I’m always very proud of the work that I put into these interviews. And frankly, sometimes I boast when I know more than other interviewers about my guests. But the only way to be able to do that, is to also admit when I don’t know.
In this interview I’m going to do that right off the bat, and say that I’ve got Scott Fennel here. He is the founder of Level 11, which creates strategy and executes the strategy it creates.
I’ve got a page here of pre-interview notes, and I’ve done a little bit of research, and I still don’t know enough to say that I am fully in control of this interview. So I just want Scott to tell you his story.
Andrew: Before we get started, have you ever wanted to visit the land down under? Australia is a hot bed of innovation. And has a thriving entrepreneurial community. And the heart of that community is Fishburners. Fishburners is a co-working space in Sydney, Australia, which is home to the single largest community of entrepreneurs and business people in Australia. If you’re thinking of coming to Australia for a visit, or if you’d like to try working from Sydney, start your trip at fishburners.org. They have a range of membership options for all kinds of businesses and individuals, and they host regular events when you can connect with some of Australia’s most influential business people.
Next, do you need a single phone number that comes with multiple extensions so anyone in your company can be reached, no matter where they are, even if they happen to be in Australia? Go to grasshopper.com. It’s the complete virtual phone system that entrepreneurs, like me, love.
Next, do you need a lawyer? It’s not the local guy that doesn’t really get startups. Not the really expensive guys who want a piece of your business. One who really understands the startup community and is there to help you. If you do, go to Scott Edward Walker of Walker Corporate Law.
Alright, let’s get started.
Hey there freedom fighters. My name is Andrew Warner, and I am the founder of mixergy.com, home of the ambitious upstart. I’m always very proud of the work that I put into these interviews. And frankly, sometimes boast when I know more than other interviewers about my guests. But the only way to be able to do that, honestly, is also admit sometimes when I don’t know.
And in this interview I am going to do that right off the bat, and say that I’ve got Scott Fennel here. He is the founder of Level 11, which creates strategy and executes the strategy it creates. I’ve got a page here of pre- interview notes, and I’ve done a little bit of research, and I still don’t know enough to say that I am fully in control of this interview, Scott. So here’s what I thought we’d do, is you and I talked before the interview started. I just come in here and let you tell your story and ask questions to help me understand it as we go along the way. Starting with, first of all, thank you for doing this interview.
Andrew: And second, are you embarrassed to be here when the host himself does not have it fully together, and has not done all the research he possibly can?
Scott: Not at all. Isn’t that part of startups? It’s always adapting to it.
Andrew: Yes. You know what, there’s a part of me that always says, ‘What if you don’t know as much as you want?’ Because I’m so proud of the research. And then I said awhile back, ‘Look, if you don’t know it, that’s what being a pro’s about. You figure it out when you don’t have everything.’ So that’s what I’m going to do right now. To give people an understanding of what you do, I thought we could talk about Schooling Technologies, the company you were telling be about as we were getting set up. What did you do for Schooling Technologies?
Scott: Okay, so Schooling Technologies was founded in the 80s. It was one of the very first DOS-based operating systems in high school and K-12 cafeterias. They did everything from the point of sales system to cash registers into the back office inventory management. And they were the market leader from ’80 to the late ’90s.
In about 2000 they started pioneering essentially prepaid credit card technology, what we think of when we swipe at Pete’s. And they started trying to solve a problem in food, which was children who are on the free/reduced lunches were literally getting food tickets, like a food stamp. And they weren’t eating because of the social stigma.
So what they went to was, they built out a student ID where the kids with aid or fully paid lunches had the same card as someone whose parents were buying the lunch backed by Visa, MasterCard, or debit card. And that removed the stigma of free/reduced lunch. They were in about 21,000 school buildings across the country, K-12. We then took that company. The founder wanted to exit. He was nearing his 60th birthday, and wanted to exit by 65.
We repositioned the company both from an R&D perspective and a capital perspective. And then refined this meal lunch ID card program. They called that My Lunch Money, and positioned them for sale. And in short order, 18 months later we sold 65 percent of the company to an $800 million publicly traded company that was in the credit card space. And they wanted the credit card transactions. So it was a very strategic buyer. And then there was a go forward joint venture on the remaining 35 percent of the company, to expand the Lunch Money program across the rest of the U. S. As the credit card company rolled out the space.
Andrew: What do you do? Can you give me an example of what you did to help that company grow so quickly?
Scott: Beyond the cleaning up the cap table and doing the work to make the financials and the book ready for sale, it was literally thinking of new strategic markets and partners to expand the MyLunchMoney program. It looked like aligning them with studios, and aligning them with Fandango, to actually go in and say, “We’re going to create a program where if you ate healthy, ten apples.”
We control the point of sale, we could tell what the kids were buying. We then were able to give them rewards such as iTunes gift cards, movie passes and things like that for eating healthy. So we were able to get them true corporate partners tied up to eating healthy, and then ran it through the entire technology. We invented that new corporate partnership and leveraged that to extend the reach across.
Andrew: I see, okay. That kind of gives me a sense of what the name Level 11 means, but I know that it has an interesting background. How’d you get your company’s name?
Scott: I’m an ex-entertainment lawyer. I spent 16 years doing strategy for studios and record levels. Level 11 comes directly from Spinal Tap. It’s the scene where the amps go to 11 and we always thought that was a fun time. We’re accelerating companies to the next level, pushing them over the edge. If you look, our logo is actually a stylized Marshall amp, cranked to 11.
Andrew: I didn’t catch that. So you were an entertainment lawyer and then something happened in 2002.
Andrew: You were a winner, right? You had a good verdict.
Scott: I had a great verdict, it was a seven week trial, it was out in Rancho Cucamonga, for those of you that don’t know that, that’s the high desert of central California. The verdict came in on a Thursday night and I had to drive back to L. A. and realized I did not want to own a law firm and go back to work on Monday morning, despite a seven-figure verdict.
I walked in on Monday and said to the staff, “We’re going to shut this down and not run any [??] until next September.” I had no game plan but knew I was burned out emotionally, and if I don’t care what my client’s success is, it’s time to move on to something else, because you’ve got to be invested in your clients.
Andrew: Why not? What happens when you do so well and you still can’t get yourself excited about your job? How does that happen? I want to avoid that for myself.
Scott: I think for me it was pretty simple. I had made so many deals for studio and labels, for their benefit. I got paid to do it, but I wasn’t an owner, I wasn’t an operator, I wasn’t involved, because as a trial lawyer you have to be a bit dispassionate and disconnected to be disconnected to be objective, and I wanted that attachment with my projects that “Oh my goodness I really want this to work emotionally.” Which is different from the dispassioned lawyer verdict win, with a money shift from pile A to pile B.
Andrew: I see. You did some really interesting work. You worked on Star Trek, Power Rangers, what did you do? Then we’ll go back to how you started Level 11, but what did you do for those great brands?
Scott: We would do global brand strategy. Those kinds of franchises express themselves in a number of consumer-facing vehicles. Film, soundtrack, television, merchandise, toys, games, learning, stage shows. So a lot of that was devising their intellectual property strategy, figuring out how we were going to license that, how we were going to protect that, and then how we would make it global.
The rights and the way you roll it out in the U. S. are very different from what you might do in Asia or in Europe, so there was really that 100,000 foot five year planning of working with these kinds of global franchises and these various different marketing models. They all have different business models and different expressions. Studios tend to work in silence. At least they did historically.
You had the film group, the television group, the music group, the merge group, et cetera, and rarely did all those groups come together to really architect out a five, ten, 15 year plan to make it cohesive. We would come in and really take a cohesive look at what you did with a franchise, and how you expressed it to the consumer.
Andrew: That’s the kind of work that, first of all, you can be personally proud of, but also you can talk about, and have people recognize it. You know, it’s not like building obscure parts of obscure machinery that maybe it’s worth a lot of money, maybe it’s helping a lot of people’s lives, but no-one understands it. Here you have work that everyone understands, and you go from that to spending a year doing nothing, in L. A. where so much of what you do is who you are in other peoples’ eyes. Can you talk about some of the difficulty of being in that limbo period?
Scott: Yeah. That’s a great question. That was probably the hardest piece of the transition. My only job had ever been a lawyer. I graduated law school and went straight to work, so now I’m thirty-something years old, I’m trying to do the math, and my identity had been tied up as a lawyer, and I had no clue what to do.
I remember the first few months I would ride my bike up and down the P.C.H. and I was freaking out because my cell phone wasn’t ringing, and I didn’t know what to do with the silence and I didn’t know what to do with the non- busyness. I thought, “No one will ever take my calls. This will never work out. I don’t know what I’m going to do, I don’t have a game plan.” It took about six months to really reconnect with me, and realize that my identity was not my day job.
Andrew: How do you do that? The way you just described your mindset is not a fertile environment for creativity and a great business idea, so how do you turn around your mindset so that you can come up with this business, so that you can come up with something worthwhile?
Scott: I think that’s partly what frustrated me about being a lawyer. On the trial side there are the rules of evidence, et cetera, that’s pretty governed, but I really loved the creative part of figuring out what to do with a brand, a product. That was truly a white board. One of the things I did is I went to a website, I forget which one, that literally wrote your resumes for you. I had these guys write me 10 resumes for completely disparate jobs. A marketing director, a whatever, just to understand what skill sets were in common, like a Venn diagram.
One of the things I figured out was I love the white board creative, creating something out of the air. I went out and bought some white boards and I just started making stuff up, just to see how that process would work again.
Andrew: What was up on that white board?
Scott: Boy, that’s going back years. At the time we were working on serious music, quick summer records. We had figured out a play in Hispanic fitness where we were going to take a celebrity and launch her on an infomercial out of Sports Club/LA. That model was kind of being started by zumba at the time, and zumba had just entered, but there was no real space of integrating health, wellness, nutrition, music, in Hispanic at that point in time.
Literally I kind of did it in real time in that project, and we figured out who needed to partner in, how we’d distribute that, and how we’d learn it. At the same time we started looking at different spin-offs of that company, which look like Hispanic databases, a marketing company and an ad agency, trying to figure out how to actually aggregate that data. My white board started out in one thing I knew well, music, and one thing I knew nothing about, Hispanic marketing. The trick to that was bringing in a bunch of people that were experts in it and getting out of their way, which taught me how to collaborate. Very different from being a lawyer.
Andrew: The first thing you did was you started creating a company.
Andrew: Not investing in other people’s companies, not buying something else, but starting something from scratch.
Scott: A client of mine owned two small labels, was in the transaction to buy three more, and asked me to look at it, and then “Look at it” morphed into “Run, operate, take this over, then buy some more companies.” I had never run a label, but I had to get into the weeds and understand how one actually operated a record label. The second project was concurrently this Hispanic project, so we were doing two startups concurrently. We had two different staffs, one office, and we ran them day-in, day-out, back to back.
Andrew: Was this in L. A., or I saw also that you had an office in Paris?
Scott: This was all in L. A., it was actually on Lincoln Boulevard, Lincoln right by Rose. About two years later we started the first Anti-doping agency to compete with W.A.D.A. That was a brand new business model which was actually right out of L. A. Century City, and then we did have offices in Paris because we were doing so much of the doping in cycling out of Europe, so we actually had to have offices in Paris.
Andrew: How did you wind up with an anti-doping agency? That’s not the kind of thing that would come to you out of the blue.
Scott: The trick about it, one of the things I did is I played tennis in college, and then I became an Ironman athlete, and I had been a cycling pro- sports freak most of my life. A couple of scientists had an idea for a new way of testing for doping, on a different piece of science. They came to us saying “Help us figure out a business model.”
I started with, “Let’s do this in a business model” and morphed that into co-founding and co-running The Agency for Cycling Ethics, and pro-cycling. I had to get into the weeds and understand the science, and it became a really fascinating journey into medicine science and how your body works.
Andrew: Wow. Now how do you manage all these different kinds of companies, where you have to fully understand each business, where you have to figure out where the customers are, how to persuade those customers, how to find your partners? I think most people, most entrepreneurs, myself included, when we’re focused on one business there are enough challenges, but when you throw in a second business it feels like a distraction, and a third, we feel like we’re in chaos, so what do you do to keep it all organized?
Scott: Chronologically, we had sold those off those first two companies before we did cycling.
Andrew: I see.
Scott: You think back to what a trial lawyer does. My job was to take a very complicated piece of technology, a business model, a something, and translate that to a jury, and then advocate that. For me, getting into the science and getting into the weeds on technologies I didn’t necessarily understand was very similar to the path I had done for the first 16 years. The expression of it is a B2C play, which just has to be done in simple English, so I was actually well suited for that having been a trial lawyer.
I didn’t know that, frankly, until about five or six, after we had done that two or three different times, but for me, the engaging part, the emotional connection is, I love learning about new technologies, and I love getting into the weeds, and then I also love bringing in experts to teach me. It’s a balance between getting into the weeds to understand it, and then stepping out when the experts come in and say “Let’s do it this way.” It keeps focusing on core competency. Stick to your core competency and build the team.
Andrew: One of the things I found in interviewing people who do that, is that they have their own way of absorbing just the right amount of information. Figuring out what information they’re going to care about, figuring out how they’re going to get it accurately, and absorbing it and not getting distracted by everything else. Did you have a practice like that?
Scott: I do.
Andrew: What is it?
Scott: Again, it comes out of trial lawyers. It starts with if you think of a trial, studio one, B2, there are 50 issues, but the truth is you disagree on three, and the rest are the periphery, so you just focus on the three. When I look at a new piece of technology in business, the first thing I do is break it down on a white board and figure out what’s absolutely essential, the must-haves, versus the wish list.
I try to spend my time, as much as I can, in only the must-haves, and delegate the wish list out to the staff so that I understand what they’re doing, but I don’t understand the detail, and I focus on two to three areas. The business model, the distribution, scale, the strategy, and then let the team come together weekly and communicate, and explain to me how they’re going to execute that part of it.
Andrew: I remember when I talked to Tim Ferriss. He figured out what those key areas are for him, but he didn’t do it alone, he went to talk to others who are experts in what he wanted to know, and then he had them tell him what those key areas were that he should focus his energy on. How did you figure out where those bright spots were, for you to spend your time?
Scott: I knew I was good at global strategy, and I knew I was good at kind of connecting a lot of disparate dots, but I do, as you said Tim suggested, when I bring in a physicist or I bring in a subject matter expert, one of the questions I ask is, “Give me the 100,000 foot lay of the land, then tell me what I have to know.”
I actually go to them and say, “Okay, help me understand the basics so I can talk about it,” but just like Tim would do, I would then go in and say “Okay what don’t I need to know? Where do I have to spend my time and attention? Where do I have to focus to translate this out to the world?” Because you can’t know anything about any start-up you’re doing, really.
Andrew: I see. So Scott, if I wanted to emulate you, or someone listening to us wanted to emulate you, and said “Hey, I’m going to start hiring. Well, to hire I need to focus on a few core areas and let the rest of my team focus on the rest. I can’t figure out what those areas are. I’ll go and talk to people who are good at hiring, maybe other entrepreneurs who have hired quickly or at my pace, and ask them ‘What’s key for me to spend my time on, and what should I delegate to everyone else?'” Is that the approach to take if I were to follow in your footsteps?
Scott: There’s probably a step before that. Strategically I would go in and say “Okay, we’re going to launch company X, and it has ten jobs.” We’ve literally built companies in Excel where we said “Okay, here are the ten skill sets required,” and we put them into buckets. We’d start allocating roles and responsibilities without someone hired, bring the experts in, fill those expert positions first, and that generally takes three to four of the slots out of the list.
Then you’re pretty clear on what’s left. We bring the experts in right up front, and have them help us understand. Then I can go out to my buddies and say “I need a CMO to do this or a CTO to do that.” It really is road- mapping out the vision of the company, road-mapping out the strategy, and then the bandwidth necessary to execute that. Once you define the bandwidth it’s pretty easy to figure out who can fill that bandwidth.
Andrew: Okay, so then if you are producing fitness videos, as we talked about earlier, what’s the key to succeeding in that business?
Scott: The first thing I did was I hired someone out of Univision, an Hispanic director, an Hispanic producer, and an all-Hispanic staff. And I had them produce the entire thing in Spanish as the language first, not English. And I, myself, the least knowledgeable person in the room on the act of producing, and I made myself the knowledgeable person that would ultimately market it. I literally did the whole thing backwards.
We did it in Spanish first with true experts. And I just made sure I understood enough of the process, and frankly, learned enough Spanish, that I could communicate with my staff as bilingual. But turned it around and let them demonstrate core competency in their native tongue. Cause I didn’t want my sensibility to interfere with the director or producer’s vision and execution. I’m not a Hispanic female, so I don’t exactly know what that video should look like to reach them.
Andrew: What about getting into Walmart? I heard you got in there. How do you do it?
Scott: We had, it came again out of our relationships. We had been pushing studio product and content across all those big boxes. And so, we knew the guys that were distributing in, and said, “Here’s an idea we have.” We showed them the demos and we targeted Walmarts in Hispanic dense populations.
Frankly, we did the basic testing. The short that we had is, we knew who was putting video into the stores, who brought it in Arkansas, delivered it to them, go them on board. Part of what I do is try to build alliances, and try to build partnerships. So I actually made the distribution company more of a partner than a vendor. And then said, “If you guys are comfortable with this product, I want you to take it in. If you’re not comfortable, don’t.” I wanted them to be invested in that piece.
Andrew: How do you keep those relationships warm? You’re talking about going back to a previous job and talking to people who are connections of yours through a different company. I’m trying to think, even in my own world. Someone who I interviewed a year ago may not even remember that we talked, even though we might have had a deeply intimate conversation where they talked personally about their life, let alone if I contact them a year later and say, “Hey, I’d like us to work together.”
I don’t know that it’d be any more than a cold connection with some kind of past history that either the other person vaguely remembers. So how do you keep it warm?
Scott: There are a couple of tricks there. One, I have a very good memory, which helps. Two, I take an awful lot of notes in my computer at all times about who, where, why, and what I know. I’ve got form files on relationships that go back 25 years. And so, I make a point of keeping in my orbit a lot of my friends, even if it’s just checking in social. Because a lot of my friends now run studios and run companies, and run things like that.
So it’s really a combination of just making the effort to stay in touch. And I know that is extraordinarily difficult. But I focus on that because if you build good relationships, and you’re willing to do the work to maintain them, you will always get the benefit and so will they. And one of the things I try to do is be a service to those relationships. So I don’t really call up my friends and say, “Here’s what I need from you.”
It’s much more about going, “What are you working on? How can I help you? Who else do you need to know? What can I do to make your life better?” That tends to keep even peripheral relationships a little closer.
Andrew: What about those notes that you said that you take? I take notes all the time on conversations. Right now I’m doing it on paper. I don’t know why. Often I’ll do it in Evernote. Sometimes I’ll do it in Google Docs. But maybe it’d be my personal Google Docs or maybe it’ll be my work Google Docs. I have Cobook, which I love for keeping track of notes and my address book. All these different places. What do you do so that you don’t get it all lost, and so at the end of a conversation what you remember stays with you at the start of the next conversation?
Scott: That’s a great question. So I use Evernote as well. But Tree Evernote, let’s just go backwards. One of the things I had to learn as a lawyer was how to compartmentalize all of the emails on the clients on file. So I have built a very clear system in mail. My email is filtered into buckets by client, by project, etc. That matches into my Dropbox that matches into Evernote. And so I can go backwards and tell you who worked on a deal 11 years ago in about 5 clicks.
Andrew: You have to search in all three of those places?
Scott: No, they’re all synched. They actually all work together. So frankly, when I typed up your name, the way my Dropbox is setup is literally a mirror of my email and my hard drive, which is then backed up off line. So literally I spent years as a lawyer figuring out how to use meta data and organize it. And I made the practice happen on all of my computers.
So whenever I get a new computer or an iPad or phone or whatever, it’s already set up that way. The discipline in that is you’ve got to file your inbox rigorously, you’ve got to file your work in process box rigorously, and when you type up notes you’ve got to move them into the right place. But if you do that, it lets you go [??]
Andrew: And so, at the end of a meeting with someone, what would you do to make sure you remember what you talked about, remember something small about him or something really important to him like that he ran an Ironman, or that he loves gingerbread cookies, so that you remember for next time?
Scott: So there would be two sets of notes that I’m needing, right? There would be the meeting notes – we talked about “x” – and there would be something in Evernote or somewhere else that says, you know, “Mark ran an Ironman and did a 10:31 in 1989.” Just little placeholders.
Andrew: See, and then the next time, because the way you file it, it’s all available to you.
Scott: Yeah. I could type his name back in, the true meeting notes would show up, and the observations would also show up. You flip it on your phone before you walk into the meeting.
Andrew: The fitness video company that you had you sold because of something that happened to the talent. What happened?
Scott: Yeah, we shot the first two videos and the promos, and at the time she had a five or six year-old child. Right before we got ready to shoot the third video, she got pregnant, and had been told by the doctors that after the first child, because of the complications, she would never have another child. She got pregnant, and it was exciting. She, the husband, and her son were totally elated, and we had to figure out what to do, because I would lose her for three to six months during the pregnancy, and at least three to six months after, and that also changed her focus.
So we had two real issues: one, we couldn’t film her and two, she really decided that it was time to be a mom again, with a newborn, and you can’t keep pushing a rock up a hill. That’s a great family decision, you’ve got to endorse it and fully support that, but it made sense just to move on to the next company. She had some success, and you willingly go forward…
Andrew: Who’d she sell the business to?
Scott: We split it up, so parts of it went overseas, because they were pushing the videos into central Latin America, [??] out of Fox. The videos in the U. S. just continued to be distributed and Fox picked up some stuff out of Miami, but they really wanted to push the content to central Latin America, so it was pretty easy to spin it out into Mexico City and [??]
Andrew: You did something cool – before I move on from that story – you did something interesting for getting testimonials for those videos so you could sell it. Could you talk about that?
Scott: Yeah, so it was clearly an infomercial you could see on TV, and when people started buying and selling we would obviously get their contact information, so we would run call centers, with ourselves, and actually call the first multiple rounds of clients with our cells, lead, talent and team, just to say “Hey, we’re introducing ourselves” because the community is very tightly-knit. We were going after a very specific market, so we literally went in and got feedback personally, even though the calls placing an order were [??], we went back and actually maintained contact with our clients.
We also did email chat and some very early online chat, which let them actually do a Q & A with the talent. It was trying to personalize it, which was extraordinarily hard in 2004, 2005.
Andrew: And you couldn’t have them do testimonial videos on YouTube, but you did ask for just interviews.
Scott: Yeah, because we were kind of ahead of that piece of technology. There really wasn’t a lot of this social media that we could engage in in real time. It was just kind of coming out in ’03-’05.
Andrew: What’s the next big project that you worked on? Was it Monterey Jazz Festival? Or is that a little earlier?
Scott: That was back in the record label. So one of the things we did is, we had bought the rights (through an acquisition) to what was Monterey Jazz, and re-purposed it, remastered it, re-did the liner notes, brought in a bunch of experts. Fascinating exploratory company. And I didn’t know much about jazz before, so I had to go get a couple guys – ex-Rolling Stone guys, a couple guys here, to teach me jazz, and then figure out how to re- purpose literally hundreds if not thousands of hours in a manner that worked to markets.
You’ve got the audiophile market, for jazz aficionados, and guys like me, who want to understand the basics of jazz. So we try to express it in two different ways, so that two different markets could be reached, because especially some of the early Monterey jazz in the late 60s, early 70s, was extraordinarily experimental music, and I did really know what I was listening to. And it certainly wasn’t accessible to someone like me, and so we had to figure out how to package it in a way that you understand that you’re listening to this legendary guy in a vamping session, kind of going off-the-cuff. It was just really great to learn about an entire new genre of music.
Andrew: When you don’t know the music that you’re listening to, can you be as open as I was at the top of the interview, or do you have to pretend that you get it, that you feel it, that something in you is changing?
Scott: No. I live in a white board. If I don’t start a strategic project with a truly blank white board, I think I’m doing something wrong.
Andrew: I see.
Scott: If I’ve got a predetermined outcome of whatever that project is, then that’s going to affect how we think about strategy and begin to even sketch it out, so I’m pretty comfortable living in the space called blank white board. Because that’s kind of our job, is to figure that out. We know you want your business to be successful, and there are a couple outcomes, we know, but the path of how to get there, if it doesn’t start pretty blank, I think you wind up unconsciously shifting or driving a business because of some driver that’s in your process, so I call that remaining agnostic.
I try to remain as idea agnostic as possible to the process, and then implement the strategy to the numbers, what are the real world implications? Then let the marriage of quality and quantity help drive the direction, rather than me saying “It goes like this.”
Andrew: Can you give me an example of a business that you were in, that if you walked in with a vision for where it was going to be, that you would have taken it in the wrong direction, instead of listening and letting it decide for you where to go?
Scott: Oh, I can think of probably too many.
Scott: Yeah, because so many times our clients will come in, or even a start-up will come in and say, I’m trying to give a really concrete example, we worked with a software technology that did some very early-on 3D modeling, around architecture. They had come into the space trying to do this certain approach in dorm rooms. They were going to try to work in that space.
They didn’t realize the software could do ten or 15 other things. If we had said, “Great, we have these relationships with the universities, et cetera, let’s push down that path,” they would have missed the opportunities to be the back line of a Crate & Barrel or an architectural firm or a CAD design firm.
Andrew: I see.
Scott: One of the exercises we would do in a company like that, that I think all entrepreneurs should do, is. “Let’s see you guys’ short list of ten things on the white board,” and you’ve got a basic come-to-market strategies. We go through the exercise of forced ranking with the founding team, and say, “Okay, let’s pick two or three,” to my earlier point, you can’t do ten things at once.
When we create strategy, it is truly an engaged process with the founding team. It’s not us telling them what to do, it is literally in rooms, late at night, bending around and figuring it out, and remaining as agnostic as possible.
Andrew: That’s such a challenge. It’s not just a challenge as an entrepreneur to figure out where the business needs to go, where your customers want it to go, where the opportunities are, as opposed to where you want to shove it. Even in conversations.
Just a few weeks ago I did an interview with March Ecko of Ecko Unlimited and I had to admit to him at the end of the interview that what I wanted from this interview was for him to be the hip-hop artist designer that was going to tell me that when he sold his business, he bought a jet and had, I don’t know, tons of women on a plane with him and all that. We both recognized how silly that was, because for him it was a whole different experience. It’s tough, it’s tough to not impose your vision, sometimes, on situations.
Scott: It is, but maybe the background I have as a lawyer is what gives me that ability. Because a trial lawyer is what, a director, a producer, and an actor all at once, right? You are the talent, you’re talking, you’re directing, you order in the flow of the witnesses, and you’re producing the event, how everything happens.
Back to that transition period, the act of letting go of that control was the hardest piece of transition, and now ten years later I don’t like having control. I like being able to just be part of the process. I orchestrate the process, but I’m not certainly dictating the results, because the results have to be collaborative. Otherwise you might as well do that as a sub-chapter five and not take advice.
Andrew: Right. What did you do with the software in retail idea? What was that, the one where you were helping people get fitted for ski boots using an iPad?
Scott: Yeah, that’s one we’re using right now, that’s called Number Nine Software.
Andrew: Number Nine Software?
Scott: Number Nine. It’s the founder’s son’s soccer number. We try to come up with names that have some personal touches where possible. He had owned a ski shop, and we learned that the process of fitting a ski boot or a ski is actually A, complicated, and B, hard to replicate. We took, in the cloud, iOS, the expert rules, the steps, and we actually mapped out the 10 or 15 steps it takes to fit a boot from beginning to end, expressed that in dial down Windows, scroll menus, and actually built in the cloud the algorithms that support decision-making, and then itemized the process so you could actually walk someone through it on any iOS device.
From that we’ve come up with eight or nine other types of verticals. The same process works: a running shoe, a tennis shoe, tennis rackets, golf clubs all these kinds of items, sporting goods that require some modification, and then we backed it into rental and service of those things to do electronic records, as well as product recommendations, real-time synced inventory. Then to make it more engaging for the customer, most manufacturers make these great videos on skis and boots. We actually pull those down from the cloud and so while the customer is walking around in those boots to see if they fit, they’re actually going through the manufacturer’s videos to see their product in action. We found that to be a great [??]
Andrew: Oh, I see. Oh, that’s cool. You guys pre-booked some sales from that?
Scott: Yeah, we got into that company in about… The data was released in November of last year. We went to the ski show in January/February, won us some best in show awards, and it launches in October. We’ve already booked nearly $100,000 in revenue in about 60 different boxes. Current sales tripping it right now, we spent about 150K on developing software.
Andrew: One of the things I’ve found from interviewing people who do pre- sales is that it’s not just about the money in the bank that gives you some security, it’s about validating your idea and getting input on how to build it, from people who are really willing to pay. Did you get any of that here?
Scott: Absolutely. One of the first things we did in December was we went to 16 shops that we didn’t own or control, and literally let them play in the alpha/beta versions for free. They were using it retail in the real world, all in exchange for feedback, and all in figuring out what worked, what didn’t, whatever, we had to change the UI, the UX, and kind of getting into their experience of it.
It’s continuously going through that process with them without charging them a dime, because what we think works- back to being an agnostic, right? If I think it works but you, the consumer, have a different experience, I have to understand your experience. We went out to people we didn’t even know and said “Please test this for us.”
Andrew: Do you have an example of something that happened to the product, the way it was changed, because of those interactions?
Scott: Oh, yeah. We never envisioned up front writing a service mode, meaning how you’d service tickets. “Wax my skis.” We saw that coming as a preview of attractions way down the line. People were clamoring for it immediately. A work order system. Another one, we were pushing and pulling SMS back and forth. We did not realize that stores with multiple locations actually still use paper.
For example, if you’re in Mammoth or Whistler or someplace, there may be five or six ski shops, but all the repairs may be done in one. What literally happens is, there’s no inventory real-time tracking, so at the end of the day 50 pairs of skis come from store one to store two. They have to give up the work flow. They have no idea when it’s going to be done, so one of the things this software immediately did was lineate that.
The realtime workflow happened, and because we had customers’ SMS and contact information, we could ping them messages saying “Your skis are ready for pick-up at 9:00 a.m. at this shop.” We knew that was going to happen, we had no idea major mountains would clamor for that immediately, because it actually solved a communication gap in intra-store, and certainly external to shops. We immediately started building some of those verticals out, when we were thinking it was 12-15 months down the line.
Andrew: Oh, wow. You know what, I can’t believe, still, that there are companies that operate based on paper. I just assumed everything had gone at least to computers, if not to mobile.
Scott: I thought so, too. Certainly their inventory is computers, but if you literally think about going in and buying a pair of golf clubs, if you golf. I mean you stand there next to the pro, we hand you the five or ten bucks, you swing them, and at the end of the day there’s literally a P.O. written down, right? “I bought this club and I’m changing this grip.” We’ve taken all that and put it into the cloud, so it’s part of your permanent record. They’re still writing those modifications down by hand because they have to go back to the manufacturer, who tweaks it. It’s still print and fax.
Scott: Yeah. Well, think about it, if you buy a pair of Callaway golf clubs from XYZ retail store, and they have to be modified, they’re probably being modified at Callaway, San Diego. So somehow a piece of paper has to get to San Diego, to get your work order done, to get the clubs back to you in Santa Monica. You pushed all that into the cloud.
Andrew: I still, you know, am going to have to say that there are times when I still use, or companies want me to use fax. I end up going to hellofax.com. I think it’s run by a few Mixergy fans, so that helps. That helps. That helps me get around that.
I don’t want to forget to ask you this, in fact, this was going to be one of my first questions, and I kept getting distracted, but I want to ask about the watches, your passion for them, and the significance of the watches.
Scott: We’re back in the late ’80s, early ’90s when private equity guys would fund deals and you’d get those tombstones on your desk.
Andrew: Yes. My boss on Wall Street used to have them, and in the worst way I wanted it, even though I didn’t know why.
Scott: Right. I grew up in that world where I would just see all these tombstones, and I would go, wow, that’s kind of really cool, but at a certain point it became paper weight. We had no money when I was a kid, and I had always wanted to have a real nice watch, and so one of the things I started doing was when we would close a transaction, or do something that is significant, I will go out and buy myself a nice watch. I currently wear the watch every day of our first major close in 2005, for a couple of reasons.
One, it reminds me on a daily basis of where I was at, and where I’ve been. I try to use that to keep myself humble, and on beam, on point. It’s kind of a fun reward. Frankly when we do startups we do the same thing. We usually buy the founding team a fun gift at launch. Just something to commemorate that launch day and trying to keep start-ups personal and trying to keep these guys emotionally vested in the act of a gift, even if it’s a $30 gift, $100, it doesn’t matter.
Really, I think sets milestones down to remember where you were. I’ve heard that from too many of my mentors. One of my mentors is a guy who was homeless at 17. He dropped out of high school, and was living in a shipping container, a literal shipping container down in Orange County. 25 years later, he had sold x percent of his company to Black Rock for 30 plus million dollars. He bought a piece of land down in Dana Point and across the Bay.
I guess the way you would describe that was the plot of land where his shipping container was, and he bought a little piece of that land and put a shipping container there. Every morning he goes out and sits in his backyard and looks at the container. He said, “Scott, that is one of the things that keeps me grounded.” So the watches work to keep me grounded.
Andrew: I get it. Do you celebrate it like, did I understand it right, every 12 months you celebrate it like a birthday?
Scott: Sort of, yeah. I really do. I have a reminder on my calendar that reminds me of various things of milestones in my life. The first time I paid off my debt. Some of those things, celebrate may mean, just an acknowledgement and a five minute meditation in gratitude or doing something nice.
Andrew: The day that you got rid of all your debt, maybe I wouldn’t say a birthday, but more like an anniversary that is on your calendar that you stop and say, appreciate where you are now because you were deep in debt. There was a day back then when everything turned.
Scott: Yes. And I literally show that up as a 12 month calendar reminder and I take five or ten or 15 minutes and I try to do something to acknowledge that.
Andrew: What’s that look like?
Scott: I have to look at my calendar. I don’t remember that in my head, and if I do that it’ll show up in the video. It’s in March. OK. And I want to say that it’s in the teens of March.
Andrew: I hate celebrating my birthday. It’s July 4th, which I like, it’s a good day, but I hate it. I didn’t do anything. When I was reading the notes in preparation for this interview, I thought I should pick a date that’s significant to me and remember that. It’s not like I’m a curmudgeon who doesn’t want to celebrate, I just don’t want to celebrate something I didn’t have anything to do with.
I want to celebrate something like getting out of my debt, or finding freedom in my life. I’m thinking back, there’s October 2013, that’s the big day for me that’s like a new birthday. When I got done with my first company and I was able to take off and do whatever I wanted. I should go find out what date that was, and make that my new personal birthday anniversary.
Scott: I think so. Because if you can’t, look, birthday is a bit of a fiction, right. Just like I think a lot of things are fictional. We put significance on them because you’re supposed to, like a holiday. If you don’t take a little time to sit back and reflect on something that may mean nothing to the rest of the world but I think you get arrogant, you get complacent, you get lazy, and you’re certainly not giving back. Yeah. And so I just pick that. I did it consciously the first year. It’s become a tradition. I think when I did it the first time I didn’t believe I’d still do it [SS] but it is my day.
Andrew: In the year 2003 for me, ten years from, we’re coming up on the ten year anniversary so I’d better go find it and use that as a celebration. Before I go, I know that we’re running out of time here and we’ve done a little more time than we planned on and I appreciate you staying for it, but how did you get so deep in debt that it became a celebration, a life- changing moment for you when you got out. What happened that you got into debt?
Scott: You have to realize how you shut down a law firm, right? You have existing clients and existing run rate. Cases run 12, 18, 20 months, so you can’t take on new work if you have a date that you know you’ll shut down. Your run rate’s going, when cases terminate or they settle or whatever happens, you’re not bringing in new work, so the [??] start to separate pretty quickly.
Andrew: Between revenue and expenses, yes.
Scott: You take expenses and [??] and then, you know, I had done those two start-ups and hadn’t really fully them yet, so I had taken huge pay hits to get into the bracket business and to get into the Hispanic business. My lifestyle and my life had still been lawyer, take a 60 or 75% pay cut, try to figure out what you’re going to do, you start leveraging.
Like every entrepreneur you just get into that place where “I believe in this and I’m willing to run the course to try to get to that point when I don’t have to.” It’s pretty straightforward math. You can’t a law firm like you’d sell Mixergy. You just exit.
Andrew: You know what? The other interesting thing is, you were 38 around that time, right?
Andrew: You’re not a guy who’s 21 years old, you’re not a guy who hadn’t tasted success. Boy, to go from where you were to where you ended up for a few months, in your late 30’s, and to keep on going and not run back to the law, that takes a lot of guts, and I could see why you’d celebrate the day when you finally proved that you’re out of that, that you made it.
Scott: Thank you. You know, it’s really, at the time it’s me and some pasta. One of the challenges in a start-up is “Will my decisions have impact on others, not just the company?” You’re married, or whatever, in that golden handcuff situation. At the time I didn’t have golden handcuffs so that if it failed, I wasn’t going to screw up other peoples’ lives. I was willing to take the risk because it was my life, and there weren’t going to be ripples throughout my family and my community. That made that decision easier.
I think it’s much harder with marriage, kids, private school. Whatever your personal life looks like, you have to align all those risks and make sure everyone’s bought in that I’m going to take this risk as a unit. At that point in my life there wasn’t a unit, so it made it easier to mitigate the risk, but it didn’t make it any less scary. The problem is, you’re only accountable with yourself at that point in time, and there’s no-one giving you checks and balances. You have to be disciplined to stay on the path yourself.
Andrew: Let’s end this interview on this, Scott. Walking into this interview could have been a disaster for me, because I got in my head about how I wasn’t prepared enough, how I didn’t do as much as I usually like to do, and so on. In the past I either would have gone “homina homina homina” through this interview, or I would have just excused myself from the interview.
I would be honest with you and say, “Look, I couldn’t prepare, I’m not ready, and I think I need to reschedule or back out of this,” but because I’ve been doing some work on myself, I’m in a place where no matter how low I get, I hope, I haven’t been tested, but no matter how low I’ve gotten so far, I find a way to get right back to it.
It’s a meditation process that I go through, and it lets me, whenever I go into deep doubt, find my confidence and go right back up. For you, and first of all for the audience it’s True Mind Meditation that I’ve been doing and it’s tremendously helpful. But for you, Scott, did you get that place at the start of this interview? Why weren’t you thrown? Why wouldn’t you say “You know what then? I don’t want to do this.”
Why didn’t you have this sourpuss look on your face, like “Who put me in front of this, I have to get out of this jerk’s webcam?” How did you bring yourself to a place where you could be fully present, and not second- guessing me, second-guessing yourself, and blowing the interview, instead of doing this great interview that you did?
Scott: I also study zen, so I’ve been in zen meditation for about 15 years.
Andrew: I see.
Scott: That, actually, helps me stay present today. I went out and did a meditation at about 12:45 for like five minutes, and just kind of got still and centered. I use the zen tricks, and you’ll relate to this, I use the zen tricks on the white boards. Being present, letting information pass through, sound, et cetera, passing through you, is kind of the state I get in the white boards turn me into an agnostic. I let things pass through without attaching to them, so I can truly remain open to it. That’s the big trick I use in creating strategy.
Andrew: When you sit down to meditate, when a thought comes through, instead of letting it stick to you, or fighting it off, you’re just letting it pass through so that you can continue, I see.
Andrew: How does that relate to the white board? Do you just allow the thoughts to come through you, and go on the board without questioning, without saying “Do I spell this right?”
Scott: You literally put the stuff on the board, you sketch it as best as you can, then you walk away and look back and see what you’ve done. You figure out the flows and you’re not correcting anything, you’re just flowing it. I think it’s kind of the trick in life, right? If you’re present you’re going to see the opportunities, you’re going to see the pitfalls, you’re not going to judge yourself or others to harshly.
You kind of get the chance to let others express themselves and figure it out. There are no guarantees, especially in the start-up world, so why are you coming in with preconceived guarantees, preconceived outcomes? You’re already cutting yourself off.
Scott: Does that help?
Andrew: It absolutely does. I haven’t been able to put my finger on it, or even explain it to myself let alone other people how it helps, but you’ve done it right here. I can see that actually. At the beginning of the interview, in my mind’s eye I can see the way you were, and I can understand, now, why you were like that. It’s an honor to have met you and I really appreciate you doing this interview with me.
Scott: Thank you so much for your time, it was fun.
Andrew: You bet. Thank you all for being a part of it. Bye, guys.