Andrew: Hey there, freedom fighters. My name is Andrew Warner. I am the guy who bangs on his desk all the time. Listen to that on the mike. I don’t know how people can just sit still and just have a conversation, especially when the conversation gets exciting. I just tend to move and bang around on stuff. And our producer, who has been editing these interviews, says, “I can tell when you’re excited. I can hear it on the mike. I have to compensate for it.”
All right. Joining me today is an entrepreneur who might make me bang on the desk a lot but I’m going to try not to. Brad Chisum created a company called Lumedyne Technologies. I’m going to give you the simplified version of what they do because I think if we start bringing up a phrase like MEMS sensors, we’re going to go nuts. We’re going to feel like maybe what you do, Brad, is too far over our heads but it’s not. Here’s what it is. The company designed and created accelerometers and sensors. And we’ll talk about what that means.
We’ll also talk about how soon after he started, about 10 years later, he sold the company to Google for . . . what I’ve got here is a reported $85 million. That seems like an accurate number but we’ll ask him about that. And now, he went on to create a company called Launch Factory. What they do is launch startups, but they do it in a way that’s different from most others. They have the idea. They’ve done the research. They’ve done the due diligence. They’ve done the market research. They’re prepared to launch the company. And then what they need is a team, including a founder to help lead it, which is such an interesting way to start companies. I want to find out about how he got into business and how he got his first customers. I want to find out how and why Google came to buy his business, why he was not interested in selling unless they agreed to keep him in San Diego. And I want to know whether that’s a rumor or not and so much more.
We can do it all thanks to two phenomenal sponsors. The first, if you’ve got a Mac, if your team has a Mac, pay attention because I’m going to give you a basket of software for free from Setapp. And the second, if you don’t think you need a website, listen to what I have to say when I talk to you about HostGator. And if you hate your hosting company, you’ll definitely love it. First, Brad, good to have you here.
Brad: Good to be here.
Andrew: Brad, I’m trying to read the expression on your face because I feel a little bit intimidated by your history. What did you think of the way that I introduced you? It felt like you weren’t super comfortable with it.
Brad: Oh, no, I thought you did great. Yeah, it was . . . The only part that I would say if there was discomfort, it was you said that I created the company and, you know, I didn’t do it by myself, right? So there was a lot of other people involved. Richard Waters was my co-founder. He was the inventor of the technology and so I’d just like to make sure to, you know, give credit where credit’s due.
Andrew: I’ve got it. In fact, I actually wrote his name at the top of my Google Doc to make sure that I included Richard in the conversation. What about the $85 million number? That’s accurate, right?
Brad: That’s the same number I heard, yes.
Andrew: All right. But you’re not willing to say yes or no. Do you remember the day when you signed the agreement with Google to sell your company to them to be a part of their company?
Brad: Oh, yeah. There was . . . Yeah, there’s multiple signing dates, right? So first, you get a term sheet. And then you have to go through the due diligence and all of those types of things. So there’s really two big signing dates. One’s that term sheet and then the other when you have everything done. And there is a big space between term sheet and the completion of due diligence but you celebrate both times.
Andrew: What’s the bigger celebration or the one that felt most life-changing for you? Do you have a moment?
Brad: Yeah. I mean, the signing of the contract itself, that was . . . I mean, yeah, everything’s different after that. We got to actually celebrate the signing of the contract twice in the same day within a few hours of each other because the . . . So I get a call from my lawyer. You know, I had signed it and mailed everything in. But I get a call from my lawyer that Google had signed it and that it was on the way to be filed with the state so it was official.
About 15 minutes after that, I get another call. He says, “Hold everything. Put the corks back in the champagne.” They were sending a courier to stop the filing of the papers because their law firm had made an error in their submission, something that it wasn’t anything that I was part of it, and it wasn’t actually material to the deal. But it was going to cause a delay and all those things. Fortunately, for us, their firm was not able to get that courier stopped. And so then he calls me back about an hour later and says, “We weren’t able to stop the guy. The papers got filed. It’s official. Go ahead and re-open the champagne.”
Andrew: But if they hadn’t filed the paperwork, if they had pulled it back, if they got the guy, then you wouldn’t have had the business sell?
Brad: Well, you know, it just . . . I mean, Google could have changed their minds at that point. They probably wouldn’t have because it wasn’t . . . This was more of a clerical error. It wasn’t anything of material . . .
Andrew: Okay. So they probably would have done it again, just done it properly.
Brad: Yeah but when you’re going through that due diligence and, you know, there’s a . . . I had somebody on my board of directors, Ken Potashner that used to tell me, “Any good deal almost dies three times before it gets done.” And so that was true with this acquisition. There were times when we were going through the due diligence that we really thought, you know, “This isn’t going to happen. This is going to fail.” But then we were able to find a way to pull through in it. And things pull through when both sides are looking for a solution and not getting stuck on the problems. I think Google, fortunately for us, was also of that mindset so we got the deal done. But that didn’t mean we weren’t going through that emotional roller coaster of, “You know what? This just might fail.”
Andrew: At your last moment, what did you think was going to happen? That you were going to be stuck back at the company, that you would have to go back to find customers, that you’d, what, have to get more investment? What was the biggest pain?
Brad: So the challenge with the . . . So the due diligence portion, when you enter that phase, we had to basically stop business for all intents and purposes. We could continue with existing contracts, but we weren’t drumming up new business. And if you looked at our position at that time, we had cash for about another six or seven months.
Okay. So we had done a process where, you know, we had been taking interest from a lot of different companies. And we had just told everybody, “No.” And if you try to go back and restart negotiations with other parties after a failure, it may not happen. And then with that amount of cash, it would have been a very difficult time . . . I would have been really hard for us, you know, to get things back and moving without having to do something like layoffs. And, you know, so I’m looking at this as, “Okay. We may have to have major layoffs. We may actually go out of business because of all the time we lost during the due diligence process.” But you know how the startup world. You know, every day counts and you can’t waste any of them.
Andrew: So how do you keep your head on? How do you keep yourself from doubting yourself? How do you keep from being a terrible boss when it’s this risky?
Brad: Yeah, I think . . . So I take pride in doubting myself. You know, it’s a . . . So if you don’t doubt yourself then you run the risk of succumbing to arrogance and none of us want that. But you can use self-doubt as a way to strengthen yourself. So the way you overcome your lack of ability and your lack of talent is you make sure to involve other people in the process and get people that are better than you around you, whatever the task might be, and you plan in advance. You make sure that you spend the extra time to dig deeper and prepare. We had a whole team around us that was working really, really hard to make this happen. And it wasn’t just people within the company. This also included people, you know, that were affiliates outside the company, and we were all in this together, investors included. So I like to remember the self-doubt portion because that’s how you remember to [inaudible 00:08:07] these people.
Andrew: The way you overcome self-doubt is by having other people around you?
Brad: And you plan and you strategize. You always . . . Yes.
Andrew: Sorry, Brad. You would sit with them and you’d say, “Look. If Google pulls out, what are we going to do?” So are you the person who wakes up in the middle of the night with worries?
Brad: No. So if I have a superpower, it’s the ability to sleep. I’ve never had . . .
Andrew: So where does it come up? Where would the worry come up during this sale that you would have had to overcome by relying on your team and strategizing with them? What’s a moment that this came into play?
Brad: Yeah. So here’s a significant one. So our technology was developed by the Navy. It was given to us under license. So we had a license with the Navy. Okay. So when Googled reviewed the Navy license, they had terms they needed to have changed. All fairly standard, except for what they were asking for the Navy at least the tech transfer office we were doing, the Navy had never agreed to those kinds of terms before. There wasn’t precedence. And the Navy doesn’t like doing new things when it comes to licenses like that and we were also under a time crunch. When we first got the license in place, it took about nine months to get that license from where we agreed on terms to actually getting signed. I had to have them make material changes to the agreement and get it done in weeks, two to three weeks.
At the same time, the person that ran the Tech Transfer Office, Brian Suh at the time, his wife was in the hospital possibly not going to make it and they had two little kids. And so I’m having to negotiate with him while his wife . . . while he’s dealing with a possibly terminally-ill wife. And there was no second . . . You know, there was no replacement person for him, right? So if he’s not able to do this, then I just have to wait until he is. So this is a situation where, you know, we have somebody that’s not, you know, within Lumedyne. He was outside but he was instrumental in making this succeed because anybody else in his position would have just said, “Listen. I’ll be back in a month. You can talk to me then.” And we would have lost the deal at that point.
So what I did was I got with my . . . Fortunately, Brian and I had known each other for years but I talked to him. I said, “You know, this is . . . We really have to see if there’s a way to get this done. Is there anything I can do?” You know, there wasn’t much I could do. But I just asked him, “How can we possibly get this done?” Well, I would be on the phone with him when it was convenient for him. And often, that was when he was in the waiting room at the hospital and we’d be talking terms. But I talked with him about, “How do we structure these negotiations in a way that fits your situation?” And, of course, he had to be motivated to do that, right? I don’t think most people would have done something like that in his position.
Andrew: Okay. That’s still you doing it. When you were paranoid it’s talking . . . Is there someone internally in the company that you turned to when you were afraid that this wasn’t going to work out? How would you overcome that?
Brad: Well, I had a very, very, dedicated and active board of directors. So during this time period, Richard and I would be on the phone with Ken and John and some of the other guys almost, you know, at least two or three times a week. And this was active discussion. “Here’s the latest problem. Here’s how we can solve it.” And, you know, so internally, we had a board of directors rolling up their sleeves getting actively involved, confirming . . . You know, when you . . . Sometimes it’s just really nice when you have a plan or a strategy to have somebody who’s experienced just to validate it. It raises your confidence. You know, you know you’re not just onto something. You have other people buying into it. And 9 times out of 10, that’s all you need. Sometimes you need a little bit more but they were there for that.
Andrew: And you had this relationship with them where you would check in with them. And you would tell them what was going on, have them help you think things through all along. And so when it was time to the sale, it was part of your relationship with them to talk through the doubts, to talk through how to overcome problems.
Brad: That’s right.
Andrew: Okay. You were working for the Navy doing what?
Brad: So it was a pretty cool job. It was doing research and development for semiconductor manufacturing, right? So this was one of these things where I got to do all kinds of cool experiments. You used all this high-end equipment. Everything we did at the lab was at the secret clearance level, you know. So I really couldn’t tell anybody about what I did. But it was a lot of fun. I was given a lot of autonomy. I could, you know, basically go, you know, within reason do the experiments that I wanted to do. And you don’t usually get that kind of freedom to do R&D.
Andrew: And what was Richard doing there?
Brad: So he was in the process of developing the technology that we actually licensed. And I got to do some of the engineering work just on some small peripheral stuff with that, but he was developing it. And our offices were close to each other. So that’s how I got to know him.
Andrew: What do you mean that you were licensing . . . You were creating technology and he was . . . I’m sorry. I don’t understand.
Brad: He was developing the technology and then later on, after I left the Navy, that was the technology that we licensed.
Andrew: Got it. And I thought that one of the things that I heard you say in the past was that you were creating what he was inventing. Is that right? Like you were actually manufacturing it on a small scale?
Brad: So the prototypes that he built at the Navy were very early stage. So it demonstrated the concept and, you know, it showed that the physics worked. But there was still a long space in between having a device that you could . . . you know, was commercializable and the earlier R&D. So what we were doing was bridging the gap between concept and product.
Andrew: Okay. And the one day he comes to you and he says, “If this thing were working on a successful, we can all be millionaires one day.”
Brad: Yeah. So that was actually before he licensed. I mean, I was at the Navy, we’re in the lab, and he comes in to check on his products. And we’re looking at them under the microscope. And as he left, he made the comment that if this technology works, we could be millionaires. And he said that in a generic sense. And at first, I was going, “How can I be a millionaire off of his product working? And how could anybody be a millionaire?” So that really got my wheels turning. And so I did what anybody would do and I went and asked him, “How is this going to make us millionaires?” And I did some more digging. That’s when I started learning about tech transfer, that technologies can come out of the lab. And if there’s a precedent for it, there’s a whole office that’s dedicated to making that happen and I went and met the Tech Transfer Office and learned about the whole process from there. But had he not made that comment, it never would have occurred to me to even look at the possibility.
Andrew: And what were you working on that he got that excited about?
Brad: Oh, well, he was excited about what he saw in his product. What I was doing was boring. His stuff was a lot more interesting.
Andrew: What was his product that got him so excited that he said, “This would turn us into millionaires”?
Brad: So it was an early version of the MEMS basic accelerometer. So it was . . . We hadn’t tested it yet but what he was expecting to have happen was to be able to measure very, very small accelerations with this super-tiny device that hadn’t been done before, meaning that normally, you would need a much bigger, more expensive device to do the same kind of measurements that he was looking to do, and, ultimately, he was successful.
Andrew: And what did he think he could help people do? What were the uses that he imagined back then?
Brad: Back then, navigation systems but in particular, mostly . . . I mean, this is a government lab. So, of course, you usually are focused on military-type applications, so airplane navigation systems, you know, individual, you know, personnel navigation systems. Basically, anything that moves and tracking its position.
Andrew: What I heard was there were a lot of people that said, “Why did Google buy this company? What was Google trying to do?” One possible use that I heard was that once you bring your phone from outside inside your house, inside a CVS drugstore, all the features that allow you to drive around and get by and have the phone understand where you are, once you get inside a building, they just don’t work very well. And what people were assuming was that Google was going to use it for that. Is that right?
Brad: Yeah. I mean, I think that was at least part of the original vision. Google, you know, is one of these companies that, you know, they usually have multiple motivations for everything that they do. So, you know, they’re not afraid to dream big and they’re not afraid to get, you know, fairly involved in their strategies. And so there is actually a number of things within Google that these sensors could benefit. But, certainly, you know, improving navigation systems on cell phones would have been on that list.
Andrew: And cars, I heard, was another possibility.
Brad: Yeah, that would have also been another possibility.
Andrew: Okay. And so the two of you at some point say, “We’re going to start a company.” Now, you’re a guy who’s working for the government. But in the back of your head, you’ve got to, in early parts of your life, have said, “I think I want to start a company.” Your parents were entrepreneurs, right?
Brad: Oh, yeah. I always had ambitions to be self-employed, start a business. I didn’t know what the business was going to be. And I didn’t have a specific business in mind. I did, you know, at different times, but it always would seem to change and evolve. But yeah, being an entrepreneur is something I always wanted to do. So my undergrad major was electrical engineering and math. And when you’re a math major, you usually take a lot of statistics classes, right? So that kind of made becoming an entrepreneur hard for me because you don’t have to do that much research to look at why starting a company is not . . . it’s not a good idea statistically, right? So I tabled the ambitions and thoughts for a long time but it just kept coming back to me. I really wanted to start a company. And, in particular, I wanted to see if I could start a company that was a technical company. I really liked technology and, you know, it was what I had been doing.
And so the problem was I didn’t know anything about business. I only knew about engineering and math. And so because that became apparently obvious, that’s where I decided to go back and get an MBA. You know, I figured, “Well, you know, I can’t learn about business working as an engineer. Maybe I can learn about business at school, right?” And it turned out to be one of the best decisions I ever made.
Andrew: It helped you. I heard that you took a class on business plan writing, a class on assessing technology for commercialization, a finance class. Like, you were intentionally saying, “What are the pieces of the puzzle that I need in order to create this entrepreneurial lifestyle, this new business that I plan to do afterwards,” right?
Brad: Yeah, that’s right. I used the MBA program as my incubator.
Andrew: To run ideas past what? Past the process? Past professors?
Brad: So when Richard and I had . . . So when we both decided we were potentially interested in licensing this technology, I went to every professor and asked the professors if I could use this . . . Usually, there’s a class project, right? So I would ask if I could use this technology for the class project. So every single class that I could, I would use this technology. So the business plan writing class, you know, the finance class. We had to do financial projections and look at balance sheets and profit and loss statements and things of that nature. So I just would also do it with this business as the subject matter.
Andrew: And how did they help you think about it? How did they help you shape what the business was going to be?
Brad: Well, so you get graded, right, and you get the feedback. And at the beginning, my grades weren’t that great. I was getting B minuses and despite the fact that I was probably working harder than anybody else in my program because, you know, some of the aspects of the business were difficult and somewhat eccentric. But, you know, that feedback, I was able to take that and identify some of the weak points and then make some improvements. I mean, we had classes where they would bring outside people to be mentors that would talk about intellectual property and how to think about intellectual property. I got to talk to people about what types of licensing terms are normal and how to think about how to structure royalty rates.
I was actually taking a class when we were in the process of negotiating the royalty rate with the Navy where we were talking about intellectual property. And we were at a sticking point. I had gone in and talked to the Navy and they had offered a 15% royalty. That was on day one. Well, you can’t have a business in the sensor world at a 15% royalty. So my concern was if that’s where we’re starting, I needed it to get down below five. So how do I get them to move that far? What I was able to do, it was a lawyer from Qualcomm that was visiting. And he was talking about how to think about intellectual property. I got to catch him in between the break at class and asked him . . . I just told him my problem and he taught me about IP stacking. And what he pointed out is, “Your product, are there IP elements that you’re not licensing that are included in this product?”
And, of course, there were, right? You know, the intellectual property we were licensing was only a small portion of the overall final product. And so then I was able to make, you know, some slides where I was able to show the percentage of the product, the final sellable product, that would be covered by the patents and was able to, basically, make a formula to show the Navy that 15% royalty rate on the IP portion is equal to 3% on the final product. So we got a 3% royalty rate. So 3 equals 15 in [inaudible 00:22:16].
Andrew: That’s fantastic. Yeah. He helped you understand that this part that you’re licensing is a subset of the bigger product that you’re selling. And so your licensing fee should only be on the smaller part, not on the whole.
Andrew: Got it. I understand now. That’s helpful. Tell me about the . . . One of the founders of Price Club was your professor. Is that right?
Brad: Yeah. Giles Bateman, the number three founder of Price Club, which, of course, now is Costco, he was my entrepreneurship professor and he was great. The very first day of class, he did a survey. And this was my first . . . Yeah, at this point, I was in the MBA program. I still wasn’t sure if I wanted to be an entrepreneur. Well, I knew I wanted to be, but I didn’t know if I was willing to be.
Andrew: What was the alternative? If you’re getting an MBA, what were you thinking of, if not an entrepreneurship?
Brad: Well, you know, I probably . . . If I didn’t become an entrepreneur, then I would have just used my MBA to move into management within the Navy or an engineering firm in town.
Andrew: Got it. Okay. All right. So what did he say about this?
Brad: Well, he did this survey at the beginning. He just said, you know, “Who wants to be an entrepreneur?” And there’s 17 of us in class. And about 14 people said, “Yes,” and 2 said, “No,” and I said, “Maybe.” The last day of the semester, he did the survey again. And about half the yeses had turned to noes and the noes stayed noes. And I went from a maybe to a yes. And I never actually went and asked anybody about this. But my strong opinion is that the same reason why I went from a maybe to a yes is why many of the yes’s went to no’s. He really articulated what the entrepreneurial experience is like and the reality of it, not just the romantic side of it, but the reality of it.
And one of the lessons that he taught us was that none of us has what it takes to willpower a company into success. So an individual person does not get to just go choose to be successful. Other things happen. There are market conditions. There’s competition. There’s industry trends. There’s things that happen that you don’t get to control. Now, it doesn’t mean you don’t get influenced. But you don’t get to have control.
And so I already knew that . . . So I guess kind of the short version is he told us all that we were insufficient to control our own destiny when you want to be an entrepreneur. And so I already felt insufficient. That, actually, was comforting for me because I felt like, “Okay. Well, I’m in the same boat as everybody else.” And I think for the yeses that turned to noes, they were kind of like, “You know what? Now that we’ve taken a closer look, this isn’t for us,” right? But yet, another part of his message that is really, really important and it’s really kind of a leap of faith type of a mindset. But what he told us was that no matter what your business is there will be people that will come and help you out on your journey.
And if you’re going to believe the first part of his message that you’re insufficient to build a business and willpower it into success, then you absolutely need to embrace this mentality that there will be people that will come along and help you out on your journey because once you embrace that mindset, once you realize that, you’ve increased the likelihood of identifying these opportunities and taking them when they occur. And so, you know, when I look back over the days of Lumedyne, absolutely, there were many, many times where somebody from outside or some entity from outside came in and made a really big difference right when we needed it.
Andrew: And there’s one that I’m going to get to in a moment early on who helped you out. But I’ve got to understand why is it that . . . Well, now that you’re an entrepreneur who has succeeded, now that you’re a guy who’s going to be funding other startups through Launch Factory, do you still agree with that, that you can’t willpower your way to success, that you can’t smart your way to success?
Brad: Absolutely. I think if you work really hard and you make good decisions, you will increase your odds. But you don’t get to control whether or not it’s successful.
Andrew: And that’s comforting to you why?
Brad: Well, because I already know that I don’t have what it takes. You know, I was already aware of my limitations and I don’t have what it takes to just create success by myself. So the fact that others . . . But what I wasn’t fully aware of was that nobody has what it takes, you know, to just willpower themselves to success. So realizing that I was in the same boat as everybody else, that was comforting because I am not afraid of taking risks. Well, I mean, risks are never fun, but I will do it. It’s just . . . But I don’t want to do it irrationally. And so it’s . . .
Andrew: You don’t want to be the guy who’s playing at the roulette wheel who has a one in a hundred chance of winning when there are others who have one in a hundred chance of losing. You want everyone to have the same odds and then you’re willing to go in.
Brad: Yeah. I mean, basically, if you’re going to play poker, play poker with people at your skill level or worse. Don’t go play poker with people that are only better than you. And so, basically, what I learned was okay, maybe I’m not as different from everybody else as I was afraid that I was, meaning that, you know, maybe I can do this too. And so that was very helpful to me. But then, this notion that people will come and help you out on your journey is very comforting. Again, you have to . . . only if you believe it, right, you know. But my experience has demonstrated that absolutely was true in my case.
Andrew: All right. I’ll talk about my first sponsor and then we’re going to come back in and start to talk about how you got money without getting investors. The first sponsor is a company called Setapp. Are you on a Mac or a PC? My guess, Brad, is that you’re a PC.
Brad: I am.
Andrew: Why PC?
Brad: I’ve been using PCs ever since I can remember. My dad bought one in the early ’80s, an IBM PC Junior.
Brad: Yeah, he made us, my brothers and I, play with it, which wasn’t too hard for him to get, yeah. So I understand PCs really, really well and that’s where my comfort is.
Andrew: I was a PC person for the longest time and then they opened up an Apple store near me in Santa Monica. And so I went inside. I started playing with one. I said, “Let’s just pay a thousand bucks and buy one of these Macs and see what I think about it.” And I started shifting more and more to the Mac. And when I asked myself why, I said, “There’s some kind of beauty, some kind of artisanal pride in some of the apps that I use there.” It’s definitely . . . You’re using I wouldn’t even say the underdog. You’re using the platform that has fewer options for it, fewer software options for it. And still, the ones that are created just have this beauty, this polish. The thing that I discovered over the years is that I’m kind of into the good stuff and I’m willing to spend money on it because it will help make more productive. Like, I like the app that lets me create a screenshot, for example, that looks beautiful because I know I can communicate to my team better what I’m looking for.
Even if I Tweet it, people will understand my message better if I use the right screenshot app. I like the app that allows me to find dupes on my computer because it so elegantly shows me what I can delete and make my computer have more space and so on. And so I buy them. What I found is my team doesn’t always buy them. And that’s what I like about this package of software called Setapp. What they do is they have over a hundred artisanal . . . Is that the word to use? I’m going to say it. Even though it feels kind of fake these days, it feels like the people who created these apps have put a lot of energy into not just the utility but also the design of them. And so what they do is they give you all these apps in one package. You just pay one monthly fee and you get all of them and it makes you more productive. And if you are listening to me and you’re using a Mac, you know what I’m talking about. If you’re using a PC you think, “These Mac people are such snobs,” I totally get it. It’s not until I used it that I understood it.
So for the Mac people, here is a tool, a package of apps that will give you and your team superpowers to be more productive. It’s from Setapp and it’s going to give you over a hundred apps all in one package. More importantly, it will give it to your team. All you have to do, if you want to try this for free, is go to setapp.team/mixergy. And I love their few apps here that I can suggest that you try.
Try Gemini to help you find duplicate files on your computer to speed it up. Look at Flume, which lets you use Instagram on your Mac. Look at CleanShot, which lets you create beautiful screenshots that will make it easier for you to explain things to people. Slidepad, which lets you take things like even Slack and put it in a nice little slider so you can bring it in when you need to use it and bring it out when you don’t. So many other tools. All you have to do is go to setapp.team/mixergy.
So you created a business plan as part of the school business plan competition to test your idea. Am I right?
Brad: We entered in business plan competitions. It wasn’t actually just for our school. We competed in competitions all across the country.
Andrew: How did you find these? It feels like you really then got much more competitive than I realized.
Brad: Yeah. I mean, so our school helped out, right, and they told us about a few. But then, you know, so my partner in the academic business plan competition was not Richard. But he got on the internet and found a whole list. And we applied to every single one that we could find. We ended up going to about six or seven different ones across the country.
Andrew: You were at the Rice Business Plan Competition. And somebody walked over to you and I guess he was part of the oil and gas industry. Do you know who I’m talking about?
Brad: So I apologize. It cut out. I didn’t hear your question.
Andrew: Oh, at the Rice Business Plan Competition, somebody who was in the oil and gas industry came to you and said what?
Brad: Yeah. So he was a judge. His name was Dan [Piet 00:32:03]. He was a judge in the competition. And he came to me afterwards and he had a lot of questions for us, very skeptical at first of what we were doing. It turns out he knew the space quite well. And after talking to him for about 45 minutes, he was willing to consider that maybe we were onto something. And he wasn’t going to go so far as drawing a conclusion. But just out of kindness, he offered to give us CEO-level introduction to any player in the space that we wanted to talk to. Now if you think about that, right, CEO-level introduction to any player in the space. So this is an industry that’s typically closed to outsiders and here we are a no-name startup out of San Diego. There is no chance of breaking into the oil and gas industry without a tour guide and Dan went and did that purely out of kindness.
Andrew: How did you know there would be an opportunity in oil and gas for your sensors?
Brad: We had done a lot of research, you know, and found that we actually had . . . So we had a free intern provided to us by a local incubator, which we were never even officially a part of that incubator, but they helped us out anyway. So they gave us this free intern. His name was Craig [Braun 00:33:15] and he went . . . He was just supposed to do some market research. But then he ends up finding the seismic imaging market and going further and actually getting me a meeting with the chief technology officer of one of these companies. And, you know, so then we were able to really understand this market in a lot of detail thanks to him.
Andrew: What’s the use that the oil and gas industry had for your sensors?
Brad: It’s called seismic imaging. You can think of it like an ultrasound of the Earth. So they use the sensors as a little miniature seismometer. They put out a huge array and set off a vibration and it creates an image of what’s underneath the surface.
Andrew: To understand what’s underneath before they start to drill for it.
Brad: Exactly. So they’re looking for certain signatures. And I’ve looked at these charts and I don’t know how they read them. But supposedly, they look at these and they can see, you know, where they should drill and how deep and all of those types of things.
Andrew: And how much better than what was already there was your hardware, was your product?
Brad: So we had the ability to meet the specifications that were you would say maybe the next generation. And the terms of what they look for get very involved, so call it the next generation. But part of the reason why this market was attractive to us was there were two sensor varieties, accelerometers and gyroscopes. Sorry, not gyroscopes, geophones. Geophones have been in the industry for since ever, right? So they were the original sensor variety. There were only two companies that had accelerometer-based solutions. Analysts were saying that accelerometers were going to be the mainstay of the industry in the future.
And analysts were also saying that the two sensors that were out in the market already, that no one else was going to be able to develop a sensor for this market without stepping on their IP. So that means anyone that didn’t have access to that technology, and since there were only two companies that did, was either going to be shut out of the market or having to license from their competitors. Neither is attractive and so we had the third alternative, which gave us a technology solution to a business problem.
Andrew: Okay. And in order to get going on this, you had to leave the Navy and Richard stayed there. Am I right? He worked with you nights and weekends. You worked during the day on the product and at night. Am I right?
Brad: That’s right. So to license technology from the Navy, you can’t also be employed by the Navy. So I had to quit for that reason. There was no reason for him to quit. You just needed one, right, so I quit. And at the beginning, you know, I’m working on understanding the market, you know, more . . . It was all business stuff anyway. We didn’t have any funding to do engineering projects. And so it worked out quite well that we weren’t both trying to see how far we could last without a paycheck.
Andrew: I heard you had about a year of money saved up. Is that right?
Brad: Yeah, I had been saving up for a while because I always knew that if I saw an opportunity I wanted the ability to jump on it, right? So I had saved up for about a year. It turns out it took three years before I was able to take a paycheck.
Andrew: Wow. And right now, I think what you’re asking entrepreneurs who are working with you at Launch Factory to do is take is it a $60,000 salary?
Brad: So we invest $300,000 into each company. We take two founders and they’re allowed to take up to two-thirds of that for salary. But they have to be able to make themselves last for at least two years. So that ends up being a cap of $50,000 per person.
Andrew: Got it.
Brad: So I like to look at it as like, “Well, $50,000 for a lot of people, you know, for the kind of founders we are looking for, that’s not going to be an impressive salary. We’re certainly not looking to make people comfortable off of that salary. We want to be able to get them in a situation where they can give this a try. Then they go raise more money and then they can increase their salary after they have achieved some success that way.” But, you know, you compare $50,000 versus my salary of it was actually less than zero, right, because I actually had to put money into the company. So you go from a negative number to a positive number.
Andrew: That’s what I’m saying. It seems like that number was so low until I realized, well, you weren’t taking a salary. I wasn’t taking a salary when I started. And suddenly it changes to perception of it. You told our producer that from the time you met Danny to the time you got your first client was a year and a half. And largely, the problem was that you would go to a client and say, “Here’s what I can build,” and they’d say, “Build it and then I’ll buy it.” And you said, “Well, no, you need to pay me.” Can you talk about that? It seems like it’s a chicken and egg thing where they didn’t want to buy it until it was built. You couldn’t build it until somebody paid for it and so on.
Brad: Yeah. Yeah, it really was. Chicken and egg is correct, right? So yeah, we’d go show everybody. We’d show them our prototypes, our measurement results, things of that nature. And they would say, “Hey, this really does look nice. When you have some units, we’d like to try to buy a few samples.” But we didn’t have funding. We were not the kind of company that venture capitalists were likely to fund, plus we didn’t know any venture capitalists. So you put those two things together and we weren’t getting VC money, right? So I needed a customer to pay for it. And my wife and I had been watching a lot of mafia movies at the time. And, you know the famous things in mafia movies? You make an offer they can’t refuse, right?
So my wife and I were saying, “How can I make an offer they can’t refuse,” because they were doing a really good job of refusing what I was putting on the table so far. So, you know, you think about it. Anybody that pays for the development of the product, they are going to require some sort of exclusivity. They are not going to want their competition to benefit from their R&D dollars, right? So they’re going to want field-of-use exclusivity, which we were fine with selling because we could then go after all the other markets that sensors are used for and, you know, carve off seismic imaging by itself.
Andrew: What do you mean? So the oil and gas industry has . . . One company there has exclusivity and then you go to another industry. Is that right?
Brad: Right, like navigation or cell phones or whatever the case. So we went and thanks to Dan with his, you know, giving me the CEO-level introductions, I was able to go to the entire industry and say, “Hey, we are selling field-of-use exclusivity, if you’re interested.” And, you know, I gave them actual dates by which they had to submit letters of interest and then we’d, you know, down-select in a final term sheet, all of that. So we created a competitive process because we were solving this business problem. But the only reason we’d get the message out was thanks to Dan with his introductions.
Andrew: Him with his introductions and the offer that you made them that they couldn’t refuse was, “Nobody else will have this.” You were going to be the one company. And when you did that, did that turn things around? That did it?
Brad: Absolutely. Yeah, it did.
Andrew: That’s what did it for you?
Brad: That’s what did it and it was . . . You know, and then it was very nerve-wracking, right, because, you know, here I am, you know, never really done business before. And all of a sudden, we’re telling publicly-traded companies what they are . . . you know, how things are going to be, right? So it was very nerve-wracking but we created a very structured process. We had dates and it was all planned out in advance. And we outlined it and we just agreed that we’re going to stick to this plan, no matter what. And, of course, these companies tested us, right? Like, it was . . . When the final term sheets were due, I had people calling me, you know, even the day of asking, “Can you give me an extension?”
Well, an extension, you know, that’s the same thing . . . If I say, “Yes,” to that, then that means that I’m willing to do them a favor that I’m not willing to do for anybody else. That’s another way of saying, “Is anybody else in this deal or not?” And if you think of the timing of this, so this was all happening . . . Term sheets were due in November of 2008. 2008 was not a good year for almost anybody, right? It started off great but then the second half was brutal. These companies were getting ready to have layoffs and we’re having this competitive bid process going on, but it worked. We ended up with our contract and we ended up working with ION Geophysical. And they funded us to the tune of $17 million over a number of years. But it was very successful from that perspective.
Andrew: But it wasn’t equity.
Brad: Most of the money, about half the money, was not for equity. There was some equity money that came later but at very favorable valuations compared to what you would typically get, you know, from traditional investors.
Andrew: From them, this deal that was $17 million, they were your customers for that much. Is that right?
Brad: Yes, that’s right.
Andrew: Got it. Okay. All right. Let me take a moment to talk about my second sponsor. And then I want to come back and ask you why the company name had changed. The second sponsor is a company called HostGator, which allows you to easily create websites on WordPress. You guys use WordPress. Why did you guys use WordPress for your website for Launch Factory?
Brad: WordPress gets the job done. And it allows us to take care of everything internally because it’s pretty straight-forward and, you know, we can do it and have a nice professional look.
Andrew: Yeah, easy. I think you can choose a theme for it, easy to skin, easy to update, easy to move if you don’t like your hosting company. I’ve been listening to a lot of Gary Vaynerchuk lately. I just like his energy I think at the beginning of the year. And he’s constantly talking about putting more content out there, going on Instagram, going on YouTube. He’s got a guy who follows him for hours. And then he’s like just shooting video. Have you seen this?
Brad: No, I haven’t. It sounds like I should check it out.
Andrew: I’m pretty sure it’s a three-hour session on YouTube where he was signing autographs for people and then talking to them. And then he turned it into a podcast, which I thought would be too boring to listen to. He broke it up into four different podcast episodes. I started listening to the first one and deleted the others. And it turns out I really liked it because what he does is people will ask him a question and he’ll give them feedback. And within like a minute, he greets them. He takes a compliment from them. He hears their problem. He gives them an answer. He shakes their hand. He says something nice. And then, he moves them along to the next person.
And a lot of it is, “You should try TikTok. You should try more of this. You should try more of that.” So I went to garyvaynerchuk.com. I said, “What’s he publishing his content on? What’s his website?” It’s a WordPress site. The reason I’m saying this is you don’t have to get away from all the other platforms. But if you don’t have a website yet, you really don’t have a place to unify all of your other internet presences. And frankly, it’s the easiest one to get up there and the one that will give you, I think more credibility. People search you. They find your website. They understand what you’re about. And they judge you in a more positive way than if you didn’t have one.
So this isn’t just for your business but for your personal brand, for a side project, for anything that you need a website for, put it on WordPress because it’s super simple. And if you’re putting it on WordPress, go to hostgator.com/mixergy. HostGator makes hosting a WordPress so simple. You can hit a button, get started, and you’re up and running. And they make it really inexpensive. Be as cheap as you can be.
I’ve had people, by the way . . . I don’t want to get into how cheap some of my guests are. But we talk about . . . And I love that they’re so cheap. I’m going to tell you guys one of the easiest ways to save money is to get a hosting package for your website that is inexpensive and just works. If you go to hostgator.com/mixergy, they’ll give you the lowest price they have anywhere. And I’m actually checking it right now to make sure that that is true. As far as I can tell, it is absolutely the lowest price. But more important than that, you’ll supporting Mixergy and growing your business or idea by giving it a proper web presence. Hostgator.com/mixergy. The previous company name was OMEGA Sensors, right?
Brad: That’s right.
Andrew: Well, how did you come up with that name and why did you change it?
Brad: So that was Richard’s invention. So OMEGA was an acronym for Optical Mechanical Electrical Gyroscopes and Accelerometers. And so he was very proud of the fact, you know, that he was able to do that. And it was pretty good because that described our product in a very technical way. But the problem is . . . And so we had gone and I had talked to a patent attorney, which is not, you know, really who you should talk to about trademarks, but it can be. It depends on the person. But we talked to a patent attorney about, you know, whether or not we were going to have a problem with the name of OMEGA Sensors because there was a company called Omega Engineering and there still is that, while they sell lots of different things, accelerometers were one of them.
And she told us that, no, we shouldn’t have a problem. OMEGA is a letter and Sensors is a generic word. And so we should be fine. Technically, she was right, except it didn’t mean that an in-house attorney for Omega Engineering couldn’t send us a stop-what-you’re-doing letter. And so at that point, we had gotten a little bit of publicity, you know, but we were still pretty early stage. It was just a lot cheaper for us to change the name.
Andrew: I figured that’s what it was. It’s a good name and I can see that there would be other companies that lay claim to that name. Did you start going after other industries after you got into oil and gas or were you just so connected to that that you didn’t have time to go beyond?
Brad: No, we did. We never wanted to be too dependent on one customer. Now, we were, but you always have to allow for the possibility that they’re going to disappear for some reason, right? And they, ultimately, did. Before we finished the project, they actually got out of that space entirely. Their business changed and so since they were out of that space, they had no interest in funding the development work anymore. So we had some government contracts develop sensors for Navy applications, for navigation systems. Those all dried up once sequestration happened. So we went from being funded by two different industries. Very quickly, we ended up with both of them went away on us almost at the same time. This made things difficult.
So what we did was we went and raised $5 million to transition our technology to consumer applications. When we started the company, there were no accelerometers and gyroscopes in cell phones or anything like that. But during that time period, all of a sudden, smartphones emerged, the iPhone came out, and every single cellphone had accels and gyros in it. And so we went after that market instead. And so we used the $5 million to pivot the technology and really started working very hard at networking in that space with some of the major players to try to get some attention there because we knew, you know, it’s very, very difficult to get a consumer electronics product to market. We knew we needed a partner to get us there.
Andrew: Did you get any customers in that space?
Brad: No because we were still in R&D mode. We were still in development mode. So we had a lot of interest, but we didn’t have . . . You know, kind of back in that same problem we had in the oil and gas space, right, like, you know, we had promising technology with interesting prototypes but we didn’t have anything we could sell just yet.
Andrew: Was Google one of the potential customers?
Brad: So we launched a process where once we felt like we knew enough partners at the decision-maker level to actually get a strategic partner in the consumer place, we launched a process very similar to how we did in the oil and gas space, right? So we went to them and we said, “We’re looking for a single partner. We don’t have the bandwidth to work with multiple partners.” And there were some terms in there and all that kind of thing. “But who is interested,” basically? And Google was in not in that mix. We launched that in June of 2014. We didn’t have . . . never met Google until July of 2014. And our process had term sheets due in mid-August. And Google came in with . . . They moved faster than everybody else and were able to give us a term sheet by mid-August that was better than what everybody else could do. So it was really impressive watching how fast they could move.
Andrew: Because you were ready to sell the company at that point.
Brad: At that point, we knew we either had to sell or get a significant investment from one of these industry partners. But, you know, you look at it like, you know, some companies they’d rather acquire than invest. And we ended up with both scenarios, right? But, you know, you get an offer from Google and, you know, it’s kind of hard not to . . . I mean, it was a really good offer and it’s a great company. So it’s really hard to say, “No,” to that.
Andrew: I have in my notes here from your conversation with our producer the amount that you sold for. It seems like you’d rather I don’t reveal it. So if you said it in private, I won’t. But I also have a little bit of your strategy as you were talking to our producer. Can you talk a little bit about how you increased the price or is that something that you two just talked about?
I don’t know. Usually, I feel like everyone who talks to our producer knows they’re not just chatting with the producer. They’re talking to the producer to have notes for me to include in the interview. But then once I saw that I was starting to reveal the number and you weren’t going to say anything, I said, “Maybe this guy is not . . . Maybe he’s not . . . ” Do you understand what I’m talking about?
Brad: Yeah. So I’m not a . . . You know, it’s one of those things that, you know, after the acquisition, they make you . . . You know, we were not allowed to disclose the acquisition. We’re not allowed to disclose the details and things of that nature. But as far as, you know, the news is out, right? So everybody knows we were acquired by Google. Everybody knows . . . I mean, there’s so many articles that have been written that had the price and they all, coincidentally, have the same number. But the way . . . And that number is, like I said earlier, pretty accurate, right?
But what had happened before we ever received the term sheet, I told my board of directors what I was going to do with the first offer that we got. And I said, “I am going to turn that offer down.” And they said, “Well, no, we’re going to have a meeting. We’ll discuss it.” And I said, “No, no, no. I am going to just turn it down.” And the reason is it’s one of the very few times where you have a free ask. I can go turn down an offer I think because you have to look at it from the perspective if somebody’s offering to buy out the company, this is a professional negotiator. They really know what they’re doing.
Andrew: Oh, they do.
Brad: That’s all they do and they have gone and gotten permission to make an offer. They are not going to just walk out and offer you everything they were given permission for. They’re going to hold something back. That’s what negotiation is all about, right? So if I tell them, “No,” then one of two things is going to happen. They’re either going to come back with a better offer or they’re not, right? And if they don’t, then I can always come back with my tail between my legs, apologize after I’ve been overruled by my board of directors for making a decision that really requires board approval anyway. And so, in that case, as a professional negotiator, they just won the negotiations, right? They just got me to agree to whatever their target price was for themselves and so the offer is still going to be good.
On the other hand, you know, if they come back with something a little bit better, well, then for, you know, very little effort, you can get a much better offer. Now, it was the most nerve-wracking thing I think I’ve ever done because they came in with this amazing offer and I had my little plan all set up. I was so nervous because it was one of those things. They called me and you could . . . I knew probably what was going to be the discussion. You could feel it, right? So, fortunately, I had speakerphone because I was so nervous. I was going to beat myself in the head with my own phone if my hand was shaking so much.
So I put him on speakerphone, laid my phone down, and I was able to stick to the plan. But, you know, had it not for being planned in advance, I never would have had the nerve to say, “No,” to that offer because, like I say, it was a good offer.
Andrew: I see it. It was a really good offer. How fast afterwards did they come back with another price?
Brad: It was about a week, maybe a little bit more.
Andrew: Was that a tough week for you?
Brad: Yeah, it was. I mean, I was . . . Yeah, it was. I mean, I was nervous and I had other people that were, you know. So, you know, when you go make a bold claim like that, “Well, I’m going to turn down the offer and we’re going to see what happens,” you know, the other people that are going along with you on that, you know, it’s one of those things that they’re looking at me like, “You better be right about this. I mean, we’re trusting you, but you better be right.” But it all worked out and it turned out to be a good thing.
Andrew: I think I saw that Richard worked for Google for like three years after that, right? So it wasn’t just about the money. But did he? Is that right?
Brad: Yeah. Well, both of us did. So part of the deal was that we had to stay on for a period of time, you know, for transition purposes. So we were both there for about two years.
Andrew: Okay. And so we talked earlier about the sale. Can you give me like a personal side of selling? Like what’s the part of having done that? And then we’ll get into why you started Launch Factory. What’s the best part of having sold?
Brad: Well, it certainly changes your life financially, right? So all of a sudden, I was in a different class economically. All of a sudden, you know, the feeling that, you know . . . So when you’re an entrepreneur for a company in a tech startup, you always have this feeling that you’re either about to be wildly successful or you’re about to completely fail and disappear forever, right?
Andrew: Yeah, which is true.
Brad: Yeah and there’s almost no in-between, right? It’s either a home run or you strikeout. And so there’s a safety that you get that, you know, when you know if it’s going to be a home run, even if it’s a . . . So then you can relax a little bit and that part’s really nice. Now, truth be told, I did not want to get acquired. Our team did. And so I actually . . . What I did, when we knew it was getting close, we had a whole meeting with the team, brought out the whole engineering team in the room, and I put what I thought were the two most likely scenarios on the dry erase board. One was a deal for an investment and the other was the acquisition by Google. And we did a vote as a team because, you know, you look at it, your team is who got you there, you know. And if you go against your own team, you’re asking . . . I mean, we already asked a lot out of our team.
They had done a lot of amazing work, pulled a lot of rabbits out of a lot of hats, and to go against their desires and wishes, well, that’s not a sustainable way of conducting business. It’s also not fair. So I put my own . . . So I had to, you know . . . And I made it clear what I wanted, you know, and they were very sympathetic, but yeah, it was . . . Yeah, we did what the team wanted on that one. So I also had a big part of me that was, you know . . . So I wasn’t ready to give up the baby, right? So there was a big part of me that didn’t want to let go. But once you sign those papers, it is absolutely, you know, the other company’s, you know . . . Lumedyne became the property of Google and you have to take a step back from that emotional ownership and appreciate that. So yeah, so acquisition has mixed feelings, but certainly a lot more positives than negatives.
Andrew: Well, how did you decide to get into backing companies the way that you do? You know, why?
Brad: Yeah. So I think like for a lot of people, once you’ve been bitten by the entrepreneur bug, you know, you’re going to stay . . . Like I am going to be a startup guy forever, right? And so one thing that is . . . So if you go look at how I did it with the help that I got from my MBA program where, effectively, they were my incubator, I got a lot of very hands-on attention from very strong, reputable people, right, you know, that were the professors. So I got a lot of this direct advice but it wasn’t generic lessons. It was specific lessons on my business plan because I was using my business plan as the class project, right?
And then on top of that, you go do your research on why startups fail. Well, startups, 9 times out of 10, they fail for a failure on the business side. It’s not usually the technology that failed or the engineers just couldn’t get it done. It’s usually something on the business side. The market wasn’t correctly assessed and so there wasn’t a market need or the pricing strategy was wrong or the go-to-market strategy didn’t work or you were under-financed. Those types of causes are more likely than not the cause of failure.
And so at Launch Factory what we really try to do is emphasize the importance of the business side of technology companies. And then we try to support our entrepreneurs by providing them as best we can through our incubation process a similar experience to what I got getting my MBA. But we bring in outside people to give direct commentary on their businesses, not generic advice. And so a lot of direct involvement, a lot of . . . I like to refer to it as a high-touch incubation process because I think if you can do this, then what you’ve done is you have taken your founders and instead of just seeing what they can do, it’s what can they do when they’re properly supported? You just increased their odds of success.
Andrew: Then why is it that you come up with the idea as a company and then find the founder? That’s the twist that’s different.
Brad: Yeah, so that came out of our research. It was not the original . . . I mean, the original vision we were going to be more like your traditional incubator where companies apply, right? But you go look at where a lot of . . . So several of the studies I’ve looked at, almost half the time the cause of failure for startup companies that don’t succeed was their inability to properly assess the market. And some studies will make that . . . And so it’s always the number one cause of death and the number two cause of death, right?
So if you wait until after a company is already formed, then you’re too late and you could use that to evaluate whether or not a company should be accepted into your program. But if you look at the level of due diligence that you really need to do, you cannot . . . Like for instance the two companies that we’re looking for founders for right now, each of them has over 200 hours of due diligence in that idea itself. That doesn’t count all the due diligence we did for the other ones. But in order to do that level of due diligence, we have to stay small volume, which means we really . . . And it means it makes sense for us to start all the way at the beginning and then go find founders that are well-matched to that particular business.
One of the things you get when the founder is the one that has the idea and is also . . . when they’re together in the traditional sense is you’re also assuming that that given founder is the best-suited person to run the company for which they had the idea. And to me, when you look at it, it’s like, well, what are the odds that the best person to run this business is the same person that had the original idea? With my previous company, Lumedyne, it was not my idea. But I got to be the one to run it, right, and it was a good fit for me, and it was a good fit for the company. And so I think you end up with a much . . . You increase your odds of success when you are vetting the idea and the people separately. It’s really hard to look at them when they’re coupled together.
Andrew: So who’s coming up with the ideas?
Brad: So right now, you know, because we’re low volume, coming up with a small set of ideas is not particularly challenging. I say that not to suggest we don’t work hard at it, right, but just to suggest that we aren’t daunted by it. The way we look at ideas, ideas need to be sufficient. But beyond that, what we don’t believe in here at Launch Factory is that there’s these big winner, great ideas that make all the difference, meaning like . . . So take Google, for example. They didn’t come up with the idea of doing a search engine for the internet. They were actually late to the game. What they did was they just executed a lot better than their competition. So the idea itself isn’t your differentiating factor. So we look for ideas that . . . We do our own internal ideation but it’s the due diligence that really matters far more than the idea itself.
Andrew: So I saw that you have one company up and running, right?
Brad: That’s right, we do, one company, OmniSync. So we founded them in 2019. The two founders literally started on Labor Day. And they have been doing an amazing job.
Andrew: But that’s an idea that you came up with internally at the organization.
Brad: That’s right. Yeah, Launch Factory came up with that idea.
Andrew: Launch Factory came up with it and the idea behind it was what?
Brad: So OmniSync, you can think of it as automating a lot of the business side of startup companies. And if you look at what the two founders have done with it, we expect founders to take ideas and improve on them. One of the things they’ve done is they’ve roped in financing. And so they’ve streamlined and automated the SBIR application process in a very clever way. I really like what they’ve done with that.
Andrew: What’s the SB what?
Brad: SBIR. So a lot of tech companies you can apply for these grants. They’re non-diluted. They’re government grant dollars. And there’s quite a bit of money out there. But the application process is really tedious and difficult.
Andrew: Oh, that’s the Small Business Innovation Research grant. So they give money to small businesses and the process for getting it is really tough. And they make it easier to get it?
Brad: Yeah. Think of it like TurboTax for SBIR grants. So they really streamline the process. They also . . . But it’s not just that they help you with the paperwork and the application process. They will network you with . . . If there’s vendors or suppliers that you need to get things done, they also help out with that part. So, for instance, they have a strategic relationship with ScienceDocs, which is the second-largest consulting company for people that are consultants to help them write their SBIR grants. They have an exclusive relationship with them. So they bring ScienceDocs in if that’s something that you need to help get your SBIR written.
But with OmniSync, they help you with anything like that. So maybe you need a CPA. They can tell you who a good CPA is. They can tell you who the right lawyers are. But you also get preferred pricing when you go through OmniSync. So it’s taking a lot of the time that you spend when you’re an early-stage startup company and streamlining it where you can also have high-confidence decisions.
Andrew: I didn’t realize that’s what they did. The first sentence on their site is, “We empower entrepreneurs with decades of experience packaged in a box,” which made me think that what they do is education, that they’re almost like the course product creator. “Practical education, business best practice, and guidance seamlessly combined with our software that is designed to help you with all aspects of business from idea to commercial success.” I didn’t realize what they did as help people get grants.
Brad: Yeah. You can think of it more . . . Instead of being . . . So there’s lots of great education sites out there where you can go, you know, learn about how to do whatever, right? But what OmniSync does is they don’t just tell you. It’s actually more like having an advisor that will show you how, show you who to work with because they vet all these vendors and suppliers. So government grants, you know, is one of their primary areas. But they go beyond into all sorts of areas of [crosstalk 01:04:26].
Andrew: Patent and trademark filing, financial planning, accounting, taxes. They offer all of those services by partnering up with all the organizations that you need in order to run your business.
Brad: Right. And they do that work for Launch Factory, and they will be doing that for all of our follow-on companies. But we will, ultimately, just be a small blip on their screen in terms of customers. They do not have a shortage of interests, which is good to see.
Andrew: So how did you find Rupak Doshi and why him? He’s got experience in biotech. How do you get your founders?
Brad: You would not, by looking at his resume, immediately think that he would be the best person to run OmniSync but he absolutely is. So that’s where . . . So our founders recruitment process is a little bit different, you know, than what you might traditionally see. We don’t believe that looking at a resume is a good way to know if somebody’s going to be a good entrepreneur, right? I think that probably a lot of people would agree with that statement in a generic sense. But what we do believe is that if you take the time to really show us what you can do, that gives us a good indication of what you might be able to achieve. And so our founders recruitment process, it’s a phased effort where you show us pieces of how you would implement our plan and you do this with a partner. We always hire two founders. We select two founders at a time.
Andrew: I saw that but they don’t necessarily know each other or you want them coming in knowing each other?
Brad: Either is fine. If you come in . . . if it’s someone that you know we do have some advice like, you know, you probably shouldn’t . . . We recommend against it being a spouse that you work with or a buddy. You want somebody who has a complementary skill set.
Andrew: All right. So you get them together and then you give them a small project to help them think . . . to ask them to think through one of the business challenges that you’re anticipating.
Brad: Well, think about it kind of like an accelerated version of what I did in my MBA program where I went through all these different classes and I looked at various aspects of the business. We want to ask people to show us what they would do from different angles. Yeah, we have branding. We have finance. We have go-to-market strategy. We want to look at these little pieces of how they think about our business idea. It all culminates in a pitch competition where the teams that make it to the end pitch to us how they would implement the business. And then the one that we select, then they go in our incubator. We put in the $300,000 and then they implement the business.
So we do expect there to be some movement between what we had originally stated and how the founders actually decide to implement. That part’s fine provided that it’s still supported by the due diligence, you know, and that it’s rooted in . . . You know, that they’re doing it for a good reason because, I mean, you know how it is. There’s a lot of different ways to implement any given business.
Andrew: Okay. So then . . . And you want to see how they think. You want to know that they’re the people who can lead this. And then what percentage of the company do they get for jumping in and being the founders?
Brad: The founders get two-thirds. Launch Factory, for the money we put in for incubation, the idea, we retain one-third. And then we use our one-third to actually compensate our advisors that go back and help the portfolio companies.
Andrew: Okay. All right. I was looking at your site on Ahrefs. I think the reason I never heard of Launch Factory is because there aren’t people talking about you. When I go to Ahrefs to see like what are their backlinks, I think I saw one. Obviously, as I was searching for you, I found a couple of other . . . No, here we go. It’s more than 1 but it’s under 50. My hunch is part of the reason why you’re doing this interview is to try to get more people to understand what you’re doing. Because it’s so different, you want to have time to explain it, to explain your backstory so that it adds credibility. Am I right? And to start getting people to start linking to you.
Brad: Yeah, absolutely, because, you know, we’re looking to grow the number of companies we do per year. When we did the first search, we only looked local to San Diego and we employed different tactics doing that. Now, we want to accept candidates from any part of the country. The companies, they will need to relocate, of course, to go through our incubation process. But we want to make this open to others. So getting the word out and making people informed of what we’re doing is absolutely what we want to do. And it’s one of these things that, you know, we’re looking to . . . We know that there’s going to be people that take a look at what we’re doing and may like the Launch Factory concept but maybe the ideas we have now don’t resonate with them. We want to still be on their radar screen for when we unveil our companies for next year.
Andrew: Sorry. This one thing just keeps sticking out. Every time I go to Ahrefs I see who’s linking to and for what. A lot of it makes sense like Constant Contact, I imagine that’s what you’re using for your email provider. Is that right? Maybe you don’t even know. Oh, because this is part of who you are now but before, you were the guy who would have picked Constant Contact. You’re the guy who would have done the books. Am I right? And now you’re not.
Brad: Right. I actually do the books but that’s because I kind of like making sure I, you know, control . . . The finance part is something I actually enjoy. But James and there’s another Brad here, they’re the two that designed and built our webpage and do a lot of our marketing outreach, you know, strategy.
Andrew: Okay. Got it. So now I see why when I said I’m seeing referrals form Constant Contact you didn’t know. But the thing that keeps sticking out every time I go to Ahrefs is . . . And I have to say Ahrefs is a partner of ours in some way that they help . . . I get the software from them that I can look at you guys, look at my guests. First Colony Soccer, do you know what that is and why you guys are linking up with them? Is it . . . You know, that doesn’t register anything for you, does it?
Brad: No, that sounds like a mistake. I mean, it’s a . . .
Andrew: I don’t know why you’re getting links from them. All right. Bottom line, you did it. You came from a family of entrepreneurs. You weren’t an entrepreneur, then you became one finally after setting yourself up. You sold your company. You took a breath of air. Did you get to take a vacation after that?
Brad: Oh, yeah. We made sure to take . . . you’ve got to . . . I mean, when the family . . . You know, my wife was very supportive throughout the whole thing. And my kids, while they didn’t always know why they were being patient, they were. They were patient, so we definitely had to celebrate and have . . .
Andrew: How did you celebrate with your family?
Brad: Well, we . . . So there’s a place outside of Bradford, Pennsylvania that is kind of an old family place that we went to for a few weeks. It’s now been turned to this nice resort but there’s still . . . I remember being there as a kid before all of that and we got to do that. And we . . . Now I also coach soccer, like just getting involved in the daily life and everything else and it’s been fun. So doing a lot of . . . My daughters like to do a lot of art projects. And so I found myself . . . You know what? I’m doing art projects too.
Andrew: What do you mean? What type of art projects are you doing with them?
Brad: Well, we did a thing just the other day where she went . . . my oldest daughter, she’s only eight, but she goes and gets a bunch of plant materials. We have a big garden, a bunch of plants and then some paints. And we had to do . . . Only using plants as our paintbrushes. Yeah, so that was . . . And then you were supposed to . . . And then you had to get up and tell a whole story about your art and why you created it with the plant that you did. I’m not sure where she came up with that one, but it was actually quite a bit of fun.
Andrew: But that’s what the two of you did together.
Andrew: You know what? Before I had kids . . . Actually, it’s before I did an interview with Chris MacAskill, I used to dismiss this stuff and say, “Why are you wasting your time? Who cares?” I talked to Chris MacAskill. He’s the guy who created SmugMug. And worked for Steve Jobs. And he had these great stories about Steve Jobs. And I said, “You had a great career before computers. How did you end up in computers? How did you end up with Steve Jobs?” And he said that he decided that when he had kids, whatever their passions were, he was going to get into it. And at the time, computers were just starting to become a thing. His kids got excited about computers, which seemed useless, but okay, kids are into it. He jumped into it. He ended up loving it so much that he ended up working for Steve Jobs at NeXT. And then continuing on, I think, from there, he went to work . . . Yeah, he did. He worked for Steve Jobs back when he came to Apple.
He told this great story about how Steve Jobs needed the right hard drive, and he couldn’t get the Japanese to sell it to him at the right price. So he starts crying. And these guys are like, “This is the Steve Jobs that we read about and this doesn’t happen in our culture.” This doesn’t happen in any culture where the founder comes in and starts crying. And so he was able to get a better deal because he was crying. And that’s what Chris MacAskill told me. And then he went off to start SmugMug, which did well.
And so now I’m with you. Kids have something that they’re excited about. I’m getting excited about it, even if it seems ridiculous because at the moment it’s going to be fun. And who knows if that’s going to end up being the next big thing? All right. So you did that and now, you’re coming back and you’re helping entrepreneurs get going. And it’s the Launch Factory that everyone needs to go check out. If they’re entrepreneurs, there’s a place on that site where they could apply to be founders of the next product, the next business that you come up with? Am I right?
Brad: That’s right. Registration for the next two companies . . . And there’s details about the next two companies on the webpage. But registration is open until February 21st. That’s when we close.
Andrew: Oh, okay. So we can publish this interview right now and let people go and start applying right now.
Brad: That’s right. Yep.
Andrew: I see this. There’s a register now button at the very top of the site. And, hopefully, with this interview and others, Ahrefs is going to start to show that you’ve got a lot of links coming to you. It would be good for your Google juice. Do you care about Google juice?
Andrew: All right. Brad, congratulations on doing this. Everyone, check out Launch Factory. And I want to thank my two sponsors who made this interview happen. The first, if you’re hosting a website, go to hostgator.com/mixergy. And the second, if you’re a Mac person and you love the design of Mac apps and how productive they can make you, you should go check out setapp . . . Wait, setapp.team/mixergy. I’ve been going to their main site for a long time. It’s setapp.team/mixergy. Cool. Thanks, Brad. Bye, everyone.