Andrew: Alright before you watch this next program you first have to hear about Haystack. Haystack.com is where you’re gonna find the right designer for your next project. And let me show you something, you already know that as you scroll through Haystack you could see examples of work from each design firm that’s listed here, you already know that you can flip through their work really easily let me show you something that’s kind of cool. You find the firm you’re interested in, you click on their name, you could see more of their work in bigger pictures, but you could also save to favorites and because it’s designed by 37signals you know you’re not gonna have to register to save something to your favorites just easy like that. Alright we like this design firm, we’re gonna save them to our favorites, and then you can go back into my favorites right up on top and see the firms that you were interested in. Get inspired by the work here at Haystack. Find your next designer and then come back and tell me what you think. Alright thank you Haystack.com. Here’s the next interview
Andrew: Hey everyone it’s Andrew Warner founder of Mixergy.com home of the ambitious upstart. By the way Mark is this kinda weird for you as a respected entrepreneur to see me do this, seem a little too gimmicky?
Mark: (short laugh) No I’m, I’m get on with it.
Andrew: Alright home of the ambitious upstart even Mark, the well respected venture capitalist is down with the power fist here. By the way guys if you want a full view of entrepreneurship 360 degrees Mark Suster who we’ll be talking to today is the man to do it. He is a serial entrepreneur with a proven track record as an entrepreneur who then turned venture capitalist and now he is funding entrepreneurs and cultivating them. Creating little Mark Susters all over the world as we’ll find out here. He is currently a partner at GRP partners, and before that he founded BuildOnline which he sold to Sword Group and before that he created Koral which he sold to Salesforce.com and as I say now he is a partner at GRP. So, oh and I should also say great blog at BothSidesoftheTable.com if anyone wants a frank view on entrepreneurship and investors and a real view behind the scenes go check out BothSidesoftheTable.com. Alright Mark to give people a sense of who you are and the kind of work you do, can you tell them some of the companies you’ve invested in recently?
Mark: Sure! I think Iíve spent a lot of time recently in what I would call performance based marketing. My rationale’s pretty simple the advertising market in the US alone is a 300 billion dollar market of which 30 billion of that is online and measurable. So I think there’s gonna be a lot of transformation that will continue in that. The first investment that I did this year in that space is called ring revenue. What ring revenue does is it allows you to track phone calls the way that people track clicks today. We go to market via existing affiliate networks rather than creating our own network. That’s one example. We invest in a company called GumGum. It’s a local Santa Monica based company in that basically what they’re doing is, they’re taking people who have licensed images and people who have websites ñ publishers – and they’re creating new economic models that are performance based for these people to work together. And the last that Iíll talk about is called Ad.ly and Adly is in stream advertising. Right now focused on Twitter, but watch this space our objective is to be in stream across multiple channels. And we’ve closed our 4th investment which we’ll be announcing, uh I closed my 4th this year which I’ll be announcing in the next 30 days.
Andrew: Can you say what kind of business the 4th one is in?
Mark: Yeah I would say it’s in the exact same category it’s helping people through social networks do two things. One is having measurability of the performance of their campaigns. And two is creating action programs that help people better convert traffic through social media.
Andrew: OK. Alright I wanna get back into your investments today and back into why you became a venture capitalist and what you’re investing in. But let’s go into your history a little bit, let’s start off with the MBA university of Chicago. I thought MBAs where out! Guy Kawasaki is telling us that companies lose value for every MBA that they have on. Was it helpful? Why’d you do it?
Mark: Listen, truthfully no, I don’t think it was tremendously helpful. And I actually wrote a blog post about it on BothSidesoftheTable which you can search for – ìAre MBAs Necessary in Start-upsî – and my overwhelming answer is NO, they’re not necessary, in fact I think they’re very unhelpful. The reason I think they’re unhelpful is they teach general purpose knowledge, and at a startup you learn real knowledge the hard way of running a business. No. 2 is most people who graduate from an MBA program graduate with about a $150,000 of debt and haven’t had an income in 2 years, and what it creates is a group of people who don’t wanna take as much risk. And the reason they don’t wanna take as much risk is they’re staring at their debt thinking, gosh if only Iíve worked at McKinsey or Goldman Sachs I could pay down my debt. So Iím actually not a fan now, if, you know if I meet someone who has an MBA I got nothing against them, I would still invest in them I don’t think it makes them any worse. I think some schools are better at entrepreneurship combining MBA. I think Stanford is the best in class, I think the Haas School does a very good job. And what Iím looking for in those programs are places that combine the MBA programs with engineering departments so you’re really getting the people who create technology close to the people who are learning about business. But if you’re thinking about starting a business, I donít think you need an MBA. The last word Iíll say on the topic Andrew is, if you wanna go into investment banking someday and be a senior level in an investment bank or partner at McKinsey or honestly a lot of venture capital firms you may need an MBA but if you wanna be a startup I think it’s probably not a good idea
Andrew: Iím watching the live, Iím watching this and nobody’s coming in and disagreeing there. Better though, better education than getting an MBA, is it fair to say to go start a failing internet company or failing company of any kind and lose a $150,000 and learn more along the way?
Mark: Well Iíd rather see people obviously not lose that money but (short laugh) if you’re gonna spend $150,000 of your personal hard earned cash, I think it would be better at a startup. So, you know I always tell people you need to decide for yourself as an individual, is this the time to learn or is this the time to earn? And I think when you’re young, you know it’s a conflict. I think if you really have no experience with marketing, with business development, with product management and creating products, I think you’re better off in your early to mid 20’s working for somebody else at a startup where you can actually learn from the people around you, learn how to do product definitions, learn how to market your self effectively, learn what you look for in a channel partnership for example and why most channel relationships donít work. But you need to make the shift early enough in your career to earn. And what I mean by that is, if you know if you own .25 percent of a company you’re not likely to see a high upside, and so eventually you need to stop finding people that you wanna learn from and go learn by doing. And we never stop learning, but learn by doing eventually will pay off more handsomely than working for other people.
Andrew: OK. Alright continuing on with your biography weíve got a mutual friend in Will Schroeder who says that business people need to find their superpowers, and once you find what you’re great at, what your superpower is then you become invincible. Well whatís yours? (short laugh in background) Cause Iíve got a sense but Iíd rather hear it from you.
Mark: Uh Jesus. You know Jason Nazar another big LA entrepreneur also wrote a blog post on superheroes and I guess Iím not prone to those sort (laugh) to those sort of analogies. Gosh what would I be…
Andrew: No I don’t mean by flying in the air type of super. We’re not talking about a fictional super power. I mean that, are you the I, here’s what I get from you. You’re the relationship guy. I have never in all my time in southern California, meeting all kinds of people, I’ve never felt like anyone has paid as much attention to me in a conversation as you have. And Iím not the only one to feel that way and you somehow are able to do this for lots of people in that area at least, and probably beyond. Is that it, is it that relationship?
Mark: I really appreciate that. I appreciate that feedback but Iíve had enough time now to come up with a good analogy in my mind and I m gonna take it from my son Jacob. And Jacobís favorite superhero is Flash Gordon and so Iím gonna take on the Flash Gordon powers. And the reason is that Flash Gordon’s fast. And what I think is important to startups is you have to make fast decisions. And I find people who’ve never done startups before they languished in information and in a startup you never have a complete set of data, so what you need to do is take pragmatic decisions, you need to make quick decisions. And you know what if you’re a great entrepreneur then 30% of your decisions will be wrong 70% will be right and you need to quickly correct the bad decisions that you’ve made. I know Will is a perfect example of this, I’d say over the course of last 6 weeks he made a couple of side steps and he spotted them very quickly and corrected them very quickly which is why Will is such a great entrepreneur.
Andrew: Alright we gotta have him on Mixergy and hopefully by the time people hear this we’ll have had him on Mixergy, he’s a great entrepreneur. I wanna focus a little bit more on what you just said there. Napoleon Hill who studied entrepreneurs and business people back in the early part of last century said that the ones who succeeded were the ones who made up their minds quickly, like you say works today but changed it very slowly. It looks to me like today it’s changed. You gotta make up your mind quickly but will it be willing to adjust just as quickly?
Mark: I think that’s right Andrew I call it pivoting. But how quick do you pivot when you have no information. What’s different about today is the rapid amount of changes that happened around you. You know how long ago was it that we were talking about how successful MySpace was right, this was only 2 and half years ago were they were the king of the hill and then suddenly it was Facebook who was king of the hill and now thereís a big question mark over whether Twitter’s gonna become king of the hill. And this stuff changes so rapidly that if you’re not paying attention the market moves on very quickly. I’ll give you another example, Zynga. Zynga was the poster child for success only 2 weeks ago. Michael Arrington did a complete take down of Zynga and the entire incentive based marketing industry and questioned the ethics of what’s going on. I donít know where this is all gonna head, I think Mark Pincus is know to be quite a good entrepreneur, that kid better be pivoting right now pretty damn quickly.
Andrew: You know what actually? Hereís the thing I’m now reading Bloom… when you and I have had a conversation about this and I’m now reading Bloomberg’s book, ìBloomberg on Bloombergî where he talks about how in the early days some of the things that he did were illegal, he could have burned down buildings with the way he wired them up for the Bloomberg terminals. We’ve had a conversation about how entrepreneurs when they start out sometimes do things that are wrong, sometimes do things that if they were on the cover of the Wallstreet journal would be embarrassing but you need to, I think sometimes do that, true or false?
Mark: True. And you know I often say this is, one of the things I’m looking for in an entrepreneur, and I wont exclude people who donít have this but I’ll just tell you what I’m looking for. I’m looking for people who have a chip on their shoulder. I’m looking for people who have something to prove. I’m looking for people who weren’t born with a silver spoon in their mouth and I think that sometimes people translate this as why they like to invest in immigrants or in children of immigrants. Now I just think that they make better entrepreneurs and being an entrepreneur honestly, and I’ve said this before it’s kinda dirty gritty business, it’s not sexy and glamorous. And so if you were born in a posh environment and you went to all the right schools and you worked at McKinsey or Bane or everywhere else, it’s really hard to adjust to that and I’ll just give you one example that I’ve never talked about publicly but I’ve planned to write about at some point. I was faced with a really tough dilemma which is I had signed an 18 month lease in London at my first company BuildOnline, and we realized that the whole market had changed or at least hadn’t started yet but we’ve signed on for it. I went to the guy who ran this facility and I said, listen our whole economy has changed, I donít need all the space, I’ll stay in your offices but I need a quarter of what I thought I needed and I’ll sign that same contract and he refused to let me out of that contract and I felt backed against the wall. So what I had, cause we were already in his offices what I had us do on a weekend is five of us went down there, I signed another lease which then I had 2 legal obligations and we took all of our computer equipment and everything that we owned out that night, moved in to the new place. And you know my view was you know possession is 9/10 of the law, now he had to chase me in my own court to try to negotiate a contract with him. Well this company was called Regis, I don’t know if you know Regis. (hey) and I can (hey) (hey) yeah very big (laughing) god we couldn’t have planned that better.
Andrew: I’m in Regis right now!
Mark: Yeah so I will tell you this, the founder of Regis, he gave me the world’s biggest pleasure when two years after this incidents happened, he himself went to all of his landlords and said oh the environment’s changed I need to restructure our agreements with you. And his landlords you know, did not look kindly upon that and I thought oh the irony of this gentleman who wouldn’t let me out of our lease faced the same problem and actually I think had to go through chapter 11 bankruptcy which we avoided. And it was only when I got his head legal counsel on the phone and threatened to put him on the front page of the financial times for what they were doing that they relented and let me out of the majority of my contract. It was an $850,000-ish obligation and we paid $120,000 to walk away. But thatís the kind of shit you have to do as an entrepreneur and thatís why I’m looking for these kind of you know gritty hard-nosed people.
Andrew: Even the chip on your shoulder, because when I was in college when I was in school all the way back to elementary school they told us that having a chip on your shoulder is the problem. Thatís what you need to to learn to get rid of, no?
Mark: You know I think we were taught a lot of bad things when we were growing up. I think you know a a lot of boys I donít think learn very well in classroom structures, I think something in our DNA about not being able to sit still. I think a lot of us had ADD and never knew it. I know of myself I did and I think people have negative connotations with ADD or lack of attention or focus or chips on our shoulders. And fundamentally I think if you learn to channel the gifts that things like ADD give you, you can achieve a hell of a lot more. So I think a lot of understanding of human beings and what we make up was wrong and I think people are starting to understand that. I’ve read a book recently that was talking about this, it was saying should we be taking management teams and trying to say, OK here’s the five things you’re not good at let me make you good at those five things and in effect what you do is you create managers who are milquetoast and what they were arguing, and I vehemently support, is saying well what are the five things that you’re outstanding at and how am I gonna make those things better and maybe mitigate a little bit of the rough side around the edges. So anyway, I think a lot of what we were taught was wrong.
Andrew: Alright are we talking about one of the books by Marcus Buckingham?
Mark: You know I honestly donít remember the title at the moment because I read it a few years ago. But if that was the genre which was taking entrepreneurs and strengthening them thatís probably it.
Andrew: He talks throughout find your strengths and build on them forget about trying to improve your weaknesses and your people’s weaknesses.
Mark: That must be the one.
Andrew: Alright, Mark your weak uh what did you have to prove? As an entrepreneur, as somebody who is still fighting hard, you could be on a beach in Los Angeles instead of an office. What did you have to prove?
Mark: You know I think that I’ve spent my whole life trying to prove something I don’t know why. You know my father’s an immigrant. My father moved to the US in his early 20’s. I don’t know why I always have ñ
Andrew: What do you think it could be?
Mark: What do I think I have to prove. I don’t know. I think, I think I always had honestly this familial need to show my parents that I could use something other than being what you know the traditional Jewish kid who supposed to be a doctor or a lawyer. My dad’s a doctor I was always supposed to do that. My mom was an entrepreneur, she was the inspiration for a lot of my entrepreneurial activities. But you know if I think back to college OK, I was the guy who was programming since the time I was 13 and I wouldnít want myself in it. I think it’s sort of glamorous these days to be nerdy, I wouldnít want myself in with that nerdiness. I was you know cool kid, I threw keg parties, I was president of my fraternity and all that stuff right. But I did have that really technical bent to me and I did spend evenings and weekends programming computers. And then I graduated college and suddenly people were telling me you’re a business guy because you studied economics and I spent several years trying to prove to people that I was technical enough. And hereís the irony abut how people brand you, then I went and got an MBA as you know, and you know suddenly yeah I was this kind of fluffy PowerPoint guy like suddenly everyone saw me as, well you know exactly what must people see MBA and consultants as and trying to get out of that stereotype was was very hard. When I wanted to be a CEO of a company I was 31, and I raised $16.5M in my first round and I think there was this whole stereotype that I have to prove that I actually could be a CEO when I didnít have the credentials to do it. And then ironically, when I finished being a CEO and I thought about going into venture capital, everyone initally just saw me as an entrepreneur. So I think my whole life has been trying to prove that I’m more than just a brand that people see me as.
Andrew: Alright. For anyone whoís watching at home and wondering about what I have to prove to the world, I was not the guy going to the keg parties or actually I would go and I didn’t know what to do and I was not even in a fraternity, I was the guy who had to prove that, ma what, I was a big nerd and I had to prove that there was more to me than just being a big nerd who couldnít get laid in high school. And I hope I did it. Thank you Los Angeles for helping me prove that. (short laugh) OK, first company were talking about BuildOnline right?
Mark: Yes.
Andrew: What was the idea behind it. Before you got funding, before you took it out to other people what was the core idea?
Mark: You know here’s the truth OK, because you know they always say you know history is written by the victors and you paint the story that you wanna paint but here’s the actual truth. I had been working in telecoms for almost 8 years, and I was fascinated by telecommunications and I actually designed computer networks and I was very early in playing around with mobile. I lived in Europe, you know I saw the explosion of text messaging and I had spent 6 months in Japan and I happen to be in Japan when i-mode launched so I was fascinated by this idea of how we all communicate with each other in a new way. So I put together a couple of ideas for what I would create and I went around to every VC in London and I told them I wanted to do a mobile data company and no one was interested in mobile data. And a friend of mine from business school had this idea for a company called BuildOnline which was a way to take architects and engineers and make them more efficient on their jobs which just so happened that, you know engineering and construction is 11 % of GDP. B2C e-commerce had just come off, the wheels had just come off it, you know the Pets.com of the world were starting to go away. And everyone was fascinated by what they were calling B2B e-commerce and BuildOnline seem to fit in that space. So this colleague of mine, Bryan Morrin, it was his idea not mine, he said what is it gonna take for you to do this with me and I said OK, well you’d have to make me CEO which I’m sure you wont do and he said the role’s yours. So I took the role of CEO, we went around the VCs who only 2 months earlier had no interest in mobile data and people were ready to throw money at us.
Andrew: So you were willing to change business plans almost completely. What about the passion, what about the vision for where you see the world going. Is that were the best business ideas come from, or is it from wherever the opportunity happens to be?
Mark: I will tell you and I say this maybe too often and I say it in almost every post on my blog, is I F’ed up absolutely everything in my first company and survived this fight at all. I F’ed up before the company started, I shouldnít have done BuildOnline. I wasnít passionate about it. I wasnít passionate about engineering and construction. And I did it because there was money, and people seem to be excited and I got excited in their excitement. I really wish I wouldíve stuck with my passion in mobile data cause its something I’m still hugely passionate about. In fact it’s an area that I’m really interested in investing in. And I will say this to you, as a you know being an entrepreneur is all hours all the time, it’s evenings it’s weekends it never stops when you’re at a wedding or Bar Mitzvah or whatever you’re at people never stop asking you about it, you never stop thinking and talking about it. And it’s really hard if it’s not something that you’re hugely passionate about. So I would say it’s nice if you can combine you’re passion with a big enough market opportunities, so I’d encourage everyone to do that. But do not take on an opportunity that doesnít match your passions and I’m gonna give you one example Andrew. I’ve been talking to some young entrepreneurs who have launched stuff in the mother space, and I keep telling them, god you guys are so talented, imagine everyday you woke up thinking about super exciting things that really energize you. I know that you’re not interested in strollers. I know that you don’t know what it’s like to breastfeed a child who’s you know 6 weeks old and you’re miserable cause it’s not working. So I just, I donít believe thereís authenticity in going into a business that you’re not passionate about.
Andrew: I see, you said the mother space, I thought well mother space outer space what does he mean you mean in, for mothers.
Mark: Yes social networking or whatever, baby food, whatever offerings there are for mothers targeting kids. You know I’ll give you another example that actually resonates is if you look at Emrah from TotalBeauty and I can never pronounce his last name it’s…
Andrew: Emrah and I went to high school together and I still have trouble with it but go ahead you please try.
Mark: You’re kidding me. Emrah for me is the classic guy that I wanna invest in. He’s immigrant born, chip on his shoulder but hugely competent in what he does. And what I was gonna say is he worked at Procter & Gamble for many years before launching TotalBeauty. So when you take a male whoís gonna go into a space thatís targeting females, I’m not saying it doesn’t work, but if you take a 23 year old kid straight out of school who has no resonance with the topic, I just donít think it’s a great idea.
Andrew: I see. OK and by the way thatís TotalBeauty.com for my transcribers who are always struggling to transcribe my work perfectly. OK so at what point did you realize that you made a mistake, it clearly wasnít after you got $16.5M, at that point it must have been the high. When did you realize, wait I went into the wrong area?
Mark: Well let me say this, 2000 which was a very unique period of my life and I’m glad I lived through it was, it was surreal, I was living someone else s life. I was invited to Versailles, and I got to sit with Jacques Chirac, who at that time was president of France. And you know I got to have champagne in the private wine cellars of Bernard Arnault who owns LVMH – Louis Vuitton Moet Hennessy – and drinking wine with, a champagne with Michael Dell and the CEO of Sony, and getting completely hammered and taking a bus home together. I mean I was living someone else s life, we were on the front cover of magazines and newspapers…
Andrew: You’re living my fantasy life my friend!
Mark: Andrew listen let me tell you we were a really big deal, until we werenít. You know Goldman Sachs was an investor, we were gonna IPO within 12 months for north of a billion dollars. I know it sounds crazy but a comparable company out there had an $8B market cap on less than $2M dollars of revenue. So anything seemed achievable, I had a company approach me about acquiring our company for $150M a year into our company and I thought a $150M between you know friends is chump change you know (short laugh). I know it sounds dumb but this was 2000. (deep breathe) And then in 2001 I had very humbling experiences. I had 122 staff, 30 of them were contractors, 92 were full time employees. I had recruited people out of Goldman Sachs, GE Equity and Andersen consulting – Accenture now, you know Morgan Stanley you name it and a lot of them were Harvard MBAs, Stanford MBAs. And I had to go from 122 total staff, 92 employees down to 38 in one day, and then within a month I took it down to 33. One of the most humbling experiences of my life and I laid off nearly all of my friends, it was awful. And I’d say in 2001 we really had to build a real company, and thatís when I realized that I maybe haven’t done the right thing. But having taken that kind of money from investors I felt a huge sense of responsibility. Just one quick aside, I remember traveling to Germany, and I didnít want to spend money on hotels cause we had pledged to build a capital efficient company so I used to sleep in New Eisenberg which is south of Frankfurt in a pizzeria. They had 3 rooms above the pizzeria and they used to rent me rooms for 30 Euros a night and thatís what my life became in 2001. They actually then decided not to offer those as rooms anymore so we gotten a taste of cheap rooms. So I went down the street in New Eisenberg and just stayed at the cheapest place I could find it was 35 Euros a night so you know I was wasting 5 Euros. But then I found out they didnít have bathrooms in the rooms and I had to take a shower down the hall, no joke. Walking down the hall to take a shower in the morning next to Turkish construction workers wearing leopard print underwear. (laugh) That was about the low point. And that’s a true story and you know had I built my company from a foundation of that in the first place I think I wouldíve set off at a much better trajectory. And it’s in those down years ñ 2001, 2002, 2003 when no one would return my phone calls that I built a real company and everything I ever learned about being an entrepreneur was in those 3 years.
Andrew: I went through that period same time. I was sleepwalking through my days for a few months. You get into this funk of depression almost. I wouldn’t say it was depression cause I donít want to belittle depression but you get in this funk and I’ve talked to lots of entrepreneurs who’ve gone through this to that, to those the 2 years that would internet bubble burst. And for me I lost a lot of my productivity looking back, I realized I was spending too much time thinking about where I was and where I should have been and not enough on where I, where the work that needed to get done. All that is a long way of asking you, how? How did you keep your mind clear enough to get things done?
Mark: When you’re an entrepreneur you have no choice. And I just resigned myself to not, you know there was this saying at that time, B2C stood for Back to Consulting B2B stood for Back to Banking and I just resolved my, sorry?
Andrew: Sorry. Sorry to interrupt but to say that as an entrepreneur you have no other choice, a lot of other entrepreneurs did have choice, or they found choices. Our mutual friend, William Quigley from Clearstone right. He was telling me that he was going to that period in a private conversation and said that some of his entrepreneurs would just disappear. Or just say, hey it’s your problem it’s not my money it’s yours and they’d walk away. And we know of people who if they didnít physically walk away, werenít fully there. What do you do to get yourself going? I’ve heard of entrepreneurs reading books, self improvement, going to therapy, what did you do?
Mark: Let me just say, I often say this and I know people find it self serving but I really do believe in down markets where you find the real entrepreneurs. When I say I didnít have a choice, sure I could have gone back to a high paying job. I mean I took more than a 50% pay cut, more than a 50% pay cut to do my first startup. And I felt I didn’t have a choice because I had the taste of entrepreneur-ism. You know I’ll tell you this, I started my first business at 14. I started a business selling t-shirts to my high school friends. And we had a club called the river rats which we used to go to basketball games, and you know, well drink a few too many beers I guess for that age. And I decided that I could sell them all t-shirts to go to the games and what I did is I charged not only for the t-shirt but I had everyone set names on the back of their t-shirts, you know everyone wanted to brand themselves. And I charged by the letter and all of my profits came from selling the letters not the t-shirts and then everyone had to have one. I felt like I was an entrepreneur at a very young age and its in your DNA and then Andersen Consulting beat it out me, it made me this kind of corporate being. So being an entrepreneur in 2001 2002, it wasnít that I couldn’t go back to doing a corporate job. I had a taste of how magnificent it is to live that life of being an entrepreneur and I felt like I had to make this company successful and thatís what I mean. And I’ll just give you examples, it’s 2002 in July, July 20th in fact I got married to my wife. What drove me between 2001 and 2002 is, I sure as hell wasnít gonna show up to my wedding unemployed. And you know honestly, I was maniacal about it. And in 2003 saw the birth of my first son and you know I just always set milestones for myself of why I had to achieve what I had to achieve in my own mind. And I just felt like I had something to prove having taken all that money. Having been on the front cover of all these magazines and knowing how worthless that is. I had to find validation in building a real business. In ’01 in the worst market for selling enterprise software and mind you, we were selling on-demand software, people call us SaaS now, nobody was buying SaaS back then. We did $2.1M in our first year of sales, we did $5.9m in our second, $7.5M uh $7.7M in our 3rd, $8.5M and then $14M, and we built a real company, you know I just wish I would have done it right in the first place.
Andrew: But you got it, and you turned it around and every time I hear that I get in, and so inspired that I then wanna revel in this celebration of how great it was afterwards, and then my audience emails me back and says Andrew how did he do it? I’m in a similar situation, to just say I turned it around by focusing, is it enough? So let me ask you now before they come in back and ask me why I didnít push how. What was it that turned things around?
Mark: So I wanna say two things. One is team, I had many colleagues who rose to the occasion, two in particular ñ 1. Stuart Lander who was my COO at BuildOnline and the other David Lapter who was my CFO. David is now the CFO of a company called KickApps in New York and and doing great things. But having individuals who rally around, and they became family, and we were all in this together. Talk about MBA programs like, yeah you build lifelong friends but you wanna talk about real friends, you wanna talk about lifelong friends, you wanna talk about people you’ll go to their braes or whatever you’re gonna do, their baby namings, their catechism or what, what is it called? I don’t know baby namings. These are the people that you will be your lifelong friends and acquaintances cause we were all in it together. What are some of the things we actually did, I talked bout being greedy entrepreneurs. OK, so I’m on the board of a company thatís being run by a silver spoon entrepreneur, and I’m actually no longer on the board so I donít have to disclose who it is. And I kept saying to this person, you need to cut costs, you need to focus on your customer and we need to find ways to get more out of our existing agreements. And she would say to me, listen we signed these customer agreements I need a huge staff to support them cause weíve already signed the contract. I said go back to your customers and tell them times have changed, I need you to either pay me a little more money for the contract so I can support it or I’m gonna have to cut on my development cost and support cost because I can’t build a profitable company. Now, what you need as a customer is you want a really strong supplier. I think you still really believe in this vision of what we built but I need to be strong and to be strong I need to make profits. And by the way, you’re a billion dollar company, it’s really no no sweat to you. And by the way if you changed this agreement, I’m committing to you, I will bust my ass to make you successful but I need a little gift. It is really hard to have conversations like that and I encouraged her to go do it. And I will tell you something, it was beneath her. It was beneath her, because it is really hard to go to people and say I know you signed something I need more. I know that I’ve got staff unfortunately I got to cut some of my staff and thatís, those things are really hard. And thatís what we did, and I think we turned it around by being greedy and focused. Focused on where our product differentiated and how valuable we were to our customers. You know we went out and asked for things that, I don’t know, you wouldnít ordinarily feel comfortable asking for but thatís what you have to do to survive.
Andrew: Ah. I got, I don’t know if you saw it but we were on camera now so maybe you did. I was getting shivers as you said that. Let me talk to my audience here, it’s gonna look like I’m talking to you cause I’m talking to the camera but I’m gonna talk to my audience right now. If you’re a student right now, go back clip out that piece where Mark was talking to a customer and memorize that. That’s the way to talk to customers in hard times. I used to memorize the ìgreed is goodî speech from the movie Wallstreet. If I was a kid today I would be memorizing the ìcustomer, I’ve got a problem let’s work it out togetherî speech that you just gave cause that will save your butt in hard times. I love that, thatís inspiring. And save this interview and go back and replay it a million times. Feel free to post it everywhere you want people. That was incredible. Alright so thatís the kind of thing you did. You did things that other people would think are beneath them by sleeping in places where theyíd be too embarrassed to, going out and taking showers with leopard-printed construction workers, and having conversations with your customers that cuts costs. What about bringing in more money, where does that come from?
Mark: Well what we did is, I realized that I didnít have a background in sales and I like to say –
Andrew: Really with a speech like that? OK. Alright I’m sorry.
Mark: I will, but I’ll address that Andrew I promise. You know I like to say that you can’t run a burger chain if you’ve never flipped burgers. And what happened was when you raise too much money, and I have to say hats off to you Andrew cause you donít say it often enough, you actually built a company the right way, I built it the wrong way. The second time I did it the right way but you did it the right way the first time. And you know I didnít flip burgers, I had $16.5M and the problem with that is not that I went through big parties and big crazy stuff, I had expectations of me from day 1 that we were gonna scale faster than is actually possible. And so I hired senior sales guys, and I hired senior technical guys, and I hired senior product management people and I built up a huge customer support staff, and I actually didnít have to physically do that stuff myself. And I think, you know I’m often asked this question is are sales people born or are they trained? And it’s like religion, you know people follow on one side of the equation, I’m absolutely certain that sales people are born. You cannot train people who donít have the DNA to be great sales people. Now, there is a process you follow in sales and you can be better at selling if you follow a process. And there are process-driven sales people and there are natural sales people but fundamentally the great ones have it in their DNA. And for whatever reason I think it was part of my DNA but I never had training so what I did is I brought in a coach, and his name was Kai Krickel. Kai Krickel comes from Germany, he runs something called TEDIC Consulting and what TEDIC stood for is The Excuse Department is Closed. Excuse department is closed! And as a CEO running a sales team, you realize your life is just filled with excuses of why you couldnít sell the product, you know why? Cause it’s missing 3 features. That is bullocks. Right, it’s your job to get out and understand the user requirements, build a relationship with clients, qualify people out, I mean you know the golden rule of sales is ìqualify, qualify, qualifyî. If someone’s not gonna buy it you need to move on to your next place. It’s kinda like when you lose something, you know the old saying that you lose your keys and you’re looking in the light, but you lost them in the dark and somebody asked you and you said, yeah but I can’t see in the dark but you lost them there. I mean, you know people like to spend their time selling, with people who are nice to them. But you need to spend your time where thereís opportunity and often thatís where there are competitive situations where it’s hostile where, whatever. So what I learned from Kai Krickel was the process of selling and we implemented that at BuildOnline. We made it methodical and we created our own sales process which we called Pucka. And we went through, for example do you have a sage in the company whose telling you, you know how to sell the company? Do you have a champion? If you donít have a champion at a client you’ll never gonna sell anything. Do you understand who the key influencers are? Who’s the technical buyer? Who’s against you? Who’s for you? Do you have actual economic value that you can actually validate with the client and get them to agree at? Do you have something thatís unique about what you do relative to your competition? So we created this whole methodology and from that we began to sell a heck of a lot more product.
Andrew: Oh there’s some interviews that I just wish would go on all day, this is one of ’em, I love this! As an entrepreneur, as a business lover I get off on this stuff. Alright, but I’m also feeling the pressure of the time because I know you’re very important venture capitalist. The fact that you’re even coming on here and spending an hour with me I’m very grateful for. I’m not gonna squeeze for 2 hours, 3 hours and 4 hours. We’ll save that for later on in my career here. I gotta move on then, alright next question. What kind of exit did you get from this?
Mark: So I will tell you this, the exit I got from my first company did not allow me retirement money. It just simply didnít. Why? Because I raised too much money. You know, I had a $55M of something called liquidation preferences and liquidation preferences are crushing. And not only did I have liquidation preferences, I went through so many rounds of financing that I had my self diluted. So I made enough to be able to squirrel us aside money for down payment on a house. But, my second company, I only raised $500,000 for. And when we sold it, you know I owned the majority of the company and that enabled me to decide I can do whatever I want with my career. And I wouldnít call it FU money, you know like people like to call it. You know, I’m not buying Necker Islands you know as Richard Branson did. But I have enough to choose what I wanna do in life so I went to work at Salesforce.com which I think is a phenomenal company, but I just chose that thatís not what I wanted to do with my career at that point of time in my career. And you know, I feel like I was in a magic place, it was this second fastest growing place in Silicon Valley behind Google, and I was at the top levels of a place that was on the ascendency and I think will be for a long time to come and I was able to walk away from that cause it’s not what I wanted to do in my career because I had an accident. I’m sorry for a long answer, but I just wanna say one other thing Andrew and I think it’s something that you and I agree on. I tell entrepreneurs, do not raise too much money. And if you could raise money from angels or seed investors even better. It’s not that I don’t believe in venture capital, it would be strange to be a venture capitalist and not believe in it. I just believe in optionality, as you progress as an entrepreneur if you raised $.5M, $1M, $1.5M you may find that exit opportunities at $10M, that will change your life and allow you to do whatever else you wanna do. But a year into this, if you’ve taken $1M and someone taps on your shoulder and says here’s $10M and you own let’s say 40% of it, thatís $4M in your pocket at a long term capital gains tax right. You may still believe in the up side and thatís the beauty cause then you can raise $3M or $5M and say F it! I’m gonna go for this. And by the way and I always say this to people there is the ability as an entrepreneur to take cash off the table even before you exit your company. How does that work? It only works as if you’re being super successful and venture capitalist perceive you as being super successful. And if they see way more success potential in this company by letting you put $1M or $2M in your pocket, then letting this deal get away from you they will offer you that all day long.
Andrew: Alright and I think we talked to Matt, founder of WordPress who said that he had that option and took it and he seemed very reassured by it.
Mark: Yup.
Andrew: The company that we talked about is called Koral right?
Mark: Yes.
Andrew: What it allowed was for document sharing, document searching, document uh what else do I have here in my notes, version control on top of Salesforce right?
Mark: Yeah and I would not say on top of Salesforce. I would tell you when you think about Docstoc…
Andrew: Docstoc. Uhm.
Mark: When you think about Box.net, when you think about Dropbox all of these successful enterprises, we did all of those things before those companies existed but we focused on enterprise customers rather than consumers. It just so happened that our largest customer was Salesforce.com. They agreed to roll us out to 3,000 employees and they only have 3,000 employees and so what it did is it made it simpler to share content. Now, when I launched Koral I had been doing document management for more than 5 years. I understood that market and what I say to entrepreneurs is, if you can do something that you have deep domain experience and you’re always gonna be more successful so I encourage that which is why I stuck with document and content management. And so having had Salesforce as a client using our product, I naturally had to do the integration with Salesforce.com. We had 6 term sheets for venture capital for Koral and I was gonna go raise around money, and by the way my lead investor was going to be True Ventures the same people who funded Matt, I absolutely love those guys, theyíre entrepreneur-friendly, they get it and, but Salesforce put an offer on the table. And I remember I had seen the movie before, you know I saw it in 2000 when I had an offer from my first company, and I just thought this time I’m, thereís a different ending to this script.
Andrew: Alright, you sold it you went on to work at Salesforce. I donít understand how you discovered your entrepreneurial gene and you decided to go work for Salesforce. Let me ask that question, why was that? Before I go on to the next stage in your life.
Mark: Well Salesforce acquired us I had no choice –
Andrew: I see so this was a deal where you had to stick with them?
Mark: Yes. And so the question was could I continue to work in private Salesforce? And I would go on record, you know I’m pretty opinionated and say I think Salesforce is a great company with a huge potential. It was a very difficult decision for me, but the problem is being an entrepreneur means that you’ve gotta have some sphere of ownership and influence over your job function. And Mark Benioff is so dominating at Salesforce.com that I didnít feel like I could be my own person. Now he is outrageously successful, I would tell you that he’s a very hands on person. He gets involved in pricing, he gets involved in product, he gets involved in sales leadership, and he actually does pipeline reviews for the sales team which is why Salesforce.com is so successful. But with that sort of person running that organization I didnít feel like I could be who I needed to be.
Andrew: OK. Alright and then you went off and you work now as a partner not controlling your own company, but working in a partnership. Whyíd you decide to do that? Why’d you decide to be a venture capitalist? Why’d you decide to go in this direction?
Mark: I was in my late 30’s when I decided to work at GRP. I will tell you that GRP had funded both of my companies so I had worked with them for almost 8 years by the time I joined so they were part of the family. And what I saw was this, I had worked with a lot of young teams and a lot of startups because even during the Koral days when I was living in Silicon Valley, I started advising a few companies, one of which was called Maya’s Mom that we managed to sell the baby center. So I actually worked in the mother space but it was a very talented woman who was running that. I worked with another company that also got sold to Salesforce.com, so I started working with a lot of entrepreneurial teams and I love the start. I love getting involved with teams when the idea is just forming and the strategy is not fully baked, when all the risk is still there, when that energy and excitement and passion is there, it’s not just about the process. And I thought working in VC would give me that opportunity to work with a lot of young entrepreneurs, and I have to say so far it’s delivering against that remit. And my logic at that time was, I will not have the opportunity, again I don’t think in the near term to be a partner in a venture capital fund and one where I respect the partners that I’ve known for many years, so if I was gonna try it, now was the time. And I sort of feel like I have the entrepreneurial DNA already implanted in me, and if I wanna go back to that at some point in my life I feel like it’s something I can do.
Andrew: OK. I’ve got this theory that in Southern California every entrepreneur wants to be Jason Calacanis whether they admit it or not, and every venture capitalist today wants to be you. Wants to be respected like you, wants to be a part of the community like you, but they donít put in the work. I mean they may not make sense for them to, young guys starting out in this space. What I wanna understand is the work. I’ve watched you over the years, build those relationships, it seems to me like you’re deliberate about it and I’d like to understand the process. How did you do it?
Mark: So I will tell you that my wife asked me, she said OK you’re a VC now I thought you werenít supposed to work evenings and weekends? (laugh) I view myself as a startup, I know that I’ve got something to prove I’m a new brand on the street and I feel like I had to treat my personal brand like I would if I were running a startup so I had to make the extra effort. You talk about you know William Quigley or Jim Armstrong, I mean these guys had been around now like for many years in venture capital for many years, so anyway I felt like it was a necessity. But I had a strategy, my strategy was first and foremost to start with entrepreneurs, so I tried to get out and meet every interesting entrepreneur in Southern California that I could find then I spent a lot of time doing that. No. 2 is I realized, how do you get access to the best deals? Well the the best source of access is entrepreneurs. So the referrals that are coming in to me from other entrepreneurs are phenomenal. But the second thing is, the first thing you do when you start a company is you get a lawyer. Right, so I donít wanna give all my secrets away, but I guess I did. I went around at every law firm and I said to them, I’m gonna give you an SLA – Service Level Agreement. My SLA is this, if you send me qualified deals, I promise to meet every company you send me, and I promise to give them real feedback – no bullshit – real feedback on whether it’s a good or bad idea. And I know that most VCs donít respond when they get emails, so suddenly the lawyers started sending me all their deals cause they knew that gets a lawyer you wanna show your value by getting introduction to VCs. And I knew if I responded quickly to their emails, if I met all their teams, if their teams came back and they said, you know Mark kinda you know, maybe he was a little harsh in his feedback but I gotta be honest it was the best feedback we got and or at least he gave us some feedback whether we agree with it or not. But that message would get back to ’em and I think it did. And then where I started to turn my attention lately is to big companies and starting to build senior relationships at Disney, at Warner, at Universal, at Google, at Microsoft, at Yahoo and other places because ultimately not only do I need to work with entrepreneurs but I need to help them get access whether it’s business development, whether it’s M&A someday. And you’ve gotta have both sides of the equation so the next 12 to 18 months for me is really focused on that.
Andrew: Yes. That you seem like the kind of person who would do that. I admire that a lot and I know the person listening to us does too. That you know the next 12 months this is what I’m gonna be spending my time on, this is how it fits in. Were you always like that? You think about everything that way?
Mark: I think so. I’ve always been pretty methodical. When I joined my fraternity undergrad it was called Phi Delta Theta, we were the top fraternity on campus and I was this kind of lowly peon and I wanted to be president someday and I don’t know why. (laugh) It’s just this chip I had on my shoulder, you know I just had to prove it. And I said I’ve gotta do first I wanna be a a lower level job, then I wanna be pledge master, then a pledge trainer and then social chairman, and from social chairman I ran for Vice President and that was gonna be my springboard. And for the first time in my life I had a major setback cause I lost at Vice President and I lost to somebody that I thought was greatly under-qualified relative to me. And it taught me a big lesson and I went back to the drawing board and the very next election I ran for President. And I literally had people calling me on the phone from my fraternity saying, we like you Mark but we donít think you should run, and I said, well hang on a second you like me you said I’m competent why shouldn’t I run? And they said two things, 1. is you’re not gonna win, and we want you in a role so we want you to take a lesser role, and 2. is we donít want to divide the fraternity by having some people vote for candidate A and candidate B and have you be candidate C. And I said thatís bullshit. You know, ultimately I believe I have the right skills, I believe I can win, I’m gonna prepare and you know, if you wanna vote for someone who has spoke for someone else. And there were 3 of us in the election, and so if you were assuming a runoff right, that we’d all split the votes so the question is who was in 1st and who was in 2nd and I actually won the election with no runoff. You know your whole life will be people telling you no, that you can’t do things and if you listen to them you’ll never be an entrepreneur. You need to have confidence, you need to go ahead when everybody tells you no. I sat through a hundred pitches as an entrepreneur trying to raise money, 84 of them said ìnoî. I got 16 term sheets in my career, 84 nos and these are nos by people you look at and you just say you have no idea what you’re talking about. But thatís the way the world works and you as an entrepreneur, you just have to have the confidence and your convictions. That doesnít mean donít listen to feedback right, but you have to be confident in your convictions.
Andrew: People are gonna love this interview. I love, there better be an entrepreneurial hall of fame soon because this is gotta be in that hall of fame. And I’m seeing the comments come in so it’s not just Andrew getting carried away with enthusiasm. I see other people here like Tumble Design getting carried away, BetterLabs and a lot of other people. If you’re watching live you’ll see all these comments come in so you know that thereís enthusiasm here for it. OK. We only have 3, 4 minutes here I wanna make sure to ask some of the last questions that I have for you. The first that everyoneís gonna wanna know is advice for somebody trying to raise money. Now, I think that in 3 minutes for you to give meaningful adive is I don’t think it’s po… You could give a little but you can’t solve all their problems but I think we need to give them something.
Mark: Ok.
Andrew: This is one of those check boxes that I need to check off in this interview.
Mark: I could solve it in two ways. One is go read my blog BothSidesoftheTable.com, there’s a tab called Pitching a VC and I got all my advice there. But the very quick thing is, raising money is not a transaction, it’s not something you do in 6 weeks. You build a relationship with a VC. If I’ve known you for a year a year and a half and then you come to me when you’re really looking for money, it’s far easier for me to invest cause I’ve actually seen how you behaved over the last year and a half. Way too many people come to me when I have a gun to my head and they say I need term sheets in 4 weeks. I donít do that very often.
Andrew: OK and I’m also gonna suggest that they. I’m sorry?
Mark: I was just saying VC’s a relationship you need to build it over time.
Andrew: Get to know Sean Rad who you said you’ve invested on in his company. You mentioned Jason Nazar, you’re friends with him get to know him and ask for an introduction and a couple of the other names. Rewind and listen to all the names he threw out there and get to know them first. What else, oh last question. Who else should I get here as an interviewee? You’re a guy who talks to more entrepreneurs than I do.
Mark: OK. Well listen I’m gonna address them a second but I just wanna address something else you said which is, one is how you raise money and I mentioned that the second is how you get access to a VC and I’ve done a whole post on that. You must get access via an introduction. It matters how you get access to the VC. People donít wanna hear it, but its the truth so please read that post if you’re thinking about approaching a VC. Who else should you get on? One of my favorite entrepreneurs in town is someone that you know very well as Roy Rubin. I don’t know if you’ve had Roy on.
Andrew: I did. He was awesome. Guys if youíre watching this go watch Roy Rubin you’ll love him.
Mark: Yeah and he’s doing it the right way. He’s the entrepreneur’s entrepreneur. He traveled to Europe 5 times in 3 weeks or was, yeah 5 times in 3 weeks. He went back and forth and back and forth and it’s because he’s, you know passionate about what he’s doing. Other entrepreneurs in town I think thereís Adam from Hautelook. Adam Bernhard, I don’t know if you’ve had him on?
Andrew: I have not.
Mark: I think he’s phenomenal. Yeah I would highly recommend that. I think he’s doing really interesting things and his business is absolutely exploding. You know who I love? Ian Rogers. Have you talked to Ian at Topspin?
Andrew: No. Would you make an introduction so I could get an interview with him and Adam?
Mark: With pleasure.
Andrew: Thank you. Alright oh and anyone who wants to do an interview, what do you think? You’ve now gone through about an hour with me do you recommend they do it or not?
Mark: Oh you know it’s phenomenal. I, you know Andrew you know this, I always love spending time with you. I went to an event that you had maybe almost 2 years ago, and when I look at the style of questions that you ask, you’re asking from the entrepreneurs’ perspective you have energy enthusiasm and all the things that are required to be successful. You think about the interview, you prepare for it. I would recommend it to absolutely anybody.
Andrew: Ah this is great you just made my day! I don’t know what I’m sitting in the office after this for, it’s not gonna get any better. I better go out and have a drink. Or something here, I’ve gotta settle down. Alright let’s say goodbye here, hang on with me while I say goodbye. Everybody whoís watching thereís the interview. Thank you all for watching. I wanna hear your feedback. I believe this belongs in the entrepreneurial hall of fame. If you agree with me go out there and create it so that we can submit this in there. There needs to be an entrepreneurial hall of fame, rock & roll hall of fame who needs that. 2. so give me your feedback is the 1st thing let’s get serious here, 2nd thing is contact, connect with Mark on his blog it’s BothSidesoftheTable.com and you’re also on twitter right? Very accessible. What’s your twitter handle?
Mark: Yeah it’s @msuster. And Andrew actually thereís a perfect segue for you which is VCs get way too many emails and yet if you look at Fred Wilson or Brad Feld, myself, Josh Kopelman, like people who keep blogs, it is so easy over time to start a dialogue if you leave comments on blogs. If you send people things on Twitter, if you occasionally send things on Facebook. You can’t stop these people but if you occasionally contribute then overtime they start to know who you are. And remember it’s a relationship you know, donít go for the close in the first time you ever leave a blog comment but it’s way more accessible than being in my inbox.
Andrew: You know what, I always used to think that people would think I was a crank if I respond, if I added a comment or sent out a tweet. It’s not. It’s now the new way of networking and getting to know people. Please find a way and connect with Mark as good as you think this is, his blog and the millions of other ways you could connect with him directly without me, as good an intermediary as I am, without me you get to know the real Mark directly, and I urge you to connect and just see this as a beginning of a relationship with him. So that’s no. 2, connect with him. No. 3 click around Mixergy, tons of other interviews with guys like Mark, investors, entrepreneurs who wanna help you become an investor and entrepreneur because, it’s great life right?
Mark: Right
Andrew: Perfect. Thank you Mark, thanks for doing this interview.
Mark: I appreciate it. Goodbye.
Andrew: Goodbye.
