and hang out with me until the very end. Before we get started I want to remind you that there's 2 ways you can take these interviews with you on the go. It's either iTunes or Stitcher. Both of them have some peculiar search bars, or I find them clucky, so what I've done is if you go to rockstarentrepreneurnetwork.com I've placed links to both of them, you'll see right there on the menu bar, it says Stitcher and iTunes, whichever one you prefer. Click on that and it'll take you straight to the show and you can subscribe to it, take it on the go with you there. So now that we've got that out of the way let's get down to business. Without further ado, welcome to the show Brad. Brad: Thanks Travis. Travis: I don't ever get to use the word ado so I thought I'd use it on you introducing you. Brad: The key thing is whether you can spell it or not, that's tough word to spell. Travis: You know, I don't think I probably could, is it ado? Do you know the proper spelling? Brad: I have no idea. Travis: Oh, I caught you. Cool, so listen man, I appreciate you taking the time out to come hang out with us. Do you mind giving us the background of how you become a successful entrepreneur and rock star? Brad: Sure. I'm 47; I started my first company when I was 19. I built it up with a partner over 7 years, we were self-funded. We sold it to a public company in the early 90's, 1993, and I spent the next couple of years working with that public company, being involved in a lot of the m&a activity they did, and making a bunch of angel investments with some of the money that I made from selling my first company. So I made about 40 angel investments between 1994 and '96. And then stumbled into
  3. 3. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 3 of 22 becoming a partner and a co-founder of a venture fund in 1997, and I've been doing venture capital ever since. Travis: So, your very first business, you took it to a level that was valuable enough to sell in 7 years? Brad: Yeah, we started it in 1987. Actually, I started doing consulting under the name of the business in 1985; I had a partner join me in '87. And that's when I really think about the beginning of the business. And it was a self-funded company, we had 10 bucks wholly invested in the company, adventure as a stock, and we never raised any money, we were profitable almost from inception. The first couple of months we lost money and then realized we didn't have any money to lose so we had to make money every month. Travis: Right. Brad: And we grew initially pretty slowly, it took us 18 months before we hired our first employee, and so it was 3 of us instead of just 2 of us. But then, over the next couple of years we grew a pretty steady clip, and ultimately when we sold the business it was doing a couple of million dollars a year in revenue and was very profitable because we organize it around being a very profitable business. Travis: What was the name of the company and what were you doing? Brad: It was a very creatively named company; it was named Feld Technologies which is named after my dad, made him very proud. Travis: Okay. Brad: And we were a software consulting company, so in the late 1980's PC's were just starting to become popular as business computers that were being used sort of pervasively throughout companies versus many computer or mainframe. And writing software for them was very difficult so there is a group of us, a partner and myself, and obviously the people that joined us that wrote business applications for small-medium sized companies typically. But we used traditional computer science approach to it. So we had a motto that was "We suck less" because it was very, very, very hard to do what we did at that point in time. And many of the companies that were our clients had already had 1 or 2 or 3 other firms try to do this for them, and typically not been successful at it. So our approach was just suck less than the last guy. Travis: Suck a little less or a lot less?
  4. 4. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 4 of 22 Brad: Well, often a lot less. So it was tongue and cheek but it was harder setting the expectations around how difficult it was to build a high quality software that you could actually run your business on in the late 80's. Travis: Well, you know something about the software business and I hate to admit this but it took me 18 years to come to this realization that you made early on. So my mistake is so I've built several business and my first businesses always had a bottle neck issue on supply side, right? And so, I built several multi-million dollar businesses but scaling them-- If I took on a hundred new customers tomorrow it'd be a problem because we couldn't get the teams in place, we couldn't provide the work, right? Whereas the business model that you're talking about, you could take on a thousand new customers tomorrow and scale very easily and not have any supply side bottle neck issues, right? Brad: Well, it varies based on the business. In my first business there were definitely constraints and all the constraints were around how many people we had. And lots of the different companies that I'm an investor today, many of which are product companies, it was a whole different set of constraints. And some pure software companies, well, there might not be production constraints; there are a different category of constraints. And at some of the companies we invest in like fit better, actually you make hardware product and there's huge amount of constraints in the supply chain around those companies especially as they grow quicker. Travis: Well, so the software company, I guess if it's a consulting then obviously it still has some supply side issues. But from some of the people that I see scaling businesses with high margins today and even in the past where people that develop a software and then just sold it to a large number of people, right? Brad: Yeah, but I don't think that that means that they aren't getting any constraints, I think the constraints just are different in the context of what leverage you have and what rate of growth you can have, right? So, even a very high margin software business, where theoretically distribution cost are extremely low. As you start to scale up that business today, whether you're a software service or consumer web service, you have real cost associated with scale, and engineering, and the way that you've actually built your system, has a big impact on that. Travis: Right. Brad: Your ability as the user-base gets bigger and you have more and more customers to innovate and create new features definitely has a set of constraints associated with it, which include how you've architected this system, the people that you have on the team, as well as your ability to manage the
  5. 5. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 5 of 22 velocity or change within the whatever network that you're in. So I don't think that the constraints ever disappear, certainly a high margin business is a much more attractive business to be in than a low margin business. But you can build very, very successful low margin businesses. Amazon is a great example of that, extremely low margin business, extraordinarily successful company. Travis: Well, has Amazon reached profitability yet? Brad: Amazon has had quarters that they're profitable. They've had some quarters where they had generated significant cash flow, but they're very deliberately non-profitable not because of margin characteristics but because of the investments and growth. So if you look at Amazon and you look at their actual numbers, and decompose what they're spending their cash on, much of their cash is spent on what in the industrial age might have been thought of as property planning equipment. So they're building additional capacity to continue to expand their business through investing the profits back in the company to continue to generate growth. Brad: So, the reason that Amazon is valued at a very significant rate is because people are valuing their future cash flows, not their current cash flows. And anybody who knows finance theory knows that theoretically at least, the current value of a company is the sum of its discounted future cash flows. Travis: Yeah. Brad: So if you look at Amazon, Amazon's goal now is to grow 0% year over year, no growth. That company could generate a substantial amount of cash. Travis: Yeah, they've become the 800-pound gorilla and dominating markets. They're a source that I use for a lot of different things these days, so yeah, I completely agree with you. Now, explain to me, how do you take a business that you built to a level that you could sell after 7 years, and then you're able to invest in 40 different businesses? Explain it to me how that happens, how that unfolded for you. Brad: Sure. So, I sold my first company and made a couple of million bucks and I turned around, and while I was working for the company that acquired mine, started making angel investments or seed investments in a bunch of other start-ups. Again, the time frame was '94 to '96 so there was a lot of stuff starting around the commercial internet and the investments that I would make were typically a $25,000 investment, sometimes $50,000. And I would often be part of a syndicate where I would invest $25,000 or $50,000 and then some friends of mine or other people that knew me, the guys that bought my first company, and sometimes my dad would invest anywhere from a quarter of a million dollars to sometimes three quarters of a million, or a million dollars in the first round or the seed round of the
  6. 6. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 6 of 22 company. Often times, not for all those 40 companies but probably 10 of them. I was actively involved as a board member, a couple of them I was a co-founder of so the idea was one that I had come up with, or one that I helped the founders come up with. But then a bunch of them were ones where I just wrote a check and helped whenever they called. Travis: And so, what's a success rate looked like, say, 1 out of 10, 2 out of 10, 3 out of 10, what's your success rate with angel investing? Brad: Yeah. So I like to think of it differently than what number of companies weren’t successful, because really, to be a successful angel investor-- I'll give you the math very simply, all you need is one really significant success to cover all the other investments that you made. So as an angel investor I've made those 40 investments and in another chunk of time in the mid-2000's where I made some angel investments. And all in all I probably made about a hundred angel investments since 1994. And I made roughly the same amount of investment in every company. If you sort of averaged across all those company, it was probably a $50,000 investment. And really, all you need out of those hundred companies is one company to be a hundred times your money and you've broken even, and then anything else is upside. And I've had now 3 companies that had a return that was more than hundred times my investment. So before I even look at the other 97 companies I've got a return of across my entire investment of at least 3 times my money. So in some ways it doesn't matter whether 1 out of 10 is successful, or 5 out of 10 is successful. The other is if you look at the actual time frame it's hard to judge, right? I had several companies that were overnight successes that took 15 years. So, if you look at the investments that I made in 2006 there's lots of them that are still going, there's some that have failed. But if history is a guide, one or two are the ones investments that I made in 2006 and 2007, and 2016, or 2017 might be starting to come into their own. So the ratio is not the driver. The thing I do tell people who want to engage angel investments is make a lot of them, be promiscuous. The mistake I think a lot of people make when they start making angel investments is they make far too few investments of far too much per investment. And so, they're banking on being right at the very early stages of a very few number of companies. And that's a much lower probability of success. Travis: Right. How do you get a level of comfort that none of the books are being manipulated? Do you just figure that as part of the risk when you're investing in say, 10 different businesses-- I'll just leave it there, how do you get pass that concern or is that a concern at all? Brad: That's not really a concern. When I make an investment I do some work to make sure that the people are honest and ethical, and that they have a good reputation. That's pretty easy to ascertain with a little bit of work. A lot of times it's first time entrepreneurs, some not always, sometimes it's multi- time entrepreneurs, the reputation is easily discerned. These are very young companies, and so the
  7. 7. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 7 of 22 manipulation of the books at a very young company stage is kind of meaningless, right? If a company raises a million dollars, it kind of basically has one of two things it can do, it can either spend that million dollars wisely or not. And there's not a lot of revenue and cash flow that the founders could be taking out to try to manipulate what's going on in the context of everybody else. I'm sure that that happens every now and then. But I think as an investor making a small investment in a company I'm willing to take that risk by doing my work upfront. And then as these companies grow and they tend to raise more money, they have venture investors. Those venture investors tend to have board seats. When I'm a venture investor in a company I tend to have a board seat, those companies tend to have an annual audit. There's controls that are put in place to make sure that there's no bad behavior. But in my experience over many, many investments, the number of times that I've run into something that I would consider to be even on the margin is very low. Travis: And so, there's no concern, you know, a flag would go up for me investing in a first time entrepreneur because there's such a dramatic learning curve in getting a business up into profitability. The failure rate of businesses is 96%. Brad: Yeah, so I have a totally different view. Some of my best investments have been in first time entrepreneurs. And some of other great investments have been in entrepreneurs that have been involved in multiple companies. So I don't have any concern about it if I look at examples of even investments I made as a relatively rookie investor in 1994 and '95. They included companies like Harmonix which were two guys, Eran Egozy and Alex Rigopulos who created a company that ultimately, in 2005 launched a product called Guitar Hero which became super successful. But between 1994 and 2005. They had 10 years where they worked really, really hardest as first time entrepreneurs building a business. Another example would be a guy name Raj Bhargava who I've now probably done 8 companies with. And the first one we did, Raj he just graduated from college when he was 21 and had 3 partners who are all just graduated from college as well. That company ended up becoming a successful company, they ultimately gone public. So I think having a bias against the first time entrepreneurs, I think you should have a positive bias towards people you think who are extraordinary. So rather than filter on has this person done something before, had the experience or been successful, you should filter on whether or not you think they're extraordinary. Travis: Yeah, well that definitely makes sense, and I'm all for entrepreneurs. I think the more entrepreneurs we have the better off we are. I think that virtually all the problems we have in society today could be solved by entrepreneurs in one way or the other. I guess from a financing or a funding standpoint I view my money as a baby and I want someone with some experience babysitting my child. But your point to focus on someone that's brilliant and committed definitely makes sense. And I guess if
  8. 8. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 8 of 22 you have a high level of confidence in that person then a lot of those other preconceived notions that I have about this probably just fade into the background and become a non-issue, right? Brad: Well, it's your own strategy, right? If you're uncomfortable with investing first time entrepreneurs then you shouldn't, and don't spend any time with them. And there will be lots and lots of examples of very successful companies that by definition pass on because you're not comfortable investing in a first-time entrepreneur. That's a perfectly valid strategy, I'm not suggesting it's not a good strategy it's just I don't share that bias. Travis: No, I understand, and really I'm kind of thinking it out as we're talking here because I haven't gone down this avenue very much. And given it any thought to the level that you have. And as I'm listening to you I'm going back to situations to where I've been at events where I've met really intelligent, brilliant people that they're in a first time business. And I'm thinking to myself if this guy just had these couple of elements here, I bet he would be a big-time success. And really, they get that when they get investors like you and other people coming on-board and helping more than just with the money but some of the, I guess metrics of ramping that business up. Is that a fair statement? Brad: Sure, I think angel investors as well as venture investors can be very, very helpful to an entrepreneur. I co-founded a program called Techstars in 2006 and the whole goal of Techstars is to give entrepreneurs a little bit of money but then surround them with very active and very intense mentorship, where mentorship comes from experienced entrepreneurs. And a lot of entrepreneurs that go through Techstars are first time entrepreneurs, some are experienced entrepreneurs. But then that mentorship and the ability for them to work with other experienced entrepreneurs is a very powerful outlet. Travis: Yeah, it's kind of like if you're a pitcher, if you get in and throw the ball with a professional pitcher your game goes up very quickly. And it's just getting in there and working around people that have this level of skill set and wisdom, and experience. Where did you get this level of business acumen? Was it to have a level of confidence that you wanted to invest in other businesses and did I hear you right, were you mentoring or helping some of those businesses that you invested in also during that period? Brad: Yeah. I had a lot of good mentors early on; the 2 guys that bought my first company were extremely helpful to me. A few of our clients were very helpful to me as business mentors because they ran their own successful businesses so I learned from them. I think I would attribute the question of where did I get the experience or whatever was by doing. I made my first angel investment in 1994, I didn't have a clue what I was doing I just did it. And found some other smart people to work with that
  9. 9. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 9 of 22 either had some experience making angel investments or who are interested in going on a journey to do some. One of them, a guy named Will Herman and I, actually our very first investment was the Net Genesis together. Will has gone on to do 40, 50, 60 angel investments over the years. And he had a bit on some works together. So I'm just a big believer in just doing, and that's how you learn. Some things work and some things don't work and it's okay when something doesn't work. Failure is a part of entrepreneurship and it's a part of creating a company, and accepting that that's part of the process. If you're not able to accept that, if you're not able to deal with that evolutionally then you're going to have a tough time. I think that doing is the key. Travis: Right, yeah. Well, that's definitely where a high level of confidence comes from. And it sounds like there's a piece missing here. I sense that you have a very low aversion to risk. Brad: Yeah, I think that aversion to risk and the whole notion of people's risk tolerance is one that is very hard for most human beings to actually part because it means very different things to different people, right? What are you willing to risk, are you risking time, are you risking money, are you risking reputation, right? And so for example I have a very low willingness to risk reputation. I feel like reputation's very important, my behavior I think is very consistent. And so if I get involved in something or I'm offered something to be involved in and I think as reputational risk associated with it because of the other people involved, because of what it is then that's not interesting to me. From a financial perspective, there are certain places where I have a very high risk tolerance. For example, I'm happy to write 25, 50, 100,000 dollar checks into early staged start-ups all day long. But I hate to play cards in Vegas and I'm just not interested in sitting at the blackjack table. So what's my risk tolerance there, right? So I don't think it's as simple as this person is risk averse or risk tolerant, I think you have to start to think about it in terms of the different dimensions. Another example of that is I'm willing to invest my time randomly and stuff in half hour to hour talks, right? I don't know you, you wanted to have a chat, I'm perfectly happy to spend a little bit of time with you and if it's helpful to you that's great, and if it turns into something interesting, awesome. But I'm willing to invest that, I'll risk half an hour, an hour of my time on a regular basis. But if I don't feel like it's something that's enjoyable to me then I don't want to spend the time on it. Travis: Yeah, and I think everything can become a paradox in one way or the other. When I say you don't have an aversion to risk, I think a lot of people seek a level of comfort to where they're familiar with everything, the environment, what they're doing, and how they're going at things. Whereas I've found for myself, I like change, I'm comfortable with change. And I've found that a lot of successful people that I've spoke to are comfortable in a state of change. Also, we're comfortable in a state of not knowing what's supposed to happen next. Is that some of the things that describe you also?
  10. 10. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 10 of 22 Brad: Yeah. I would say not just describing but I think it's a truism, like people who want things to be constant and static, creating a fantasy that's not sustainable. By definition, being a human being is one where there's going to be change and some of it's going to be positive, and some it's going to be negative, some of it's going to be stuff you can impact, and some of it's going to be stuff you can't, right? There's a great cliché which is "Life is a fatal disease" we all die. So if your goal is I want to keep things exactly how they are right now, that's a fantasy, and I think it's a very difficult, emotional place to be. On the other hand you have people who not just look for change but they can't function in the absence of change. So you definitely have cases where people are constantly in the place where they're trying to do stuff, or something's working fine and they change it, just change it. And you see this with a lot of human socially, right? You're in a relationship and the self-sabotage around the relationship or the relationships going well but you do something outside the context of the relationship, maybe with somebody else and develop a relationship with somebody else just because you want the excitement of the change or the difference. I think in a business context there is no constant. The macro is not constant, the world we live in is not constant, the way business works is changing, the technology is changing. When you hire a person, you don't get to hire them for life. And when you get hired or you co-found a company, it's not necessarily for life. And so this sort endless evolution and change is just part of the principle of it. And in places where there's a log of innovation, you tend to see even more rapid degrees of change. Travis: Yeah, and I experience that personally, and one of the biggest lessons I ever learned is I'd built a business to some pretty epic levels, many, many millions of dollars. And I've become so accustomed with the way that we acquire clients and the way that we did things that we quit evolving. And we really didn't pay the price for that for 3 or 4 years until it caught up to us, and I still didn't realize what was happening. And so I basically didn't stay up with the maturation cycle of the business, and marketing, and everything else that was going on. And before I realize what was happening it was too late. And of course I lost everything and I had to start all over. Now for me that was an eye opening event that taught me an incredible amount of things, and it's a great example of getting out there and doing. But because I had found something that was super successful, I just thought, "Okay, I'm going to continue to do it this way.” And I think that's a common problem with a lot of businesses is they become very set in their ways with how they acquire clients, how they offer their services or goods, so on and so forth. Brad: Yup, agreed. Travis: So, the business acumen is just something that you acquired over time through getting in there and being involved with these businesses, and doing one deal after another. What are the top 5 things that you find tend to make a business regardless of whatever industry it is, what are the top 5 things that you feel like normally make a business successful?
  11. 11. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 11 of 22 Brad: I don't have a constant 5 things, I'll give you a couple of things that I think are key drivers. The first is I think the founders, especially very early in the life of the company you have to be obsessed with whatever their product is. It's not passionate, the word passion is not right here, it's this sort of deep obsession to build something, whatever it is that is uniquely great. I think another is the entrepreneurs who recognize their weaknesses as well as their strengths, and work really, really hard early in the life of the company, and then continually throughout the growth of the company, to add people to the team. The help sort of at the senior level fill in lots of the gaps, build a more diverse team, but then also allows them to be growing themselves. And then the last is I think is sort of truism, but you see it over and over again. It's to recognize how important it is to have a long term view of what you're trying to do and recognize that there's lots of ups and downs along the way. I think a lot of entrepreneurs especially early on are looking for very rapid success where you have stars in your eyes because of the story that you read about, the overnight success. And in practice, the normal, generative curve of a business often takes a long time. It's your willingness to play a long game rather than be obsessed with how to re-do yesterday, last week, last month. Travis: Okay. So I'm writing these down because I want to go back over them. So the number 1 thing off the top of your head is the founder needs to be obsessed. Now I agree with that. What does a business need to be obsessed? I ask myself these questions and I think deep on these topics. I feel like there's a formula to success and I've used that formula in building several multi-million dollar businesses myself. But why do you feel like they need to be obsessed, why is that? Brad: So just before I answer I'll challenge. I don't feel like there's a formula, I've been involved in lots and lots of different types of companies that have followed lots of different paths to both success and failure. I think there are characteristics that help you be successful. But I think it's a mistake for an entrepreneur to think, if I do these 5 things and my business will be successful, because there's so many things that cause you to be not successful regardless of those 5. Separately, this notion of obsession, it's really hard to start a business, I mean it's just hard. And it takes just incredible amount of fortitude; it takes incredible amount of focus. It is wrought with lots of twists, and turns, and failure, things that you don't expect, and stuff that come out of right field. In my world as an investor, I like to say that every single day-- I'm on the boards of about a dozen companies or so. Every day, a new thing that I don't expect comes out of left field and is totally fucked up. And it's something new every day. And when you get to 4 o'clock in the afternoon and I haven't discovered that new thing then I kind of start to look forward to finding out what it's going to be. And they're just different all the time. And so this notion that there's a path and you just have to execute on the path, and if you do these things, things will be good. I just don't agree with, that's not my experience. And so, the obsession is around the product, right? It's not the company has to be obsessive, it's the entrepreneurs have to be obsessed about their product. They have to care so much about the product their creating that they're willing to walk through
  12. 12. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 12 of 22 walls to get the product to work, to get their product into customer hands, to hear the feedback and improve it, to deal with competition, to continue to just grind, and grind, and grind away and all of the stuff that gets in their on the path to being successful. Travis: Yeah, agree with you. So let's revisit, you say there's not a formula. Now, I want to be clear and again, it seems like there's a paradox to everything. There's not a simple formula that I can say, "Brad, take this, go apply it to your business and prosper." It just doesn't work that way. But there are several elements, best practices that are formulaic that can be applied and then dialed in that are relevant to your customer, to your services, to your offering. And most business owners and I speak with a lot of business owners. Most business owners are lacking the data and the metrics to know what is or is not working and then make refinements. And so, whether that's tracking their leads sources, tracking their closing rate, tracking their advertising, up sells, down sells, cross-sells, automation. There's so many different components of businesses that a lot of business owners just don't know what they don't know. And they need to be taught several of these formulas, you know, how to package things and triple the average contract amount. A lot of small businesses don't know how to do stuff like that. And all of those come in the form of a formula. Does that make more sense to you now? Brad: Yeah, I suppose, but my challenge would be across a hundred businesses that have some similar characteristics. If you measure one of the metrics you're talking about, say up sell, measuring it is nice but it's kind of meaningless because it's what we do with that measurement and what behavior does that cause you to change. And if you looked at across a hundred businesses that are again, similar in nature but different customer, different product, different context, the things you might do, the formula per se might be different from company to company. So, it may be semantics around the word formula, I think there's an enormous number of things that people who are entrepreneurs, or any companies can learn and there's an enormous amount of stuff that you can apply to your business, some quantitative, some qualitative. I also think it changes over time. I think there's high level approaches, but if you go back in time and technology world 30 years ago, the idea of customer development, lean startup, etc., were not concepts that were widely popularized today. But not just widely popularized, they're widely understood, they're easily excessive. It doesn't mean that the only way to build the technology of business is to use a lean startup methodology, but it's a powerful approach. And if all you do is take Eric Ries' book Lean Startup and read it, and say, "Okay, now I know what to do. Now, I'm going to just go do this", you'd probably have no idea what to do in the context of it because you didn't actually understand the techniques, you just had a higher level of conceptual rule. That's true, across everything we do as humans. You hear it all the time, the new methodology of the day whether you're at a big company or a small company that's going to be the way that-- In the 1970's it was all about going for-- 1980's going from centralized organizations to decentralized organizations. And then in the 1990's it was about re-centralize and getting economies a scale, and then in the 2000's
  13. 13. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 13 of 22 it was all about building centralized, decentralized company. Come on, like it's just a methodology, it doesn't actually help you as an entrepreneur until you get into the practice of the Finger Trap. Travis: And you know, I completely understand. I like the fact that you think from a different angle, and that you see white where there's black or where I may see black. And that's what makes a conversation interesting in different points of view. For me, coming from businesses that provide some type of service, these metrics are consistent across all of those businesses that I've been involved. Now there are some industries that I've seen that they don't apply. Maybe manufacturing or-- There's several different industries. Brad: I think we're talking past each other. I agree that metrics are relatively consistent. It's not the metric; it's what you do with the metric, right? So pick business A and you decide that in business A your net promoter score should be higher than 80% for that type of business. And your net promoter score is 70%. What action do you take? I would tell you that I don't think that there is a formulaic response to that. Travis: Okay. Brad: I think if you have a net promoter score 70% and you believe you should be 80% is an indicator. If you have churn, you have some kind of services, business with recurring revenue, and you have churn. If your churn is 1% a month, that's probably a comfortable place to be, 12% on an annualized basis. If your churn is 5% a month, it's not at all comfortable because it means that 60% of your customers are going away in less than a year. And the action that you would take, it might be because your product is shady, it might be because your price is too high, it might be because you have competitive threat coming from a someone you don't expect, it might be that you don't have enough reason for your customers to stay with you. There could be something around, a friction a renewal, like the customer has to renew. So there's a long list of things that might be driving that high churn rate and I think you'd be hard pressed if somebody said to you, "I have a churn rate of 60%", in most cases you say that's awful. And if somebody else that have a churn rate of 10% on an annual basis, most cases you say, "Oh, that's okay." There might be cases where churn rate is 60% makes sense. For example, let's say that you're measuring churn based on a 90-day trial subscriptions, and you're including all of those 90-day trial subscriptions in your churn rate. And only 25% of your trial subscriptions convert. I've seen these problems well and so you churn rate seems incredibly high but in fact your churn rate should only be measured on the people after that 90 days has passed. So as long as the person gets through the first 90 days the churn rates, let's say 10% annuals. And so then you could focus on, "Okay, I need to figure out a way in that 90 days, either to have people come out of the 90 days and stick, or I have a higher qualified people come into the front of the funnel." So again, I think I would
  14. 14. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 14 of 22 encourage the broad construct to be not that there's a formulaic way to do it, "if you do A, B, C, and D you'll be good." Except there's a whole bunch of this stuff and understanding this stuff in the context of doubling a successful and scale business is important. And constantly be looking for and trying to understand the root cause of what's actually happened. Travis: Yeah, I think what you're saying that the vernacular that you're using is another language to most business owners. And they really don't start understanding churn rates and net promoter scores, and all these other things until they get to a certain level, have you found that to be true? Brad: Yes and no. If you don't have a product in the market none of that stuff matters, but once you have a product at the market that stuff starts-- And I just picked 2 random metrics out of hundreds. Travis: Right. Brad: So, I could have that same argument with-- Give me the metrics that you think an entrepreneur to be getting their process is thinking about and I can probably make a same kind of case for it. Travis: Right. It's less about debating you on those 2 topics there and more about getting the fundamentals in place for a business, and getting them on the rails of consistency, and then taking them to that next level. I completely understand, I've seen people measure a ton of things and do nothing with it, right? They know this and that stat but they're not doing anything with it, they're not making any change which is crazy right? Brad: Even worse, measure a bunch of stuff and make the wrong decisions as a result of the measurements. Travis: Right. Brad: You reach the wrong conclusions because you interpret the data incorrectly. Somebody who's doing nothing is better than doing something the wrong way because you don't understand what you're looking. Travis: And so, I think all of that stems from not having a good fundamental understanding of getting the business to a certain level. And then it's those next advanced things, whatever the words are, and there's a lot of things-- A lot of people I've spoke with in or around the startup community, which is not a large number of people, but the people that I have spoke with have that same vernacular and seem to be much more well-heeled on those terms and vocabularies. And I'm not sure why that is but I believe
  15. 15. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 15 of 22 that the majority of small businesses that are struggling have this pendulum effect of making some money one month and giving it back the next month. Their lacking all of the key, fundamental things, the foundational things that drive a business, get it on the rails, and get it predictable, and running in the right direction on a regular basis. Does that make sense? Brad: Sure. Travis: And then number 2 was recognize weaknesses and strengths. And I like to reinforce these things because they're definitely important things to talk about for entrepreneurs and everybody that listens to the show is a business owner. And so you said recognize your weaknesses and continue to add people that overcome those weaknesses. Go deeper on that again with me. Brad: The strength of a great entrepreneur is to build an amazing team, right? If you're a great entrepreneur and you don't build an amazing team then your ability to scale the business is significantly inhibited. And one of the ways to understand especially early on who you need on the team and what the characteristics and skills of those people are is to look for things that complement you, and look for things that help augment your weaknesses. And there's a pretty classical 2 by 2 chart of culture versus competence. And I think a lot of entrepreneurs over-optimize competence and they'll pick a highly- competent person that has very low culture fit with the existing business, and that's a huge mistake. My view is especially in a young company, you just can't have anybody on the team that doesn't fit and be excellent in terms of the fit on both competence and culture. And so, you're constantly looking for people who are going to fit within the business that you're creating, have competence that addresses needs of the business at whatever point in time, but then also have cultural fit, cultural alignment with the type of company you're trying to create. That's a big part of the job of a CEO and of a founder of a company. Travis: Is to make sure that the people on the team fit within the culture, have the competence and fit within the culture of the business? Brad: Yup. Travis: Interesting. I'm reflecting back on my personal experience. And I've made these mistakes as I've built businesses and I've even been guilty of somehow, unwittingly, surrounding myself with yes men that I end up with an inaccurate feel of what's really going on and where our weaknesses are. Does that make sense? Brad: Yup.
  16. 16. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 16 of 22 Travis: And ultimately the failure of my first business all lies with me. But when you're surrounded by people-- So much of what you're saying resonates with me, but when you're surrounded by people that keep you shielded from the reality of what's going on its very easy-- I don't know if you've ever been in this situation. It's very easy to become disoriented and not really get what is or isn't happening. Has that ever happened with you? Travis: It has. Brad: Oh sure. Travis: Okay. And then, so your number 3 was recognize that you're in a long term game. Go deeper on that, give me a little more of that thought process. Brad: Creating a business takes a long time, and I think people that are starting off on companies and have this idea that they're going to be successful in 1, or 2, or 3 years are setting themselves up to be very frustrated. Most of the businesses I've been involved in were successful. Occasionally I've had few that were successful in the first couple of years but many of them are plugging away, entrepreneurs are working as hard as they've ever worked 5, 10, 15 years later. And there are plenty of cases of companies that operate as businesses for a long period of time but never really end up generating economic wealth for the founders. And then there's other companies that in a very short period of time have some successful outcome or have a failure. So I think that frame of reference as an entrepreneur you should have is that it's going to take a long time to build a successful business versus, "Okay, I'm going to do this for a couple of years, make some bucks, and then I can go do whatever I want with my life." Travis: Yeah. One of the traits that you explained earlier about being a hard-driving focused on just being obsessed. That's one of my traits, and that's been one of my traits in all my businesses, that's who I am. And it's easy to get lost, it's a strength of mine but it's also a weakness of mine because I'm so dang focused on being driven that I miss 80% of everything else that's going on. So it's my Achilles heel at the same time. Do you struggle with that at all? Brad: Maybe a little. I'm not sure I totally get it. Again, you're playing it over-- It's a dynamic system so you can't control for all the pieces. So I'm not sure it feels like an Achilles heel, it feels like just part of your personality and part of the characteristics of how you approach things, and that's totally cool. Travis: Well, I mean, family and everybody else, they're like jeez, come on. From everyone else's perspective, I'm too driven, right? And I want to be a good husband, I want to be a good friend, I want
  17. 17. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 17 of 22 to be a good father, I want to be all those things. But when you're as aggressive, I'm very aggressive and very driven that a lot of times I can't be there for those events that everybody would like for you to be in. And I just think that's part of being in the game of being an entrepreneur and being passionate, because it requires you jumping into it first thing in the morning, working late into the evenings, and working 7 days a week for years on end. And maybe, occasionally getting frustrated with it, but just being okay with it, right? Brad: I'll give you some advice. I wrote a book with my wife Amy Batchelor called Startup Life, and the subtitle is Surviving and Thriving in a Relationship with an Entrepreneur. Amy and I have been together 22 years; we almost split up a dozen years ago. And we almost split it up not because we weren't in love with each other and we didn't want to be together but because she was just tired of essentially feeling like she was less important than whatever else was going on in my work world. Travis: Right. Brad: And in the book we talk a lot about both tools and techniques for dealing with that in the context of an entrepreneurial relationship. But there's one really important thing that I believe very strongly in and I'll play it back to you based on the words that you said. You said great, "I want to be a great father, I want to be a great husband" dadada, but-- And in a relationship especially with entrepreneur, it's incredibly important for the entrepreneur to have his or her words match his or her actions. So here's what I was doing, I was saying to Amy, my wife, you're the most important person to me, you're the most important thing in my life, you're more important than anything else. And then we'd be at dinner together having an intimate dinner and my phone rang and I answer my phone. Or she'll be talking to me about something and I pull out my, it was a Palm Pilot back then. Probably I pull up my Palm Pilot and I'd scribble a note on it. Or it would be a Saturday afternoon when we plan to do something together and at the last minute I'd take a call from somebody and gone on to meet him. So my words and my actions didn't sync up. And as an entrepreneur if I had said to Amy, "You're the second most important thing in my life, my business is more important than you and as you're comfortable being the second most important thing in my life we'll be good", she might or might not have wanted to be involved with me. But when I told her she was the most important thing in my life my actions had to back that up. And it wasn't that no matter what was going on she had to be the thing that I was spending time with, but one of the rules for example, whenever she calls I always answer. So if she called me right now I'd answer the phone. If I was talking a thousand people giving a talk and she called, I'd answer the phone. Another thing we do is for example we don't have a TV in bedroom, very deliberate. So then when we're together in bed, we're together in bed. Our first night of every month we go out to dinner, it's not date night it's dinner we call Wife Dinner which gives us a chance once every 30 days to sit down, just the two of us, have a quiet meal, give each other gifts and talk about what's
  18. 18. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 18 of 22 going on. So my advice would be to an entrepreneur is to listen to your loved ones and make sure that you're having your words back up your action. And you say you want to be a great dad and you never show up an event for 3 years, your kid is not going to remember that you said you wanted to be a great dad, your kid is going to remember that you didn't show up at an event for 3 years. Travis: Right. Brad: That's under your control even as intense as the entrepreneur world is. Oh by the way, it's even more under your control in 2013 than it was in 1954 because of the technology that we have and the ability to stay connected, and the ability to work in different contexts. Travis: Right. That completely makes sense. So you guys sit down and just came up with a set of concessions, agreed on those concessions and then stuck by them. Brad: They weren't concessions. It's interesting language, and I think concessions is a powerful word. I describe them to Amy as rules. So I said, "I'm an engineer, my brain is an engineer's brain, and I'm a guy so give me some rules." And her reaction to that when I said that was, "That's not romantic, I don't want to give you any rules. I just want you to know what I want." And my response to that was, "That's not been working for the last 10 years. So instead, you change your view and just give me some rules. Wouldn't it be good to give me rules that you can enforce on me, like I have to follow the rules." And she about it for the minute and she's like, "Yeah, actually that's kind of cool." It doesn't have to be romantic that you have rules, like what it'll be romantic is the fact that we have a better relationship. But the fact that I can say these are the rules and you have to follow them that kind of feels good to me. And the rules that she put out were certainly reasonable, some are more aggressive than others. One of them was she said, "I want to go on a vacation once a quarter for a week, no phone, no email. So every 4 times a year I want us to go on a week away with no phone, no email." Because I'm working 80, 90 hours a week, I work on the weekends; I'm working at night, and not taking that much vacation anyway. And I said, "Oh my god, 4 weeks of vacation a year, I don't know if I could even do that let alone not be connected for a whole week. Oh my god, the whole week not being connected, the world will end." And of course the world didn't end and 12 years later we go away for a week off the grid every quarter and it's magnificent. But I said, "But I'm going to screw up every now and then so it has to be okay that every now and then I screw up." So we decided that 1 out of 8 times I can screw up. We call it the 12 and a half percent. So 1 out of 8 times, once every two years we can miss a quarterly vacation. Or once every 8 months we miss a first night of the month dinner. Travis: Yeah, spoken like a real engineer, the 12 and a half percent rule.
  19. 19. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 19 of 22 Brad: That's right. But the point is that I don't view them as compromises, I don't view them as I had to make concessions to her, I view them as-- Travis: So agreement? Brad: It's an agreement. And it's not a contract, again, her reaction was that those rules feel unromantic but let's just define what we each need. Travis: Right. Brad: And then let's let our words back-up our actions. Travis: I like that. That's a very logical answer to a very emotional problem, or something that can become a very emotional issue. Brad: Yup. Travis: I like that, great advice on that, thanks for sharing that. Brad: Sure. Travis: Hey, we're running close on time; let's segue into the three questions that I did send over to you. Are you ready? Brad: Sure, go for it. Travis: Okay, so what book or program made an impact on you related to business that you'd recommend and why? Brad: I think everybody should read Zen and the Art of Motorcycle Maintenance. It's a philosophical book, it's from the 1970's, it's a very popular book at the time but it was very stimulating around the notions of quality and the idea of creating meaning and how to actually create real meaning. Travis: Very cool. I've heard about that, I've never read it; I'm going to have to put it on my list. What's one of your favorite tools or pieces of technology that you've recently discovered if any that you'd like to recommend to other business owners and why? And you can be a personal owner of any of these tools.
  20. 20. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 20 of 22 Brad: Sure. I use a ridiculous amount of different things, but one, a company I invested in relatively recently that I think is really powerful for anybody who's building a technology-based business is a product called Kato, you can find it at kato.im and it essentially is a real-time communication system that's a super set of all the different tools and technologies that you might use in your engineering, and product development, and running your business flow. So it does a really amazing job of allowing you to have real-time communication via chat within an organization, but also across other organizations whether they be customers or technology partners. Travis: So did you say kato.im? Brad: Yup. Travis: Okay. Brad: The IM stands for instant messaging. Travis: Yeah, I figured that. What famous quote would best summarize your belief or attitude in business? Brad: “Do or do not, there is no try.” I think our friend Yoda reminds us on a regular basis that if you're an entrepreneur you should make a decision as to whether you're going to do something or not do something. And it's perfectly okay to decide to not do something, but you should be making a deliberate decision about whether you're doing it or not. Travis: I like it. Do you have any special superpowers that you like to share with us? Brad: One of my favorite superpowers is my ability to fall asleep immediately on an airplane. Travis: Oh, that's a cool superpower especially when you're surrounded by undesirable sounds. Brad: Yes, I basically time travel while I'm on planes, I go to sleep when I sit down on my chair and I wake up when I arrive. Travis: We're here. Hey, how do people connect with you? Brad: Brad@Feld.com via email, or @dfeld on Twitter, that's the easiest ways.
  21. 21. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 21 of 22 Travis: Cool. You're a very sharp dude; can you hang out a couple more minutes while I wrap things up? Brad: Sure. End of Interview Travis: Excellent. Listen, I want to remind you guys that you can get all the links to the books and resources mentioned in the show here in the show notes section. Just go to rockstarentrepreneurnetwork.com, it's a brand new site that we're building out that's completely focused on giving you the resources to help you grow your business. Before I close the show today I want to remind you that building a profitable business is a formula, even though Brad disagrees with me, maybe the vernacular or the word that we're using here. And as you apply that formula it helps your business become very predictable and it starts building that long-term wealth. This is what moves you into a position to help others, just like what Brad's doing which I believe is the responsibility of entrepreneurs ultimately once you get further down that line. If you haven't reached that level of consistency yet with your business and you'd like to learn how it's done, we've put together a free program called the Business Breakthrough Sweepstakes where we teach the formula that I've used in a simple step-by-step format and you can modify it to use it in your own business. I've used this to build several multi-million dollar businesses. And also, to add a little fun and excitement to the program, if you decide to join the sweepstakes you'll have a chance to win $73,000 in cash and prizes to supercharge your business, plus I'm giving away my personal Lamborghini as a prize. So for more information go to rockstarentrepreneurnetwork.com and just click on the sweepstakes promotion. My quote for today comes from Mark Twain, and the quote reads, "20 years from now you'll be more disappointed by the things you didn't do than by the ones that you did." This is Travis Lane Jenkins signing off for now, I'm challenging you to do something that scares you related to achieving your goals. To your incredible success, take care.
  22. 22. THE ENTREPRENEUR’S RADIO SHOW Conversations with Self-made Millionaires and High-level Entrepreneurs that Grow Your Business Copyright © 2012, 2013 The Entrepreneur’s Radio Show Page 22 of 22 How We Can Help You We know that finding someone that you can trust online today is hard and that so many “so called gurus” are self-‐appointed and have never really even done what they teach you to do. That’s exactly why we created the Double Your Profits Business Accelerator. This is an exclusive offer for our fans at a fraction of its normal cost. Here's what to expect. We'll Schedule a 'One on One' private session, where we'll take the time to dive deep into your business and tell you what is missing, so that you can have your best year ever! We'll do this by performing a S.W.O.T. Analysis. This tells us your Strengths, Weaknesses, Opportunities and Threats within your business. This will be an eye opener for YOU, for several reasons, however some of the most common reasons are. As the 'Business Owner' it’s difficult to see the big picture of your own business because you’re in the middle of a daily management. And you are too emotionally involved to completely impartial. This is a common problem for EVERY business owner. It doesn’t matter if you are a one-man army, or an army of 150, the problem is still the same. Travis Lane Jenkins Business Mentor-Turn Around Specialist Radio Host of The Entrepreneurs Radio Show “Conversations with Self-made Millionaires and High-level Entrepreneurs That Grow Your Business"

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