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Hey everyone it’s Andrew Warner founder of Mixergy.com home of the ambitious upstart. Today I’ve got with me Brad Pheld he has been an early stage investor, an entreprenuer for over 20 years.
Brad can you talk about some of the investments that you’ve made over the years? Maybe throw out some names before I ask my first real question?
Interviewee: Sure, sorry for screwing around with my computer, so I have been investing for over 15 years. Some early investmenmts that I made in the 90’s included companies like Net Genisis which was one of the first web analytics companies went public in 99. A company called Critical Path which was an email hosting company which also went public in 99. Harmonics, the guys that brought us guitar hero originally and then Rock Band I was an angel investor and seed investor in that company. At the previous firm I was involved in Mobios Friendship Capital which we still manage today. I’ve been in, investors in and Mobios was investors in companies like Geocities. I was investor in a company called Service Metrix which X has acquired investors in a couple of companies such as Saenya. That was acquired by IBM. Another company Data Power was acquired by IBM. Most recently and companies that are still active today are we were investors in Postini which was acquired by google. I’m , we are still investors in companies like Return Path, which leads email and deliver building market. A company called News Gator which is sorta dominant 800 price social computing and then through our new fund called Foundery Group which we raised in 2007. We’re currently investors in companies such as Zynga and another company called Ad Meld which is doing extremely well. We recently made a investment in a company called SenGrid which any body that’s running a early stage web based company that’s looking at doing any sorta transaction that we should take a look at. So you we’re pretty active.
Andrew: And by the way, for any one who’s watching this and not just listening to the mp3. The reason it looks like he’s sometimes looking at us and sometimes not is because he happens to have a computer with a camera that’s sitting at the side not directly overhead the way most people are. The way most, the way my setup is today. What about Tech Stars? What’s your connection to Tech Stars?
Interviewee: I was one of the original cofounders of Tech Stars. David Cowen who runs Tech Stars created the program. There were him, myself and two others. David Brown and Gerard Polis. We were the original founders in 9, 2006. The we’re I guess in year 4 of our Bolder proogram and year 2 in the Boston program and are just starting up a Seattle program. So I was very involved at the beginning my partners and foundery group have been very much involved as well.and we’re continuing to very actively support the program
Andrew: Are you investors in the program?
Interviewee: Yeah I, we are personally investors our funds isn’t an investor, but us as individuals are investors.
Andrew: I heard that you said that we need to talk more about our failures. When I do interviews about entreprenuers that fail I’ll spend an hour with them. You won’t get me as high traffic as some of the access interviews but I feel like am doing good work and am learning someting from it.From your experience what do we get otu of learning from our failures.
Interviewee: I mean the cliche is that your real lessons, the real lessons that you learn are from the things that are failures and are rough.
I think that entrepreneurship, and the creation of a successful company, especially over a long period of time, is a sequence of a lot of successes and failures. Understanding how to deal with those failures and move on, whether it’s a failure of a specific thing within the context of the startup or failure of the startup as a whole, is incredibly important. It also plays back a couple of different ways where you learn an enormous amount about different things that drive the failure, when you look back on it in hindsight, but you also learn a lot about yourself and about the people that you’re working with, and about how to work with and relate to other people in situations that are extremely high stressed. I think that that’s a unique characteristic, sort of reflecting on failures, to think about, “If I had done this differently, would the outcome have been different?” Interestingly, in a lot of cases, there are things that you think you might do differently in hindsight that actually have no impact on your success or failure. So it comes down to what’s under you’re control and what’s not under your control.
Andrew: Can you give an example of that?
Interviewee: I would say, oftentimes, the very simple sort of lightweight version is somebody thinks, “If I had just been at that meeting,” or “If I had just made decision X instead of decision not X.”
Andrew: Can you give us an example from yourself of a decision that you thought you made a mistake in or that you could have done differently but really didn’t matter?
Interviewee: I was co-Chairman of a company called Interaliant(?) that was worth a couple of billion dollars ultimately went bankrupt. We raised $160 million in a debt offering around the time the NASDAQ peaked in 2001. It was a very painful failure because we raised that and that was supposed to convert into equity, the equity traded up. The high point of our equity value was like a day before the debt offering closed. So, the debt never converted to equity and it ended up always being debt. That ultimately created a capital structure for the company that was untenable. We made lots of other mistakes, but that was sort of one of the big ones.
A sort of thought in hindsight would be, “Gosh, we should have raised equity instead of debt. We should have done a secondary offering, we should made sure we raised equity.” When you sort of think that through logically, it’s actually not at all clear that, given the SCC process and how long it took to raise equity and the timing that we’re trying to do that, that we could have actually gotten equity offering done. So, that specific decision which probably, in retrospect, was ultimately part of the thing that caused the failure of the company, may or may not have been one that if we had done it differently. By the way, the company needed to raise the money, so it didn’t have a choice of not raising the money.
That would be a big example of it. A smaller example, very specifically that I had over and over again is the dynamic around making a decision around of an investment in a particular company where the people in the company have misalignment. So, forget about my alignment with the entrepreneurs, think about just the entrepreneurs alignment with each other, the people on the leadership team’s alignment with each other. As a new investor, one of the things I’ve learned through having failure is that you often can’t fix that misalignment downstream. Time doesn’t make it better. If you identify it when you’re making the investment or at the time that you’re evaluating making the initial investment, you’re a lot better off dealing with it at that point in time.
Another specific example that’s investor-centric is a lot of times when you have a company that’s really struggling and it needs to raise additional money, the investors will kind of convince themselves, and the entrepreneurs often will convince themselves, that “We just raise a little more money and try again and change a few things, we’ll get to a happy place.” When in fact, all you’re doing is delaying the inevitable failure of the business or you have something structurally wrong that you’re not paying attention to.
I have one very good experience where it really mattered in a person’s life which was a company as an investor called BeMANY. The entrepreneur, a fellow named George Jankovich, had been a very successful entrepreneur. This was his sort of second real company but third sort of entrepreneurial experience. His first company had been bought by VerticalNet. He went on to be very successful at VerticalNet sort of during their rise. He started this company, we were the investors. He was very, very talented, built an interesting business sort of in and around the Internet bubble, but got to the point where the business simply wasn’t working.
He had about a million dollars left, he’d cut the business down to about ten people, and he sort of felt like he could sort of go for about a year and maybe try to make something work. I think he’d raised about $10 million.
My conversation, as the biggest investor, with him is, “Is it worth a year of your life to keep working on this business just to get back to a place where, maybe, if you reinvent yourself, it’ll be successful? Or, is that opportunity cost to be a year of your life worthwhile?” I actually told him, “Look, turn off your cellphone,” – he had just recently gotten married – “take your new wife out to dinner, go and just be calm and be mellow, and think about that.” He came back the next day and decided it did make sense to spend a year of his life.
We shut the business down gracefully, we sent some money back to the investors including me. He went on and then basically co-founded or recreated a company called NutriSystems with a partner, which ended up being a spectacular success. If he hadn’t had that year of his life, if he’d spent that year on beMANY, he probably would not have ended up doing what he did with NutriSystems and creating a huge success. So a lot of times, I think, entrepreneurs get stuck in – and certainly investors get stuck in – the moment of the thing they’re working on versus looking at their life as a continuum and exploring other things.
Andrew: How do you know when it’s time to give up? I mean, I grew with the self-help movement that said, “Never give up. Never, ever give up. You just keep working, and eventually, you’ll find the solution,” but we’re realizing that’s not really true. How do you know?
Interviewee: I love the cliché, “Failure is not an option, never give up,” etc. It’s especially entertaining in the context of the notion that life is a fatal disease. I mean, we do all eventually die. So, what I think is really challenging in the backdrop of “don’t ever give up,” is this notion of looking at the difference between giving up globally and giving up locally. Within the arch of a successful company, so just pick a successful company that has a long history – Amazon, Google, Apple, whatever. There’s a ton of failure along the way. There’s lots of projects that get canceled, lots of launched failures, lots of marketing strategies or sales strategies that don’t work within that long arch of the business.
I think, as an entrepreneur, it’s worth thinking of your whole entrepreneurial life as having that arch. If you take that perspective, the question of “Is there a point in time when you should call it quits on something” is much more a function of your internal motivation belief that the thing that you’re working on actually matters. It has ultimately gone to have real impact either financially, economically, on the human race in terms of the product, whatever vectors matter to you. If you’re looking at all those vectors and the thing you’re working on, when you really look at it, not like, “Okay, I got to do my email now. Yes, I think about it later.” But when you really sit and say, “Is this thing I’m spending time on really has a chance to be powerful, impactful, and positive downstream?” If your answer is something between “no” and “I don’t think so,” that’s the point at which it’s time to seriously consider moving on.
I’m not [xx] about it, the opposite side of the spectrum is this cliché that bounces around called “fill fast.” Everybody talks about filling fast in an entrepreneurial context, and fill fast doesn’t mean raise a million bucks, try something, it doesn’t work, fail; raise another million bucks, try something, it doesn’t work fill fast and sort of keep going until you find something. I guess some people think about it that way, but what fill fast means, really to me as an investor and to somebody who spends a lot of time with very early stage entrepreneurs, is if you’ve done something that fundamentally isn’t working in the context of the business you’re creating, call it early. If you call it early, don’t waste resources on the thing that’s not working. Redirect those resources, learn from your lesson, and be willing to hit reset.
The long cliché – I keep using cliché, sorry about it. I must have read it somewhere in the newspaper this morning, not that I read the newspaper. But, the idea that sort of Microsoft finally gets it right on Version 3.0. It used to be Version 1 doesn’t work very well; Version 2 still doesn’t work very well but it’s less shady; and Version 3 finally is something that really starts to work. That’s really just the same construct. Just keep trying but incorporate what didn’t work the previous time into the next thing, but you can do that within the context of a single company.
Andrew : Do you have an example of somebody who you invested in who called it early?
Interviewee: Well, I mean one of the companies that’s done a great job of evolving their business over time that I’m still an investor in today is a company called Return Path which is a New York and Colorado based company. They’re now about two hundred people. They’ve been around for over a decade so it’s a company that’s been in business for a while and Return Path’s original business was something called e-mail internet change of address so they started out with this premise that the same way when you physically move you go to the post office you fill out a little form and it says, “here’s my new address” and then they forward the mail to your new address, they would do the same thing with e-mail. So when you change your e-mail address there would be a way to register that your old e-mail address is a new e-mail address and anyone that wants to send to your old e-mail address it could be sent to your new e-mail address. It turned out that a couple of years in they, through some machinations, that business was doing OK there’s a lot of activity around it.. they acquired a business called Assurance Systems which was a very young company, couple of people, that was working on this idea of e-mail deliver-ability. So you were having sort of a lot of companies, like the company we were investors in, (??? 6:27 ) we’re doing a phenomenal job of preventing spam but while they prevented spam they also inadvertently prevented good e-mail from getting through. E-mail that you actually wanted and so e-mail deliver-ability was the process of helping legitimate e-mail owners, most of, many of them marketing but not all and certainly not spammers but quality e-mailers, make sure that their e-mail got through.. and if they weren’t getting through help them understand why and what they needed to do to improve the quality of their e-mails so that they got through. And that business which became, sort of a corner of Return Path business really took off and today is the vast majority of the business.. along the way we also bought a business, Return Path bought a business, called Post Master Direct which was a legacy business started in the mid 90s, it was very successful, was bought and sold a couple of times and was a good sort of e-mail marketing business that needed to be refreshed. So we have these three companies that we were operating as one company and at some point along the way it was clear that the original business idea was a nice little million dollar a year business and that was it. So instead of continuing to pump energy into it we sold that business and we sold it for not very much money but gave it a home and then we had two businesses. The deliver-ability business continued to accelerate , continued to be really meaningful. The Post Master business ended up being two businesses. One was e-mail list business one was a survey business so now we had again three businesses and so as that evolved it was clear that those two businesses or those three businesses didn’t really fit together. So we spun off the original Post Master business and now Return Path today is a deliver-ability business. That would be an example of sort of an entrepreneurial team that’s navigated a lot of ups and downs along the way but as a result sort of built the dominant and very significant business.. Return Path is growing very quickly it’s a sizable company two hundred people, It’s profitable, it’ll probably grow between fifty and seventy five percent maybe one hundred percent year over year this year and you know we’ll start to think about being a public company in a year or two. So, that came from the unwillingne- or the willingness to decide that the original business was not a great business by the entrepreneurs was ultimately key to Return Path’s success. If they had held on to that original business and had never decided that the original business wasn’t going to turn into something substantial Return Path wouldn’t be the success it is today.
Andrew : As you were talking about Post Master direct I did an interview with Rosalind Resnick who’s been a long time friend of mind and it’s one of my best interviews I hope people go back and listen to that. You said you gotta decide that it’s not a great business.. that seems so easy when we’re listening to you now years later and we’re thinking, “absolutely, makes so much sense!” but at the time it’s hard. How did you guys decide to make that decision? I know it wasn’t easy for you, but..
Interviewee: It’s actually not hard it’s really fucking hard. It’s agonizingly hard because of two things. One is the existing opportunity cost of the business so you spent real time energy and emotion on the business and the other is something which is always I think in an entrepreneur’s mind and a little bit
Interviewee: The investors are one degree away from it, but just how do you deal with all of your constituencies when you make a decision about something like that? And I’ll give you another example which is a company I’m on the board of today, News Gator, which is doing very well. They started off as Gain [Reinaker] who is the founder. The original business was an RSS reader, and Greg came up with a plug in for Outlook, and then he came up with an online RSS reader and the original started selling the plug-in for Outlook for I don’t know $20.00 a month or $29.00 a month, and then sold an online service subscription for $5.00. And we invested $1 million when it was just Greg as a seed investment and that company today, I think that was 2004, yeah 2004, that company has evolved into a company that the vast majority of the revenue was selling enterprise social computing software that sits on top of Microsoft Sharepoint and they have had extraordinary success in the last couple of years with their products and with the company. There was a moment in time where we had a bunch of different pieces in the business, the same kind of evolution so we had a very popular online reader called, it was News Gator Online, which was free. We had a bunch of client products that are RSS readers Feed Demon and Net News Wire were the two most visible in PC and Mac that were both effectively free, but synchronized with the online service. And then we had a bunch of sort of other things around that, and then we had the enterprise social computing [inaudible]. So if you think about this, two businesses, one sort of a consumer facing free business and we had some ways that we made money from that but they were sort of second, third order of facts and then a very well-defined enterprise social computing business which was selling software licenses that where the growth factor from that business from both revenue and profit perspective was very clearly defined were stuck sort of with the decision. News Gator was really well known sort of broadly for their RSS readers. So we had a lot of sort of I would say if nothing else even if we didn’t have a lot of economic value from it, we had a lot of brand reputation, we had a lot of users and the other side of the business News Gator had a good name within the enterprise and with an IT organizations but it was, you know, around something totally separate from what the online piece was. It took us a while, and oh by the way it cost us real money to run the online service right? We had a bunch of servers and data centers, we had a bunch of infrastructure, we had people having to deal with it and it was hard to decide what to do. And, you know, we went through the whole spectrum should we start charging again. Naw, that’s stupid. These are free products. At this point we don’t want to do that to our user base. We don’t want to shut things off. We want to make sure that if people have a migration path, it’s a logical migration path [inaudible]. We ended up sort of going through a couple of iterations and the ultimate iteration was Google reader had a rich enough API that we could change the Feed Demon and News Wire clients to synchronize with Google reader. So instead of them synchronizing with News Gator Online, we could sort of take the News Gator Online piece out, you know, deprecate it and ultimately turn it off and send everybody, you know, rebuild the client produts and send everybody to Google reader. And by that point, you know, the online news reader there were a lot of users still but we felt like Google reader was a good enough alternative that they were a little different, but it didn’t really matter enough and people could kind of be, you know, gosh this 17th feature over here, I can’t get over there but at least I get the same basic functionality. So we put some effort into making it really easy to migrate. We made the move. We took, you know, the gratuitous articles that RSS is dead, we kind of let them sort of role through for a couple of days. But the end result was we took a big part of our business that was distracting to the core value of News Gator as a long term company, we made sure that those customers, those users of net news wire Feed Demon who News Gator still owns today and still, you know, cares about a lot, we made sure those customers were in a happy place and we made a clear transition to get rid of a bunch of sort of costs in infrastructure that distracted us from putting all of our energy into the real part of the business that was [inaudible]. And, you know, when you say is that a hard decision. Yeah, it was a really hard decision. It was hard for Greg, it was hard for the management team, there was a lot of internal conflict over how do we do this, and oh by the way we’re not talking about multi-billion dollar companies with divisions that they’re buying and selling. We’re talking about fast growing entrepreneurial companies that have a resource constraint, right.
I like to hear people, everybody in the world says, “Oh, I don’t have enough of this, I don’t have enough money.” Every single company on the planet had has resource constraints, you have to make decisions about where you put your resources. It’s especially true in a high growth company because you want to put your resources against the things that are really making progress versus just having them diffused.
As an investor, it was a lot easier for me to say, “Oh, don’t worry about this” or “Don’t worry about that,” than it was for J.B.(?) who is the new CEO or Greg who was the CTO to sort of have those – or anybody else in the management team – because they were leaving, they were closed to it. They had to really deal with the implications of the decision. So, to end that thread, I think it’s really difficult and I think it’s a testament when management teams can make those decisions. You see so many startups and so many companies that get on a growth curve that they just sort of carry on. They do lots of things, there’s lots of activity, but they don’t make the hard decisions that fundamentally improve their business.
Andrew: You mentioned earlier Return Path. I remember I had a 20 million email newsletter at the time. Return Path’s people would call me up and I think they offered to pay me to allow my users, when they unsubscribe, to tell Return Path about their new email address or something funky like that. But even though they were paying me, I just said it didn’t make any sense for me. I knew Return Path as the company that just did that one thing. When I had trouble getting my email delivered into Yahoo inbox and Hotmail, at the time, I didn’t think of Return Path as the company to go to. I thought of them as these guys who called me about this other issue. What about, as you’re pivoting and changing and killing, what about the brand? What are we doing to the brand, and how important is that?
Interviewee: I think that’s the essence of a startup. You’re evolving your service from a gem of an idea to something that the market or your customers know you at. When you make changes and you start to move around this business inevitably moves, it’s incumbent on you, as a company, the leadership of the company, and especially the customer facing parts of the company – the sales people, the executive team, the operations people that are interacting with customers – to be really clear about what it is that you’re doing. I think the thing you described is a natural phenomena.
For how long did we think of Yahoo as a search company versus Yahoo as a media company that happen to have whatever the large number of people came to it everyday from MyYahoo. By the way, Yahoo missed that that’s what they were. So, the perception, I think, as entrepreneur constantly thinking about how you describe your company, not letting it be a marked [xx] PR-driven activity, but being the essence of the product. I would just say, 15 years later, all I care about now, when I’m looking at a company investing, is the product. I’m obsessed with the product.
Now, I care about the people – I shouldn’t say all I care about – I care about the people a lot, but I’m obsessed with the product. I don’t care about the financial model. I don’t care about the fantasy of what it’s going to look like in five years. I don’t really care that much about the competitive landscape because I only invest in areas where I understand the competitive landscape really well already. So, I’m focused and obsessed with the product and what is that product to you and how does that product interact with the customer. What is the customer buying? What do they thinking they’re buying? What do they think they’re doing? I think the CEOs and the entrepreneurs were obsessed with the product, and that’s what they think about day in, day out are the best CEOs.
I look at some of our companies today, Zynga, Mark Pincus is completely obsessed with his products, completely obsessed. I look at Pogoplug, a company that makes these cloud engines, Dan and Jed Putterman, who are the two co-founders – and Dietrich(?), the other co-founder, obsessed with the product. I look at another company in our portfolio, SendGrid, that we just funded that is in the cloud transactional emailer. So, if you’re looking for a very low cost way to send high volumes of transactional email, use SendGrid, you outsource it to them. It’s almost the inverse of Postini, where Postini, you changed to one thing in your MX record, and all of a sudden, all the spam went away. In the case of SendGrid, you changed one thing with your mailer if you’re using Postfix or whatever your MTA is, you point at SendGrid and they take care of all the email sending.
Isaac, one of the co-founders, who’s the CEO, is obsessed with the product. I think that obsessed with what the product does and how you talk about the product. One of the things that we definitely spend a lot of energy on with the TechStars companies when we talked to them and mentor them is we want founders who are in the same way obsessed with the product.
Andrew: Can you talk to me about, how about we look at the product, at the product-obsessed CEO through the eyes of Pogo Plug? what is Pogo Plug? That’s the device that you plug a hard drive into and you have access to it from the Cloud?
Interviewee: You, you described it perfectly. So… The way we invested in it, let me tell the story about how we decided that was an interesting thing to invest in. We were investors in a company called Sling Media, which made the Sling Box, and we have a theme we called “Digital Life”, that’s one of the things that we invest in, and the premise behind the theme is that your digital assets belong to you, and you should be able to get access to them from anywhere on any device and there’s a whole series of companies that help enable that. In 2003, 2004 and 2005 there were a ton of companies that emerged that were next-generation TIVO, so everybody was talking about computer in the living room, digital home, all these different ways that media was going to get to you, and almost all of those companies basically were shipping hard drives in a computer, they were computer boxes and anyone that had one of the old Microsoft media players from HP in their living room, you know, that had a fan that made the airplanes sound not very loud. I mean who wants that in their living room? Nobody, turns out, right? What you want is, you have a bunch of existing infrastructure in your living room, you want to make that existing infrastructure, which by the way is manufactured and works very different than the computer, you want that stuff to work seamlessly with your computer infrastructure wherever you were. So we came across Sling, the magic with Sling was all software. Yes, they made a little box, a little plastic box, very cute, it had a nice Lebowski reference to it, and if you took a hammer and smashed that plastic box, all that was in that box was a circuit board with a couple of chips on it, a DSP, and an internet chip, and some memory, that’s it. Everything that was magic about the Sling Box was software, and the box was that last bit of connectivity to your A/V stuff in your house and to the internet. So we had great success with that company, Echostar ultimately bought it a couple of years later. When we ran into Pogo Plug and we ran into the Puttermans, we saw an analogous phenomenon to your hard drive, so everybody all of a sudden was talking about Cloud storage and everybody wants Cloud storaging, you put all your data in the Cloud, you want to have your data available to you anywhere… You ever tried to put a Terabyte worth of video in the Cloud?
Interviewee: It’s kind of hard, it takes about a month.
Andrew: Frankly, putting even 4GB, I can’t do using a Jungle disk, I think there’s a capacity of 3GB or something, yeah you’re right, the difficulty doesn’t even come at that big size, it comes at smaller sizes too.
Interviewee: So let’s say 4GB of memory, 4GB is like nothing, like I carry this…
Andrew: My interview could be 4GB depending on how I format it, absolutely.
Interviewee: I have a flashdrive in my bag from Kingston, that’s a 64GB flashdrive, you know that I carry around with me, right? 64Gb flashdrive, you can stick in my ear, right now. I’ll put 64GB in my mouth now (makes mouth sounds like he swallowed the flashdrive). So that’s problem number one, and that evolves everytime as we get faster connectivity and storage, but it’s a problem. Then, how many people in the world still have hard drives sitting around that are USB connected hard drives, everybody that has a computer that does much of anything probably has an extra USB connected hard drive around, USB connected hard drives still sell like crazy, and by the way you get flashdrives that are 64GB flashdrives, you know, for free when you go to a trade show. So what Pogo Plug was, was a box that one end plugs into the internet, just like Sling, and the current version has 4 USB connections on it, you can plug in a flashdrive, a 1TB hard drive, your old 100GB hard drive, so you have multiple drives on your desk. In fact, here is mine right here. Do you see it? I don’t know if you can see it.
Andrew: No, I can’t… Oh there it is, the white box.
Interviewee: Right the white box.
Andrew: It comes in red?
Interviewee: It comes in red, it’s pink.
Andrew: Pink, ok.
Interviewee: That’s my laser gun over there, right. You can see this little box here, this is my National Geographic archive, all the National Geographics from 1888 to 2008, I put on a hard drive that I bought for I don’t know, a hundred bucks, plugged into my Pogo Plug and I can access from anywhere, if I’m sitting with you with my iPhone I can access that National Geographic archive and show you things from my iPhone from anywhere.
Interviewee: Plugged into my pogo plug, and I can access from anywhere, if I’m sitting with you with my iPhone, I can access that national geographic archive and show you things on my iPhone from anywhere. And all the pogo plug does is it makes it, it’s all soft, all the magic’s in software and it makes that hard drive available to you anywhere you want. So it creates your hard drive in the cloud even if it’s sitting on your desk in your office. So it liberates these, you know, hundreds of millions of hard drives and flash drives that are around and allows them to be in the cloud. And oh by the way, it’s not that big a deal to copy 5 gigabytes from my desktop computer, you know, to my drive that’s sitting on the same network. That takes all of about, you know, depends on whether I’m using Windows or Mac but it takes all of a couple of minutes.
Andrew: Okay. See now, I understand the premise behind this. How are the Puttermans, how are the founders of this business different by, how does their obsession with the product show itself?
Interviewee: So I had dinner with them the other night. I was in San Francisco with one of my partners, Ryan McIntyre, and we had dinner with [inaudible] on their board but we all get together when we like to hang out and we talked about a bunch of stuff at dinner and, you know, the more wine we had the more different things we talked about. But a lot of what we talked about was all of the things about the product that were interesting that they were working on. And we didn’t spend time talking about hey, how was Q1, what is Q2 look like from a revenue perspective, how many units did you shed, what did your distribution channel look like. I mean, you know, those things we kind of interact with them plenty but when we’re together and we’re talking, we’re all sitting talking about what can we do with this and where does it go and what’s going on and, you know, gosh I worked on this thing, you know, I was using this thing through UI and I couldn’t do it and hey did you see, you know, they each had an iPad with them and, you know, talking about sort of the integration with the iPad, you know, and sort of showing stuff in real time. That’s what I mean about obsession with the product, and sort of going a level deeper. You know, as a VC very comfortable talking about sort of technical aspects of the product and also from a user perspective saying hey, I, you know, when I tried to do this it didn’t work very well. So it’s trying to relate to the actual products. So that’s different than the entrepreneur who has his, you know, I’m not the guy on the board, I’m one of the other guys in the firm and you spend your whole time talking about business issues, right. So it’s a different mentality.
Andrew: Okay. I was able to explain quickly what that product was even though I didn’t even know that you and I were going to be talking about it. How did they get to a place where they made it, sorry. My mic seems to be having an issue so I’ll keep the question short. How did they get to a place where I can explain the product easily where it’s easy for the average user to use?
Interviewee: So I think that’s a particularly important entrepreneurial skill and I had this conversation with somebody the other day. They asked the question, you know, how open should I be about what I’m working on and what my product does and I said, sort of the first time entrepreneur nervousness. If I tell people what I’m working on, they’ll rip me off and I think that particular entrepreneurial skills are powerful is talking about your product over and over again to people and looking for how they react to how you describe it to them and listening to how they play it back to you and continuing to refine that message, you know, the very short like yours was one sentence version of it to the 15 second version to the 30 second to the minute to the I’ve got you captive for a while and let’s really go deep on it. I think great entrepreneurs and in the same way that they obsess about the product obsess about the messaging of a product. And the way that you get good at that is you just talk about it a lot. You don’t delegate it to an outside, you don’t delegate it to your PR firm. You don’t hire somebody that is going to write press releases. You might have, you know, a specialized person involved early on. We have a guy we love to work with, Jeremy Tollman [SP] who was [inaudible] and whose been involved as a company called Stage Two Consulting in California who’s awesome at working with very early products and sort of distilling them down to their core. It’s finding people like that and getting them on your team at the very beginning, whether they’re full-time on your team or they’re, you know, consultants on your team doesn’t matter. But it’s staying focused on that, and it comes back to the product, right? I mean if you’re willing to show your product early, show it to lots of people, get it out there, iterate rapidly, right. We love products that change every week or two. We don’t love products that, you know, once every 6 to 12 months you do another release. Those entrepreneurs are also constantly refining the way they talk about their product. They’re constantly talking to their today customers, perspective customers
Interviewee: partners and that’s the feedback [inaudible] so critical.
Andrew: How are you finding working with hardware? Were you still working with software where you have complete control over or at least complete control over the product, complete control or a lot of control over deliver ability? What’s it like with hardware? How do you [inaudible]?
Interviewee: We only invest in software companies so we don’t view pogo plug as a hardware [inaudible] company. They’re a software company. They happen to have a box. We’d like to say we’re fine with companies that have little plastic boxes that’s a delivery vehicle for their software. So when I think about pogo plug, they are mostly focused…they’re software changes continually…they probably push a release once a month on the side, maybe more frequently. You know, there’s a part of the software is integrated into the OS so that’ll automatically update itself periodically. But they have total flexibility over evolving the product because the software maybe once every 12 months, I don’t know whether their cycle…their cycle seems to be 12 months. Now maybe it’s 6 to 12 months, they’ll come out with a hardware refresh. You know, cheaper materials, more capability and went from one USB…where they went from one USB to four USB ports. You know, and some things around the product to improve it. But the magic is all software and that’s the only thing we care about so I think that in terms of investments in our world, you know, we have a couple of companies that have a hardware component to their product, but it’s really the case that the real juice is all in the software.
Andrew: Hey, this is a little bit off track here but I’ve got to ask you. You were asked by I forgot what blog was who are the business leaders you most admired and you gave Andrew Carnegie, you gave Bill Gates, you gave a couple of others that we know then you said your grandfather. Why your grandfather?
Interviewee: So my grandfather is a hero of mine for a couple of reasons. One is he was just a tough son of a bitch. I mean this was…my favorite story about my grandfather, he was an entrepreneur and ran a clothing business until he had a stoke. Up until the day he had a stroke, he was running an entrepreneurial business and he was 80 when that happened. In his 70…and he had an office in Miami. He had an office in the toughest and roughest part of the Miami garment district, and I remember going there as a kid and being terrified for my life. Like, you know, you’re walking around and you’re like when can I get inside a building with doors that lock and not just a door, but multiple doors. And one day he didn’t trusted anybody to handle the money, he had to handle the money. He says if you want to fax, call me I’m the fax. I’ll bring you the fax. But I don’t need a fax machine. I’ll just drive it over to you. That was the kind of mentality he had, and he was so sort of stubborn. The essence of his stubbornness is one day, you know, he gets to his office every morning early. He was very disciplined about what he did and he show up at…he’d leave his house at 5:00, he’d get to the office about 5:45, he’d spend about an hour like going through the previous day’s money that he collected and sort of doing whatever bookkeeping work he did and, you know, the factory would sort of start up around 7:30, 8:00 when people would show up and then he’d be in the factory the whole day on the factory floor with all the people that were making whatever clothing. [inaudible] he had mastered the art of making shitty clothing that nobody wanted to wear and then he sold it to somebody, and they sold it to Marshall’s and ultimately somebody bought it. That was his business. And this particular day he wasn’t paying attention. He had a safe where he kept all the money, and he must have closed the safe and was holding the safe like this and closed the safe on his hand and chopped his finger off into the safe and the safe closed, okay. A 75-year-old guy. Now I do that today, I’m 44, if I do that I’d just lay down on the floor and cry and bleed to death. Maybe I manage to call somebody on the phone that would come save me. But at 6:30 in the morning so what does he do? He opens up the safe…oh, by the way the money’s not in the safe…he must have closed the safe like somehow. The money’s on his desk. He opens up the safe, he gets his thumb out of the safe, he’s in a clothing store, a clothing factory, they got gauze and all kinds of things everywhere so he kind of puts his thumb back on his hand and wraps his thumb back on, puts the money back in the safe. So, you know, he’s got pressure on it so it’s probably not bleeding [inaudible]. Gets in his car and drives to the hospital and turns out he’s fine, you know. They sew his thumb back on. It happened very quickly and even, you know, three or four years later he goes like it’s a little stiff, right. But he was just one of those guys. He was going to get it done no matter what and it wasn’t, you know, whatever the hurdle was wasn’t going to slow him down and he lived his life that way.
Interviewee: He was also in the context of his leadership he was very generous, people loved to work with him, he was depression era Jewish entrepreneur so he had plenty of that affect; at the same time he was a great leader, and he accomplished a lot and he cared a lot about; in his world, his kids and his kids kids. In helping them make their way in the world I have always just thought of that as my best testaments my best tribute to my grandfather really is why I looked back on my life to feel like I have help bunch of entrepreneurs bunch of people that were creating there businesses for the first time sort of getting to the magic and be successful as entrepreneurs and recreate themselves as such. That’s why.
Andrew: Speaking of entrepreneurs you’ve helped mentor, I have Laura Fintin here doing an interview about how she launched 140 she kept talking about you, I would like you to talk about her what was it about Laura Fintin that made you spend your time help you mentor her, made you give a rats ass about her?
Interviewee: Laura is a great example of an entrepreneur who all the things that I care about, she cared immensely about the product she had a vision, and from a technical perspective she couldn’t execute the vision because she wasn’t a developer, she knew how to find and attract great developers to work with her to help turn that into reality, She was unafraid of anything she was just fearless willing to ask any question and willing take on any situation and she also had a really magical way of getting people once she got into her orbit you wanted to help her succeed it wasn’t just me it was everybody around her some of it was her style and personality her enthusiasm for creating something that was really meaningful, and so it was very easy to help someone like that, because forget about whatever the long term dynamics were you see someone with that you say how can I help and her particular case she was one of those people that just captivates you with her enthusiasm and you get as much as you give I’d like to say the thing that makes the relationship work, between two people whether it’s a mentor mentee, investor investee, business partner1 business partner 2, company 1 company 2 that are working together; if you focus on giving more than you get and you are working with a person on the other side who appreciates that and subsequently tries give more than they get over a period of time you’ll build a very healthy long-term relationship. The thing that’s fascinating to me that happens over and over and over again in technology industry you have imbalances you always have the dominate company and Less dominate company or you have two big dominate companies that are trying to partner together and the mistake that people make over and over again is that the dominate company loses site of the fact that part the reason they got to the position of significance was because they were giving value to lots of other people, they were giving more value at sometime point and time than there were necessarily receiving doesn’t mean value economically means functional value and I think for especially for entrepreneurs if you approach other people it’s not a zero sum game, one wins and one losses it’s a game where if you are both providing value you can help each other grow because the macro that you’re playing in is both huge and continuing to expand and Laura is was good example of a person that got that she always in every interaction tried to give more than she got.
Andrew: How could she give you anything she didn’t have money, she didn’t have much experience, what she knew about the internet you already knew most of it, how could she give you value?
Interviewee: you have to get after every bodies motivation, part of my motivation part of the thing that drives me I get a lot of satisfaction emotional value out of helping first time entrepreneurs make progress that is very satisfying to me. economically it’s been very successful for me over a long period of time, in the moment it’s not, for an entrepreneur who understands that and is efficient with my time, who is very open with their own linkages and is thoughtful about gosh here’s how can I help Brad with one of his companies, and who when I help them gives me
Interviewee: Part of the software is integrated into the OS so that will automatically update itself periodically, but they have total flexibility over involving the product because the software maybe once every 12 months, their cycle seems to be 12 months now, maybe its 6 to 12 months they will come out with a hardware refresh, cheaper materials, more capabilities. We went from one USB port to 4 USB ports, fix some things around the product to improve it but the magic is all software and thats the only thing we care about, so I think in terms of investments in our world we have a couple of companies that have a hardware component to their product, but its really the case that the real juice is all in the software.
Andrew: This is a little bit off-track here, but I’ve got to ask you, you were asked by, I forget what blog it was, who are the business leaders you most admired and you gave Andrew Carnegie, you gave Bill Gates, and a couple of others that we know. Then you said your grandfather, why your grandfather?
Interviewee: So my grandfather is a hero of mine for a couple of reasons, one is he was just a tough son of a bitch. My favorite story about my grandfather was that he was an entrepreneur and ran a clothing business until he had a stroke. Up to the day he had a stroke he was running an entrepreneurial business and he was 80 when that happened. He had an office in Miami, in the toughest, roughest part of the Miami garment district and I remember going there as a kid and being terrified for my life, you know you’re walking around you’re like when can I get inside a building with doors that lock? And not just a door but multiple doors.
And, one day, he didn’t trust anybody to handle the money, he had to handle the money, he said if you want to fax,call me I’m the faxer, I’ll bring you the fax, I don’t need a fax, I’ll just bring it over to you. That’s the kind of mentality he had.
He was so sort of stubborn, the essence of his stubbornness is one day he gets to his office, every morning early, very disciplined about what he did. He’d leave his house at 5. he’d get to the office about 5:45, he’d spend about an hour like going through the previous going through the previous days, money that he collected and sort of doing the whatever booking work he did, and the factory would sort of start up around 7:30-8 o’clock when people would show up and then he’d be in the factory the whole day on, the factory floor with all the people that were making whatever clothing they make, I like to say that he mastered the art of making shitty clothing that nobody wanted to wear and then he sold it to somebody and they sold it to Marshall’s and ultimately somebody bought it, that was his business.
This particular day he wasn’t paying attention, he had a safe where he kept all the money and he must have closed the safe and was holding the safe like this and closed the safe on his hand and chopped his finger off into the safe and the safe closed. 75 year old guy. Now I do that today, I’m 44 I do that I’d just lay down on the floor and probably bleed todeath, maybe I’d manage to call someone on the phone that would come save me, but it’s 6:30 in the morning so what does he do? He opens up the safe-oh by the way, the money is not in the safe. He must have closed the safe like somehow, the money’s on his desk.
He opens up the safe, he gets his thumb outof the safe, he’s in a clothing store, a clothing factory, they got gauze and all kind of things everywhere so he puts his thumb back on his hand and wraps his thumb back on, puts some money back in the safe, so he’s got pressure on it so he’s probably not bleeding as much, gets in his car and drives to the hospital and turns out he’s fine.
They sew his thumb back on, it happened very quickly, and he even, you know, three of four years later he goes like “It’s a little stiff”. He was just one of those guys. He was gonna get it done no matter what.
Interviewee: . . . their house. Just talking about a bunch of different stuff. And we start talking about books and writers, and my wife is a writer. She writes friction. And we’re talking about that and Susan has a friend who has just written a book, first time book. She goes and she grabs the book and she gives it to me. It turns out it’s a very interesting book, but that was unexpected.
I mean, you run into little things like that, that I’ll read this book and every time I think about something around this book I’ll think about Susan. And then it wasn’t like here I go, go buy my friend’s book. She just got the book and gave it to me. And I could give you a bunch of examples like that, but they’re all the same kind of thing. It’s where somebody does something small that means something to you and reminds you to sort of think about something different than the context of it.
Andrew: Since you brought up books, I know people in the audience is going to ask me to ask you about what books you recommend.
Interviewee: Well, so, I know what the audience is in general. I think everybody in this audience should be reading science fiction. I think you should be aggressively reading science fiction. And I think you should be reading science fiction that’s not just about the future. But, science fiction from 30 or 40 years ago that’s about today.
So, if you go read Phillip K. Dick or you go read Robert Heinlein or you go read Isaac Asimov, and you can pick out books where they’ve written specifically about 2010, 2020. Sort of that kind of time frame. There’s such incredible insight from reading about what they got right and what they got wrong. So, I think any entrepreneur that doesn’t have some science fiction in their rapporteur, should.
My favorite right now science fiction, current science fiction writers are two of them. One of them is Daniel Schwaras [sp] who wrote Damien and Freedom. I think they’re two of the best books about science fiction today kind of plus five years, extremely accessible great books.
And then the other one is Richard Clark who is the head of NSA or something in the government under Bush. He was the guy who got thrown under the bus for failing on 911. He written three books, about to come out with the fourth. His first book was Factual, and it was a clonker. But, then he wrote a book called Break Point. And I’m going to forget the next book he just wrote. And they’re both spectacular and they’re both science fiction.
I also suggest, I think a very relevant book for entrepreneurs today is Ray Criswell’s book, The Singularity Is Near. It’s a chewy book. It’s very futurist oriental. But Criswell has one insight that’s incredibly powerful that he sort of bangs you over the head with for the first 20% of the book which is essentially, human beings do not understand how geometric or expenditure curves work.
So, if you think about all the pattern . . . just think about the Internet from 1984 to [xx] when commercial email started . . . not commercial, but email. Email started in 1978. The number of host on the Internet and the amount of traffic on the Internet has doubled every year, roughly. It’s like Morse’s law, right? And kind of phenomenon. But, it goes to a whole series of examples of these. And the key things that we make so many assumptions in our life either over not really understanding what the location of an expenditure curve means.
We’re not recognizing that phenomena over a period of time is a expenditure curve. So, you see it as a linear phenomena with a very steep rise. But if you take the log rhythm of that curve applied it on a 10 to the power of x graph it’s a line.
And so, so many of these things that are phenomenon that double every year . . . If you change the y axis, they’re actually pretty smooth. But our brains don’t work that way. We don’t know how to think about it that way. So, that’s a good one. The last one that I’ll toss out there that I think is a often missed book especially the younger entrepreneurs today are critically interesting important is Zen and the auto motorcycle maintenance.
For anybody who’s over 40, they probably read it, but anybody that’s under 25 unless you ran into it at college, you probably didn’t,. It was written in the mid 1970’s, I think. And it’s just a unbelievable, philosophical, [xx] on quality, What quality means and what it doesn’t mean, but written in an extremely accessible way. So, there’s a handful for people.
Andrew: Those are great. Well, thank you. I want to be fair with your time and I know that we’re at an hour. Is there anything . . . is there one, you now mentor lots of entrepreneurs, is there one thing you have to say over and over and over again and maybe some still don’t get?
Brad Feld: Couple things. I mean, one is just to go for it. You know, at many steps along the way as an entrepreneur, the stakes change. And people freeze up when things change. You know, your sorta, sorta, clench, and as an entrepreneur, whenever you feel yourself clenching, get some sleep. Like take a day off, go for a long walk, get some rest. Don’t clench. Thing number 2 is there’s two emotions I think are completely wasted. They’re emotions you shouldn’t bother with. Because the only time they would ever come into play probably is life or death situations. And when life or death situations happen, just recognize that we all die. And the two emotions in the context of business and entrepreneurship that are totally wasted are fear and anxiety. If your an entrepreneur, there is zero value in fear, and you’ll have plenty of anxiety, there’s anxiety all the time in everything you do.
Turn that anxiety into something that motivates you to drive to a decision, and drive to change. Rather than let the anxiety paralyze you or second-guess yourself.
Interviewer: How have you done that?
Brad: I think I’ve had enough things fuck up that they don’t bother me anymore. Like, you know, you have, every day I go through something, I like to say everyday something somewhere in my world is completely screwed up. And I used to like, try to defend against that, now I kinda look forward to finding out what it’s gonna be. Like you know, by 4 o’clock in the day if i haven’t heard of something that’s a complete disaster somewhere I’m kinda curious like where its gonna show itself. So you just sort of accept it as an entrepreneur all of these things that are chaotic, and difficult, and challenging, are always gonna be happening. And you turn that into fuel. And you turn it into
Interviewer: How do you turn it into fuel? Give me an example of what you’ve turned into fuel.
Brad Feld: I deal with it head on. You have something thats not working, you say all right, this isn’t working, I’m not gonna ignore it, I’m not gonna avoid it. I’m gonna go deal with it.
Interviewer: I had Fred Wilson, I think it was just last week, or the week before, and I asked him if he worries about anything, and he said, “Are you kidding me? I was up this morning, at 3:30 in the morning, worried.” Now if that happens to you, to Brad Feld, what are you do at 3:30 in the morning when you worry about something?
Brad: So Fred and I are, you know, very very good friends, and our personalities are in a lot of ways, very similar, and the experiances we’ve had, we’ve had a lot that attract. But the way we internalize them, is different. And I think that is part of why we love to work together. Right so the anxiety, the way Fred described it, I didn’t see the interview, I can tell you, that, that motivates him to work on the problem, to grind on the problem, to think about the problems, like, you know, obsess about the problem. To get into the problem. I use the word grind because I think its a good word. When I have something that’s bothering me I grind on it. I just, I just, stay on it and stay on it and stay on it till I figure out what the answer is. And I think Fred does the same thing. But it materializes differently right? Sometimes it grinds on you, and your emotional about it, you react to it, you strugle with it, and it annoys you, it bothers you. For me its like alright I have this intellectual thing, I’m gonna go in the corner and grind on it for a while. So I’m gonna think hard about it. I’m gonna, I never really understood when people said “I’m gonna try to solve this problem” what does try mean in that context? I’m gonna solve this problem. And you can solve this problem sort of out loud in public, that’s one approach. Or you can solve the problem by thinking really hard about it and making a deliberate decision about what your gonna do about it. I tend to take the second path a lot more than the first path. Insistingly though I’m very comfortable with the first path too. And when you say whats the, how do you use this fuel, I use this fuel to say to me, hey hey Feld, you have to prioritize this thing and go figure it out. It’s not right, go spend time on it, it doesn’t cause me to wander around going “oh what do I do, what do I do, what do I do” It causes me to say “get rid of some of the other things your spending time on and go deep on it today.
Interviewer: I’m sorry, you were saying something else earlier, you said fear and anxiety are useless to an entrepreneur and then you were going to give me something else that you say to entrepreneurs a lot.
Brad: Oh, I mean, the other, the last thing, and I leave you with this is, I think the stuff we do as technology entrepreneurs, as a VC investing in entrepreneurs if you think about the last 20 years, and you think about today, anybody that was born probably after 1990, certainly after 1995, probably after 1990, so that would make them 20 today, has never known a world with the internet, the commercial internet, okay? 20 years from now, our society will be radically different and starting in the US
Interviewee: …but in the US our society would be radically different because of that fact, and we’re already seeing it manifested now but it’s just going to continue to accelerate. It is such an exiting time to be an entrepreneur and innovator that you should just have a blast and recognize that lots of stuff is hard like the moment you have that idea, to the translation of that idea into a really successful company. That path’s a bitch, but have a great time along that path. And it comes back to my fear and anxiety comment. It’s if you’re miserable what’s the point, and it’s going to be hard and you’re going to have things that don’t work. There’s going to be lots of failure along the way. There’s going to be lots of things that work out differently than what you thought. We’re all human beings here, human beings have this habit of continually disappointing other human beings. That’s just life, but being an entrepeneur in a time that’s special and magical in the context of communication, I mean having this video thing I’m talking to whoever is listening, it gets recorded, it gets… I mean, you know maybe we’ll have jet packs in 20 years and maybe I’ll have a portable teleportation machine in 20 years, but I know that the communication dynamics and the way that we interact with computers and software and technology can be radically different in 20 years. So have a blast doing it, and I think that’ll help be the fuel that keeps you going, especially in the ups and downs.
Andrew: I see efficie and duchly, the company that edits my videos and does a bunch of other work for me there, someone is in the audience saying, “Andrew, don’t stop. Keep asking questions. Every question brings out some other great answer.” Well, Brad gave me an hour of his time, and I know you’re busy. It took us a month just to even find this hour, but it won’t be the last hour. I’ll be fair with you this time so that next time we schedule an interview we’ll know that, “You know Andrew is going to give me… He’s not going to soak up much of my time.”
Interviewee: And look, delighted to do it. Delighted to do another hour some time it’ll take us a month or two to schedule it. Just send me an email and I’ll get Kelly to figure out a time.
Andrew: I would love it, and Kelly thank you for putting all this together. Brad thank you for being here. Thank you all for watching. I’ll see you in the comments.
Interviewee: Andrew, thanks.
Andrew: Cool, Bye