I always like to support hometown Atlanta founders. I recently listened to an interview of Ben Chestnut, founder of Mailchimp. In 2021, Mailchimp was acquired for $12 billion. I was curious to hear what Ben had to say post acquisition.

Ben shared lots of great information about his childhood and various other topics. He explained what made him go from “we’re never selling” to being acquired. He also said something about the origin of Mailchimp that caught my attention.

Ben was running a web design agency that was struggling to grow. One day, his wife was watching the Opera Winfrey Show; Rich Dad Poor Dad author Robert Kiyosaki was the guest. Kiyosaki talked about passive income and recurring revenue. Ben heard some of this and was inspired. He began searching for a recurring-revenue business, only to realize that he already had one—Mailchimp. Keep in mind that this was three or four years after the Mailchimp product had launched, but it was more of a side project that had received little attention from Ben or his cofounder, Dan.

They looked deep into the revenue of the Mailchimp product versus the revenue of the web design agency and realized that Mailchimp was growing despite being ignored. They decided to focus on Mailchimp. The rest is history.

Given the current interest rate environment, there’s been a lot of focus on fast-growing companies trying to reach breakeven or profitability. Many fueled their growth with losses when capital was cheap. Those days are likely over, and these companies are now concentrating on generating cash instead of consuming it. All of them won’t survive, but the ones that are solving painful problems and that have strong leadership teams have a higher probability of becoming profitable.

There’s another segment of companies that I haven’t heard discussed as much that I’m curious about: companies with recurring-revenue business models that grew rapidly because of COVID tailwinds and that generate material free cash flow, but that saw their growth rates slow or flatline. These companies can be cash registers. If they retain their current customers, they will generate cash on a recurring basis.

The recurring cash generation of these companies is key. They have cash from customers they can use to experiment with growth activities and ideas. The recurring-revenue nature of their business model means that cash will be replenished. They can keep experimenting. Learnings from failed experiments can be applied to new experiments. Hopefully, compounding learnings from experimentation will lead to the growth engine being restarted.

To be fair, restarting growth is hard—especially for a large company. It often involves retooling entire functions, such as sales and marketing. These efforts can be painful and take time to bear fruit. This isn’t something all management teams are able to achieve. But if they are successful, the rewards could be enormous when these companies are revalued.

I’m curious to see which cash-flow-positive, recurring-revenue companies can restart their growth and what impact it will have on their valuation multiples.

I chatted with a founder about a seed fundraise he’s considering. He wants to raise $2 million. We talked through his thinking, and I realized two things: he didn’t have a great grasp on current market valuations, and he didn’t realize how raising that much capital at today’s lower valuations would dilute his ownership, especially if he continued to raise capital.

I did some back-of-the-envelope math regarding his future round and a few hypothetical rounds after that. It was eye opening to him. He realized that dilution by early and subsequent rounds would have a material impact on his ownership as founder and materially reduce his proceeds if his company were to be sold.

Raising capital is hard right now for early founders. Even if you can raise the amount you desire, it’s worth thinking through how much you need, the current market valuation of your company, and how dilution will affect you. Tools that can help founders understand the dilution impact of fundraising rounds are out there (645 ventures built one). Spending time with one of these tools can help founders quantify the impact of dilution.

Every month I get email updates from several early-stage founders. They usually include what’s going well and not so well with the business, along with the latest company metrics. In 2022 and the first half of 2023, the tone of these updates wasn’t optimistic. The fundraising environment wasn’t great, and founders were reducing expenses to extend their runway.

Over the last two or so months, I’ve been seeing more optimism in these emails. The fundraising environment is still tough. But founders are sharing more signs of being closer to product–market fit. Metrics are improving, and for some of them, revenue and customer growth are beginning to accelerate materially.

This is anecdotal, of course, and not representative of all early-stage founders, but it feels like founders got the message and may have been able to right the ship. I hope so. I look forward to seeing if this is confirmed in the remaining 2023 updates.

I had several side hustles as a kid. Mowing lawns, selling CDs, selling automotive parts, washing cars, selling bailed hay . . . I was always down for a side hustle. I even worked 12-hour days building houses one summer and earned a cool $125 a week (yes . . . per week). A friend recently asked me what motivated me at such a young age.

The driver was wanting independence. I vividly remember my parents telling me they wouldn’t buy certain things for me. Their reasoning was solid. We weren’t rich. Money didn’t grow on trees. I needed to earn the expensive things I wanted. My parents controlled how money was spent (and rightly so because they worked hard to earn it), which meant my buying decisions depended on what they’d allow.

I hated this dependence. It felt suffocating. I was limited because my funds were limited. I decided to start doing things to earn money and reduce my dependence on my folks. To their credit, when they saw what I was doing and why I was doing it, they encouraged me. They didn’t try to reassert control (even though I was still living under their roof). They told me I could do whatever I wanted with the money I earned, with a few exceptions.

Disliking feeling dependent and doing what I could to break away from it led me to entrepreneurship. The more I learned about entrepreneurship, the more I saw it as the path to a life of independence (and not just financial independence).

I caught up with a founder recently. He’s started several companies. He’s got one running smoothly, with a management team installed. He’s got another off the ground and is currently installing the management team. Even with all this, we talked about new ideas he wants to pursue.

This founder is a zero-to-one person. He gets energy from taking something from the starting line to the end of the first leg of the race. He isn’t the person who’ll finish the rest of the race. He wants to get things going and put the right people in place to win the race. The idea of taking an idea and turning it into something—not living the entire journey—excites him.

When he’s asked why he doesn’t keep running his companies himself, his explanation is simple: He gets bored working on the same thing too long.

Entrepreneurship is a choose-your-adventure journey with lots of ways to achieve success. This founder is a good example. He’s founded several successful companies, taking them only from zero to one. After that he’s let other people capable of growing beyond one take over. He’s happy watching the companies he founded from the sideline while he incubates his next big idea.

I listened to an interview of Scooter Braun recently. Scooter has had a wildly successful career in the entertainment industry. He’s credited with discovering Justin Bieber, and he managed several other top entertainers. He recently sold his firm, Ithaca Holdings, for $1 billion and acquired Quality Control, one of the most successful rap labels—which happens to be in Atlanta—for around $250 million.  

Braun shared advice he’d received from Jeff Bezos, founder of Amazon.com, on work–life balance. Bezos thinks you shouldn’t have to balance two things you love and that harmonizing them makes more sense. To do this, he communicates to people in his personal life how much he loves what he’s doing at work and what the latest developments there are. At work, his team knows how much he loves his children and what’s going on with them. The idea is to integrate and harmonize your work life and home life by making everyone feel in the loop, part of what’s going on in the parts of your life they can’t see. If you must miss a work event because of something child-related, everyone understands because they’re in the loop and know your children take priority.

Braun went on to share that for many years he kept his work and personal lives very separate but cared deeply about both. This ultimately created issues in his life because, as he put it, “it was like being married to two different people,” which wasn’t fair to the important people in his life.

I’ve been more of a balance person historically—I tend to try to keep work and my personal life separate. Sometimes it’s worked and sometimes it hasn’t. The advice Braun received from Bezos definitely resonated with me. It has me thinking about sharing more about the important parts of my life with people who are important to me. I’m naturally a private person, so I want to harmonize in a way that feels comfortable, given that trait.

Here’s the clip of Braun sharing what he learned from Bezos and how it affected him.

A few years ago, I shared the following thoughts in a post:

During economic expansions most entrepreneurs accept a certain level of inefficiency in the name of growth. They’re trying to move as much water as possible from point A to point B. They know water is slopping out of the buckets because they’re moving fast, but as long as more water is pouring into the tanks at point A, it doesn’t matter. But during economic contractions, the same entrepreneurs embrace efficiency. The water source dries up, so they put lids on the buckets and carry them slowly to make the most of the water they have.

Companies of all sizes have gone from making their priority growth (sometimes at all costs) to making it free cash flow (or a path to it). Growth is still important, but at a more measured rate that minimizes water slopping out of the buckets. This signifies a shift to an efficiency mindset.

Many companies can’t magically start operating efficiently. They need help getting there and will search for solutions to help them. Software that empowers them to do things they can’t do manually or to do things more consistently and efficiently will be in demand.

I see demand for workflow management software increasing and entrepreneurs building these solutions. Solutions that solve painful efficiency problems in the right way could be poised for explosive growth.

I’ve spent time working on understanding the journey of emerging investment managers. These people start companies that make money by investing capital. I think of them as entrepreneurs who happen to be investors, or “investor entrepreneurs.” I’ve been curious to learn how the most successful emerging managers are wired, so I started studying managers who’ve had outsize success over a decade or more. This means they’ve been able to compound their capital at an annual rate that exceeds benchmarks like the S&P 500. I started with venture capital fund managers but expanded to studying managers in private equity, real estate, hedge funds, value investing, and other areas.

Studying several managers who’ve compounded their capital at above-average rates in various ways has been enlightening. It’s shown me that the ways to have success as an investor vary widely. But I’ve noticed a trait that these successful managers have in common: a burning desire to approach investing in their own unique way as opposed to a way mandated by someone else. They wanted to develop, test, and refine their own investment approach. They saw starting their own firm as the best path. A few worked for other people, but that was never the goal—it was a stepping-stone. The goal was always to invest using a unique insight and control their own destiny as an investor.

I chatted with a friend who’s in the process of acquiring a business. Instead of using a bank to finance the debt portion of the purchase price, he’s using seller financing. That is, instead of taking out a bank loan and paying the full purchase price in cash, he’s accepting a loan from the seller. The seller gets paid part of the purchase price in cash at closing, with the remainder repaid over time with interest.

This is common, but I hadn’t heard about it being used as much in the last few years because interest rates have been so low. I was curious how the seller felt about it, so I asked my friend.

He said the seller envisioned selling the business, getting cash in a lump sum, and riding off into the sunset. Seller financing, which prevents a clean break from the business, wasn’t part of his vision. It took a bit of convincing by my friend, but in the end, they made a deal after a detailed walkthrough of the math.

Riding off into the sunset is every founder’s dream scenario if they want to sell, but it doesn’t often play out that way. Things like earnouts and seller financing are common and can mean the seller will get delayed payments over a period of time.