People Who Can Help You Are Tough Questioners
I never raised capital at CCAW, but I do remember having conversations with investors. They weren’t looking to invest, but they wanted to better understand the business. I vividly remember the nature of their questions. They asked about the most private, guarded details. Things no one else asked about (or knew to ask about). How much of the company do you own? How much cash do you have on hand? What was last month’s revenue? The questions always made me feel a bit uncomfortable. Not because I didn’t know the answers; I did. It just felt weird giving detailed information about my business to someone I’d just met and might never speak with again. It made me feel vulnerable.
In the end, I’m glad I was asked and answered these questions. My answers helped the investors benchmark my company against other companies they evaluated. They were able to point out the areas in which I was doing well—and the things that concerned them. The true value of their feedback was why they felt the way they did. They were able to explain what they’d seen with other companies (or their own companies if they were former founders). I was able to essentially learn from the experience of other founders (albeit through investors).
If you’re a founder looking to raise capital or get outside opinions about your business, get ready to feel slightly vulnerable and uncomfortable. If you’re talking with credible investors or former operators, they will ask tough questions. Rest assured that being forthcoming in answering them is likely to result in good things for you and your business. Get comfortable being uncomfortable—it means you’re learning!
Weekly Reflection: Week Forty-Eight
Today marks the end of my forty-eighth week of working from home (mostly). Here are my takeaways from week forty-eight:
- February – February was a busy month. January felt like an off month—for me and most people I know. We just weren’t as active as usual. But February was different. Most people I spoke with felt like things returned to normal. Looking ahead a bit, I’m anticipating a busy summer.
- Deals – This week Terminus raised $90 million at around a $400 million valuation. Another huge deal for a great Atlanta company. I know there are rumblings about the sustainability of valuations, but I think this trend will continue.
- Valuations – I’ve had a few conversations about valuations this past week. Not just of start-ups, but all asset classes. This topic seems to be top of mind for many people. Not sure what will happen, but I’m confident it will be watched closely all year.
Week forty-eight was a productive one. I worked at a brisk pace, and I feel like I closed the month out on a high note. Looking forward to March.
Outlander puts on a monthly speaker series called the Outlandish Speaker Series. Today, the speaker was Lo Toney, founding partner of Plexo Capital. Plexo is a unique fund that makes direct investments in start-ups and in emerging venture capital funds. Lo incubated Plexo while working for GV (the venture capital investment arm of Google’s parent company). The strategy was to increase early-stage deal flow through diversity in people. The strategy proved successful, and he later spun out Plexo into a stand-alone firm (GV is an investor in Plexo). You can read more about Lo’s strategy here.
Today’s session was super insightful. Lo did a great job of articulating his thoughts on what he looks for when making investments in companies. He did an even better job of sharing what he looks for when considering an investment in a fund and how being a fund manager is different from being a great investor. Lo’s wealth of experience as a CEO, investor, and fund manager was evident.
I’m excited about what Plexo is doing and look forward to tracking its success and the success of the fund managers it invests in.
A 10-Year Journey: Passion Required
As I was catching up with a founder friend this week, we reminisced about the early days of our businesses. We were both eager young founders a few years removed from college when we started out. There was a huge disconnect between what we thought we knew and what we actually knew. One of the things neither of us grasped was just how long a commitment we were signing up for. We both spent over a decade building our companies. Put another way, we committed to ideas that would take over a decade to reach scale.
When I started CCAW, I had a few years of corporate experience. I gave zero thought to how long I would stay at my company. I just knew I wanted to start my own company. I think jumping in with both feet worked out for me because I was passionate and committed to what I was doing. My passion made me comfortable with putting in crazy hours for years.
It takes a long time to build a thriving company. Most founders I know reached success after seven to ten years. The journey is full of ups and downs. Having passion and conviction is one of the keys to success. Without them, you’re not likely to endure.
If you have an idea and you’re considering starting a company, ask yourself: Am I willing to work on this for a decade? If the answer is yes, you might be on to something.
Early On, It’s Not All About Revenue
Revenue is an important business metric. But for early-stage companies that haven’t achieved product–market fit, gauging success only by revenue can be misleading. It’s nice to see revenue growing in the early days, but it’s even better to see signs that your customers are getting value from your solution.
Companies that focus exclusively on revenue can become myopic about closing a deal. Their primary goal should be to create value for customers by solving their problem superbly. If you nail it, revenue will grow. Early on, metrics that show how much customers are using your platform or how often they’re coming back are more telling than revenue. A paying customer who uses your platform monthly is somewhat engaged, but may not be receiving much value from it. A paying customer who uses it every day is likely receiving tremendous value from it. The former may not stay with you because the platform doesn’t solve their problem well enough. Revenue may look good in the short term but mask a serious long-term problem.
If you’re an early-stage founder, keep an eye on revenue, sure, but keep a closer eye on product–market fit. If you build it (better than anyone else does), they will come (and keep coming).
Dig a Moat
When I started CCAW, I saw an opportunity to do certain things better. Automotive suppliers and manufacturers were inefficient and had issues turning inventory. Customers had a hard time finding the parts they wanted quickly. The inventory was available and the demand was there. The two just needed to be connected more efficiently. I ran with it. What I didn’t think about was competition. Other people saw a similar opportunity and were trying to capitalize on it.
Efficiency and defined processes allowed us to provide a great experience to our customers and vendors. But that wasn’t enough. It wasn’t the defensible moat we needed to scale the company to the level I envisioned ($100 million or more in revenue). What we were doing could be replicated. Plus, we made some things easier for customers, but we didn’t solve their biggest pain point: installation of the parts.
Moats are important for founders to think about. You don’t need one on day one, but you should be thinking about ways to dig a defensible moat to protect your company against invading competitors and margin erosion.
Working Remotely – But Not Always at Home
Today I had a great conversation with an old friend. We talked about working from home, and he pointed out something interesting. He’s mostly working from home, but he feels a need to go to the office some days. Pre-pandemic, he enjoyed working from home occasionally because it was peaceful and he wouldn’t be interrupted. Today, though, his children are doing virtual learning and his home is rarely quiet. He can do without his commute, but he still needs a space where he can focus. Currently, that’s his empty office building. He wishes there was a quiet place he could work closer to home.
I doubt that most companies will go back to requiring employees to be in the office five days a week. It’s clear that people can be productive working remotely. I also doubt that most employees will want to work at home five days a week. Some sort of separation between home and work is helpful for many of us. So where does that leave us? I think we’ll end up with a hybrid situation.
People will go to an office periodically when it makes sense—say, to meet with their team or clients. When people aren’t in the office, they’ll work remotely. Not necessarily from home, though. “Remotely” means outside the office. People will work from their community or neighborhood or somewhere else that works best for their life. I can see local coworking spaces becoming very popular. Large coworking spaces like WeWork will continue, too. And companies will begin contributing to the cost of employees using these spaces.
Historically, people had to go where the work was. Because of technology, that’s becoming unnecessary for more and more people. We’ll see a trend of people working away from the mothership in the communities and neighborhoods where they live. I’m just not sure when.
Pitch Decks: Painful but Immensely Worthwhile
I connected with a serial entrepreneur this week. He has built successful bootstrapped businesses. Now, he’s planning to raise capital for a new venture. He’s working to get a service in the hands of customers. We talked about next steps and he said he wants to complete an MVP in the next few months and will do a pitch deck when he has time.
Putting together a deck is never fun. In fact, it’s annoying. Even so, it must be taken seriously. A thoughtful, attractive deck is the final product, but the value lies in the process of getting there. Good pitch decks communicate a founder’s vision clearly. They detail the problem, how the founder proposes to solve it, why the founder is qualified to solve it, and a host of other things. It takes time and energy to think through all the pieces and succinctly get them on slides.
If you’re doing a pitch deck, when you think you’ve got it, share it with other people and ask them to poke holes in it. Then act on their feedback to make the deck better. More time and energy—but immensely valuable. You’ll come out of this process with a clearer vision, more conviction, and more confidence. You’ll have something that you, your team members, investors, and customers can rally around.
I didn’t raise capital for CCAW, so I thought I didn’t need to create a pitch deck. After many years I did one, and I regret waiting so long. The exercise led to realizations that completely changed the strategy for CCAW and reenergized me. Even if you’re not raising capital, creating a pitch deck and updating it annually is a powerful exercise. It forces you to put fresh eyes on your business and update your vision based on current market conditions. It’s an exercise in strategy that crystalizes what the company is doing and prepares the founder to move it forward.
If you’re a founder or aspire to be, consider creating a pitch deck and getting feedback on it. Doing so could be a game changer, even if you never raise a dime.
Weekly Reflection: Week Forty-Seven
Today marks the end of my forty-seventh week of working from home (mostly). Here are my takeaways from week forty-seven:
- Compromise – Getting everything you want all the time sounds good, but achieving something great is usually the result of compromise. This week was a reminder of that.
- Weather – The weather was extreme this week in many parts of the country. I’ve talked to friends and family enduring unimaginable conditions. I hope that everyone who’s affected by all this weirdness will soon be able to feel safe in their homes and return to normalcy (whatever that looks like).
- Relationships – Other people’s help has been instrumental in my journey so far. This week was a reminder that healthy relationships are bidirectional. It made me appreciate my relationships and look for ways to add value to others’ lives.
Week forty-seven was about focus. I worked steadily and was productive. Next week, I hope to replicate that.
Deciding What to Do with Challenging Team Members
Today I listened to an entrepreneur discuss how to manage a challenging team member. This founder is seasoned and has a great grasp on his business. But even with years of experience, human resource issues still consume lots of his time and energy. A few thoughts on this topic:
- CEO multiplier – By the time a human resource situation gets to the CEO’s desk, it’s usually many times worse than what’s being communicated. It’s probably been a concern longer than people are acknowledging.
- Culture – Is the person a culture fit? Rank them against your core values to find out. If the person isn’t a good fit but your core values don’t indicate that, it may be time to rethink your core values. Getting core values right and incorporating them into the hiring process is preventive maintenance.
- Time and energy – If one person consumes a ton of leadership or management time and energy, that’s a red flag. Every time I racked my brain about what to do with a particular team member, they ended up leaving despite my best efforts.
- Custom roles – It’s usually not a good idea to create a custom role to placate someone. It’s a temporary Band-Aid and a horrible example for the rest of the team.
- Coaching – Listening to a team member describe what they think they need can be a productive conversation. Sometimes it highlights diverging expectations or a mismatch between the professional development the person needs and what the company can offer. But other times it suggests simple changes that can get the relationship back on track.
All companies, regardless of size, contend with human resource problems. It’s an inevitable part of managing people. How you handle these situations is important—it speaks volumes about the company to both outsiders and your own people.