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Here’s the program.
Andrew Warner: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. You guys know what we do here. I bring on every weekday a different entrepreneur to talk about how he built his business, teach you what he’s learned along the way, and pass on all those ideas to you and all those tactics to you so that you can go out there and build an incredible company and hopefully do the same, which is come back here and do your own interview on Mixergy.
So, the big question for today’s interview is how do you grow sales when you’re running a brand new company and you have a product that people never heard of? That’s what I invited Mike Alfred, founder of BrightScope, to teach us. I was on the phone with him last week when he told me that he did over a million in sales so far this year. And he landed customers, like Lockheed Martin. So, I asked him to come here and teach how he did it.
Mike, welcome to Mixergy.
Mike: Thanks, Andrew. Thanks for having me on.
Andrew: What is BrightScope? I figured we’d start basic, and then we’ll go into teaching. What’s BrightScope?
Mike: Well, BrightScope right now is a 401K ratings and analytics company. So we gather very difficult to obtain, primarily public data, and then we basically put it into an analytics engine and spit out a rating to help people figure out how good their 401K plan is. But, of course, our vision is much bigger than that. Eventually we hope to be the next Morning Star or Bloomberg Financial Data, and so, of course, we’re looking at other sectors right outside of 401K plans that we can go into.
Andrew: Did you always start out with a bigger vision and you just had to hold back and keep things simple at first? Or did you discover the bigger vision as you launched and grew the business?
Mike: Well, it was really a lightning bolt moment. My brother and I were sitting at the Marriott, over here on La Jolla Village Drive here in San Diego, having a few cocktails, and one night we said, “Why isn’t there a Morning Star rating for 401K plans? How is it that there can be $4 trillion invested in this marketplace, and yet nobody knows what’s good and what’s bad?”
And so, it really started there. We said we could create that. Being young entrepreneurs like we are, we thought there’s got to be something else behind that. So, let’s start there. So, my brother did a great job bringing in professors to help sort of build the algorithms around the rating. And we’ve shown that a good rating that is actually usable by the public and with all of the attention that gets, you can build software for a number of people within that ecosystem.
Andrew: OK. 401 plans are basically retirement saving plans in the United States. I didn’t think that people outside of the U.S. probably don’t have 401K plans and probably don’t know what they are. So, I figured I’d include that at the beginning.
So, what happens is when a new employee gets a job, they’re asked to pick from all these plans, but they don’t know how to make the decision. Is that the problem?
Mike: The big problem that we saw, which I mentioned, was that you have 401K plans that a ton of people are investing money into, 60 million Americans, and yet they don’t know what they’re paying. Corporate sponsors don’t necessarily know how to make the best decisions because they don’t have comparative data on what other companies are doing. And then, of course, individuals just plain don’t know how to invest. So, there’s a number of different problems on top of problems compounding themselves.
Andrew: And when did you guys launch?
Mike: January 29, 2009.
Andrew: OK. So, not much time at all. What are we talking about, 19 months? Somewhere around there, 20?
Andrew: 18 months. OK. So, I figure the outline for this interview will be we’ll talk about a few examples of how you made sales early on, and we’ll also talk about how you got a new head of sales.
I’d like to ask you, too, about the fundraising you guys did and learn how you raised money. And then, if we have time, I also want to ask you about the Founder Institute, they’re a sponsor of mine, and I know that a few of my viewers have gone through the Founder Institute. I want to talk about what happens there. What does a mentor like you give new entrepreneurs in the Founder Institute?
So, why don’t we start with Lockheed Martin? I use them as an example here of the kind of customer that you got. Can you tell us how you got Lockheed Martin as a customer?
Mike: Sure. So, Lockheed Martin has one of the top five biggest 401K plans in the country. And obviously, as a startup, it’s really important to have those sort of beachhead clients so that you can then point to them as other smaller companies are coming along and asking about who uses your services as a reference.
And so, to get Lockheed, it wasn’t somebody we were targeting. We were looking for any large companies that we could find that would work with us. And what happened was we got invited to speak at a Chamber of Commerce event in Washington D.C. The Chamber of Commerce building is actually right across the street from the White House. So it’s pretty much like the center of business these days of anything that seems to happen in D.C.
So, we were speaking about 401K plans, what the BrightScope ratings are designed to do. And afterwards the gentleman who ended up championing our product at Lockheed walked right up to us and said, “Hey, that was a very interesting presentation. I’d like to learn a little bit more about what you guys are doing.”
So, we started a discussion over lunch. And then over the course of several months after that, there was a lot of back and forth, and finally we were able to get something done with them. And they became one of the first very large companies to use our analytic software product to analyze their plan and compare it to other companies.
So, for me, the big take-away was, if you’re a small company, it’s really hard to sell software to one of these big companies if you don’t have somebody there like this gentleman who can actually do that, champion the work inside the company. And then, I also think you need to be seen personally because you really need to build a personal relationship with that individual. Skype calls might be able to work, but there’s nothing like sitting in front of the potential customer and having them see you as an individual. They may like things about you more than about your company initially, but hopefully if you have got a good product they’ll eventually be able to champion your product.
Andrew: What was his incentive for being your spokesman in essence inside the company?
Mike: So, his job as the Director of Benefits is actually not to do all the day-to-day administration. It’s to some degree to make sure he’s up-to-date on all the latest, newest trends and opportunities that’s out there.
So, we very quickly realized that look, this falls right within his purview because BrightScope is sort of a revolutionary game changer for 401K plans because no one else has had a rating system, software, and data like this before in the space. And so, his incentive is to continue to be seen as a thought leader, as somebody who drives new initiatives. And so, being able to bring something like this to the attention of his superiors and have then have it implemented internally is definitely a big win. It’s probably a bigger win for us, but it’s a big thing for him personally as well.
Andrew: So, you’re saying meet people in person. That takes a lot of time. How did you make sure that, especially since you’re running a new company and you’re still getting everything set up, how did you make sure that your time was used properly, that you were maximizing the time that you were out there meeting people?
Mike: Yes, so that’s a tough one. At the beginning, it’s really hard to gauge how important certain conferences might be or certain sales calls that you could go on. What my brother and I try to do is we usually try to go to cities where there’s a lot of different things that we can accomplish at the same time.
If we go to D.C., we meet with somebody in the House of Representatives. We meet with somebody in the Senate who’s writing potential legislation. We meet with the Department of Labor, which is the primary source of our data. We meet with all of the think tanks and whatnot that deal with our space. And we just happen to speak at a few things while we’re there. So, we were there for other reasons ostensibly, but what ended up happening is we were able to meet this gentleman while we were there.
So, don’t go to Tuscaloosa for meetings when you’re a startup. Go to Chicago, Boston, New York, San Francisco, places where if you’re going to speak there for a conference or whatnot, then make sure that there’s a lot of other people that are in your space. I don’t know what space other people are. But, if you’re in financial services software, there’s only like four or five cities that you kind of have to be in. And so, choose conferences that are in those cities.
One of the things we started doing this year is we refuse to go to conferences any more if they don’t put us on the agenda and give us a speaking slot. It’s hard to do that out of the gate, but we’re not going to pay and sponsor a conference any more unless they do that for us.
Andrew: I see. So, that’s how you got to speak at conferences before. I was going to ask you about that. You’re a new guy in the space. It’s a new company that you’ve got. How do you have the authority to speak at conferences? Is it that you sponsor?
Mike: At the very beginning, you’re not going to get invited to speak at conferences. You kind of have to show up there and be seen and meet people. But, I think being known as a credible expert, being quoted in a lot of publications, being on TV, being on the radio and whatnot, eventually you just sort of become an expert. And then, you can sort of demand certain things to show up.
Luckily for us, that happened in 6 to 12 months, but we’ve also had an unbelievable amount of PR around this issue, partially because the economy has tanked in the last couple of years and people are concerned about retirement, but also because we do have the data and a somewhat unique product.
Andrew: That’s interesting because I sometimes see entrepreneurs build a reputation for themselves and a name for themselves as experts. And I start to think, isn’t that a distraction from the job? Isn’t that something that’s more about ego than it is about building a business?
But you’re making a good point that when you build up your personal brand, when you build up your reputation as an expert in the space, you get opportunities to speak. You get more of a spotlight on you, and that then brings in business.
Sorry. We’ve got a little technical trouble as people just heard.
Why don’t we talk about how you get all this PR? I saw on your bio that you were on CNBC, on ABC News, Fox Business News, National Public Radio. It’s almost like for every day you’ve been in business, it seems that you’ve been in another business or big mainstream publication.
Mike: Yes. So, we’ve been incredibly fortunate, because we built a product that happened to solve a problem that affects a lot of people. Almost 60 million Americans have 401K plans. So it’s not a small niche by any means. We built sort of the viral nature of things right into our product. We didn’t wake up one day and say, “Hey, let’s all of a sudden make this interesting.” We said, “What can we build?” This was over cocktails two or three years ago. We said, “What can we build that, in addition to being useful, people will actually pay attention to it?”
The great thing about ratings is that ratings is something that any journalist is going to want because every journalist wants to write a new story, top ten list, top five that. And with 401K plans, you couldn’t do that historically.
We’ve been lucky to work with a number of great PR firms and having a rock solid PR firm like the one we have in San Francisco really helps. But ultimately PR firms don’t create PR. They simply help you manage the process so you can maximize the PR opportunities that are available to you. I think PR fundamentally comes from having an excellent product. And then secondarily, I think the management team, particularly in a startup, has to be 100 percent committed to making that PR work.
So, if you get a call from “The Wall Street Journal,” don’t call them back tomorrow. They might be on a deadline. If you’re the CEO, you may think you’re too busy for this. But as a startup, I think you’re never too busy to pick up the phone and call back and just make sure that if there’s data that you can provide them for their story or an angle you can provide them for a story or a perspective, you need to make sure that you do that. They love that.
When you do that, they actually call you back next time and you don’t have to do any work. They just say, “Hey, can I get a quick sentence? I’m going to throw it in the story.” I think as an entrepreneur, especially as a startup CEO, a lot of people said don’t over focus on PR, but I definitely think you can under focus on it. For us, PR has driven everything else. The sales that we have this year, I think probably three-quarters of the sales came directly from some article, where somebody read that article and then decided to contact us.
Andrew: Three-quarters of the sales came from you making a name for yourself and your company through PR.
Mike: Yeah. And the PR also drove 100 percent of the conference speaking engagements and all of those other things that have sort of plays upon itself. That’s sort of off the cuff math. That’s not exact.
Mike: But I would say some huge percentage has been driven directly or indirectly from the press. In fact, I just was . . . I don’t know if you were going to ask me about this, but I was just talking to the head of benefits at American Express. And she essentially said, “The reason why that I’m so familiar with you is that you guys were in the press pretty much every day one week a few months ago. Because of that, my boss came to me and said, ‘What’s your strategy for dealing with this BrightScope?'”
And that’s essentially the same sort of anecdotal thing that I’ve heard from a lot of large companies. We wouldn’t have any visibility if we had no press. And so, the press has driven the visibility, and the visibility leads directly to sales.
Andrew: So, you told me before this interview that as a CEO, PR needs to be your core competency. How did you do that? It’s a young company. You don’t have a PR background. You’re not somebody who did PR for a living and suddenly opened up your own company. As I said earlier, you’ve got so much else going on. How did you make sure that PR became your core competency? How did you train yourself to do this right?
Mike: Well, fortunately, I’m kind of a self-promoter by nature. I’ll go on Facebook and post the article that I was just quoted in and go on Twitter and do the same thing. And so, you don’t want to be too shy. You want to be modest in life. But when you’re a startup CEO, you really can’t afford to be too shy or too modest.
You know, I didn’t have to be an expert on PR. PR is no different than any other aspect of business development. You build relationships. You follow up. You do what you say you’re going to do. And you’re going to get PR if you treat the journalists the same way you treat your most valued customer, which I do. The journalists have driven me towards and those top customers towards BrightScope. Therefore, I feel like I have that sort of relationship with them. So, I do return their calls quickly, and I do make sure that if they need something, they get it from us. That’s just a reasonable balance.
And so, I don’t think you need to be an expert in PR. You just need to be good at building relationships and make sure you’re following up with them. And make sure you look at the world through their perspective. A lot of, I think, probably young CEOs don’t think about what a journalist is dealing with on a day-to-day basis, and so some of their responses seem to be more about their companies rather than about the journalists.
I always ask, “What is it that you’re writing about recently that we might be able to help with it?” I always say, “Hey, that’s an interesting angle, but here’s another angle that you might not have thought about.” I actually turned a Forbes writer completely around. She was going to write a story on something completely different. I told her what I thought she should write the story on. She ended up pitching that story to the editor. The editor loved it.
Andrew: What was the story that you pitched her on?
Mike: It was a story about finding individual 401K employees that had done something to help change their 401K plan, because that’s sort of the big question that journalists almost always ask us. Okay, people have the BrightScope rating now, and they know their plan is bad. But how do they change it? I said, “Listen. It may not be direct, but some employees right now are taking that BrightScope rating to their head of benefits and using that to convince them to change something about their plan.”
And so, that’s just one example. I’ve done that a few times now, and they always appreciate that because all journalists want to look good for their editors.
Andrew: You said also that you’ve leveraged your advisory board. How did you do that? Do you have an example of how you did that?
Mike: We have a number of pretty prominent industry advisors, and one of our advisory board members, Matt Hutchison, has testified before Congress many times. He’s actually, long before we had any press visibility, he was a pretty visible guy. And so, we’re actually able to leverage off of that a little bit to get some attention. And one of the things we also realized with him, he’s very well respected by large numbers of one of our primary customer bases, which is financial advisors dealing with 401K plans.
So, one of the things we did when we were first building and launching our financial advisor purposed product, which is called Spyglass, is we took it to Matt and said, “Matt, play around with this. Let us know what you think. Use it a little bit in your own practice. See if it helps.” Of course, it did. It was something of immediate value. So, we said, “Listen, do you mind sort of mentioning this to three or four of the top advisors that you know already that might be interested in using it?” The four or five guys that he introduced us to all of them are now our clients.
And so, that really helps to get a product launch going smoothly when you can get four or five customers through an advisor who’s leveraging off of their credibility. Of course, Matt’s been a tremendously important advisor to this company.
Andrew: Was he an advisor before he was an investor?
Mike: Yeah. He was our founding sort of advisor. He was our first advisor. I consider him like a godfather in the sense that we didn’t know whether we were onto something until he kind of said, “Yeah, this is big. I want to be a part of it.” But, no, he didn’t invest his money. We gave him some [inaudible 19:09] to get the founding stock before everyone got options.
Andrew: Oh, gotcha. Okay. Let’s see what else. You and I talked before this interview about how financial advisors are one of the original customers that you went after, and you just told us how having an advisor helped you do that. How else do you go after financial advisors?
Mike: So, our primary method of going after the advisors now is a) we have the incoming requests through the site. So, again it’s all driven by PR. When you get a lot of PR, the advisors come to the site and we give them a place where they can request the demo of the product.
But we also have an outgoing advisor outreach team. And what they’re doing is they’re literally calling all of these advisors directly, as many times as we need to, in order to get a meeting. And then, once we have the demo set up, one of our sales guys will do that demo. It’s usually two, no more than three, type WebEx situation where they do an initial call for 45 minutes. They follow up with them. That’s usually a 15 to 20 minute call, and we ask them for their business.
The price point on that product is $7,500 to $15,000. So, it’s not a tiny amount, but it’s not large enough that it has to be a multi, multi-month type of sale. It can be one week. In some cases, we’re really proud we’ve done it in one day. What we do when we make a sale is we ring the bell for sales under $10,000. We ring the gong for sales over $10,000. So the whole team, which is sprawled out in an open space here, we leave the head of sales door open when we ring the gong. Everybody claps, and everyone knows that when we ring the gong, it’s over $10,000. It’s a good way to get the team to rally around sales.
Andrew: Is it a cold calling process?
Mike: It is at the outset for probably 40 percent of the demos that we do. We still get a large percentage of incoming leads, again driven by the interest of the community in the press. But initially, it was more like 90 percent incoming and 10 percent cold calls or less. But recently, as we’ve sort of gotten through all of the interest and the warm leads from the beginning, now we’ve got our processes to develop more cold leads.
It does help, the more visibility you get. In fact, one of our advisor leverage guys just told me a few weeks ago, he said the difference between when I make a call now and two weeks ago or a month ago, two months ago is night and day. Two months ago, half of the people I talked to still didn’t know who we are. Two weeks ago, it’s like 75 percent of the people did. And so, we’ve seen a huge change just in the last six months in terms of brand awareness. It’s really helpful when your cold sales guys pick up the phone and everybody they talk to knows the brand or, at least, will take a meeting or a demo on that. Whereas when you’re brand new, they might not take the cold call at all.
Andrew: Was there a sale that let you know this is it? We really are onto something. We’re in business. We’ve got a hit product on our hands. Customers love us. Was there one sale that just made you realize that, that was a big milestone?
Mike: Well, I mean, I think reaching 100 customers on a product with this price point is sort of a good way to follow that. This is a product that when you hit a million dollars in sales on a single product in a year, especially as a startup, that’s not going to get anyone excited at a bigger company. But when you’re a small company, something like 96 percent of companies never have a million in sales. And so, to be able to do that with one product in an abbreviated part of the year, I think it’s sort of an aggregate. There’s no single sale of this product that has me going, “I’m sure this is it.” [inaudible 23:01] in aggregate about 120 customers on this particular product using it successfully and are happy with it, I’m feeling pretty good about it.
Andrew: So, now you’ve got a head of sales. How did you get the head of sales? You told me a little bit about this story. I said, hold it. We’ve got to include that in the interview, too. How did you do it?
Mike: Finding a head of sales for a startup I think is a real challenge. I’ve learned a lot of things, but one quick anecdote from the hiring process. At one point, he made the mistake of telling me that he’s a runner. As some people know, I’m a pretty serious runner. I run ultra marathons, 50 to 100 mile type races, oftentimes in the mountains.
And so, he told me he was a runner. He’s considered more of a casual runner. And so, he said he was a runner. So, I said, “Well, hey, why don’t you come out and run Iron Mountain?” So, Iron Mountain is out a little bit east of San Diego. It’s about 1,000 feet and two miles straight up the side of the mountain. I took him out there to run, and by the quarter mile into the run and just started climbing a little bit, he was bent over, hands on his knees, head hanging down, sweat dripping down. He looked like he was basically about to pass out or die. I give credit to him. He continued going. He made it to the summit of the peak.
We get back down to the car, and I thought he would sort of be done with the afternoon. At that point, he said, “What next? What are we doing next?” I said, “Wow, this is the type of guy that I want running my sales.” At the time, the funny thing was I wasn’t really hiring for that. I was trying to hire him for something else. But I realized pretty quickly that this is a guy, even though he had no sales experience, he had all the tools to be a great salesman. He didn’t even realize it at the time. What he did have was a tremendous amount of passion. He’s a super communicator. He does have good attention to detail.
And those couple of things there led me to believe that we should try him. He was instantly, within two to three months with a little bit of training, some basic sales training, he became what he is now, which is a super star. He did like $120,000 in sales himself last month, which is just mind boggling.
Andrew: What about sales tactics that you only learn when you’ve been in sales for a few years, when you’ve had somebody else who’s head of sales over you for a year or two, gave you experience, who gave you guidance before you took on that kind of responsibility? How does he do it without that?
Mike: Well, he’s got me, right? Ultimately, at the end of the day when you’re a startup CEO, you are the head of sales. And if you’re really bad at sales, you probably just gave your startup a much less chance of being successful. So, I was lucky because I had sold CUTCO knives when I was in high school. I actually made a lot of money. I made LIKE $14,000 in seven weeks when I was a senior in high school selling those knives.
So, I learned basic sales training from there, and then I went into the financial services industry after college, which was just basically sales training. You’re going to work as a financial advisor out of school. It’s not really financial advisor. It’s really product sales and financial services. And so, you learn all of those tactics. I just had to pull some of those things back out and work with Jeremy for sales on some of the basic stuff. He had all of the raw tools that we needed. They just needed to be refined.
My chairmen, actually, about 9 to 12 months ago, he sat me down and he essentially said, “Look, Mike, I don’t think anyone else at your company can sell besides you. And so, you either need to step up your game and get out there and sell or you need to find somebody else who can do that.” So, that was a real kick in the butt from the chairman. And basically, the rest of the board was saying, “We love what you’re doing with the product. We love what you’re doing with the PR. The personnel looks good across the board in a lot of areas. You guys seem to be doing a lot of things well, but you can’t sell worth anything.”
And that was sort of a wake up call for me because I was a pretty good salesman before then. So, it was just a reminder that you can never stop selling as a CEO. So, I’m technically kind of the head of the sales effort. [inaudible 27:19]
Andrew: You sold knives? Let’s see if the connection still holds up, or do we need to disconnect? Can you hear? Okay, yeah. So, tell me about where you sold knives in high school.
Mike: Back Door Marketing is the name of the company. It’s actually pretty well known. Pretty much everybody has seen the presentation where you cut the penny with the scissors. And so, I signed up for this in high school. My mom actually tried to throw it out, but my dad grabbed it and said, “I don’t want him working somewhere or doing something silly like working at a restaurant. Why don’t you give him an opportunity to do this?”
And I sort of naturally took to it. I went and gave presentations. I started to get pretty good at it, and it’s a referral business. Once you give the presentation, you ask for referrals, which is sales 101. But a lot of kids never learn any sales. So, they show up trying to do sales later on in life, and they have no idea what they’re doing.
And so, I had a great time with it. Like I said, I sold a lot of those knives. That’s actually what gave me the money that I needed to invest initially. I started investing in high school and college. It was all money from selling those knives.
Andrew: Were you selling the knives door-to-door?
Mike: It’s not technically door-to-door because you’re operating from you’re a warm market initially, and then you’re asking for referrals.
Andrew: I see.
Mike: So, you’re making calls on Betty. Joan and I just had a great conversation and had a great meeting. And she thought that we should get together. When’s a good time to do that? So, it’s referral-based.
Andrew: I see. She would let you into her house, and you would come in with the knives and the penny and you’d show her how good these knives are.
Mike: Exactly. Keep in mind, though back in 1998, 1999, when I was most successful at doing that, people didn’t use email as widely and people weren’t screening their calls with their cell phones. It was easier to call somebody at home and get them. It’s still a little easier to do that in a business situation, but I think consumer-to-consumer type marketing techniques like that are getting less effective.
Andrew: What else did you learn about sales from back then?
Mike: Well, a) you have to overcome your fear because everybody, even great salespeople, have fears. I think the difference is that great salespeople typically confront their fears more quickly and get by them because they’re more motivated by money and success. I think that’s the reason why you do sales in the first place. And they are certainly dominated by their career.
I was naturally not a salesperson. I think I learned that I could be a salesperson, but I was very fearful initially. And I just learned to do the demos and do the calls. You get through them. A little bit of success goes a long way. What happens is you start to get into a zone, and once you start selling a lot, the fears you thought you had just are completely gone. You look for them, under the rug, whatever. They have vanished because there’s something about success. It seems to kill all sales-related fear. You’ve just got to keep hammering away at it, so that’s what I have.
Andrew: How long do you think it took you until that happened to you, until you got to a place where you said, “Yeah, I’m a good salesman. I can make anything happen?”
Mike: For me, it was really quick because I was doing six, seven presentations a day initially. And so, it only took me a week or two before I realized I was pretty good at it. I got over the fear pretty quickly. If you’re doing high-end sales, like a software product for $20,000 or $100,000 or a million, you may only do a couple sales presentations a day. And it may take you several months to nail your first sale.
And so, if you have a good sales manager, they should be able to recognize the difference between, hey, this person is still learning how to sell and this person’s never going to be able to sell. But as a startup, you really have to being doing that constantly, because if somebody is never going to be able to sell, you have to [inaudible 31:18] on the organization.
Andrew: So, what about raising money? First of all, you did it a little bit differently. Could you tell people the structure, and then I’ll get into how you found the investors who backed your company?
Mike: So, we raised $900,000 Series A. It was really like a seed round, but we called it a Series A because we didn’t know better. And that was back in the summer of 2008. And then, we raised a little bit over two million that closed in September of last year, again an angel round. So, they were both abnormally large rounds comprised only of angels. We had no venture funds involved even though we had several VC principals and private equity and hedge fund type investors. Professional investors [inaudible 32:05].
Andrew: And so, this is your first company, right?
Mike: Right. It’s the first.
Andrew: You were able to raise that much money first time. How did you start?
Mike: Well, it’s just like how I sold CUTCO knives initially, because the two processes were related. I made a long list of everybody I knew in the community in San Diego, and I tried to focus on centers of influence, which is another thing I learned from CUTCO. So, people that may not be able to invest personally but know other people that can, so turning into accounts, people who are influential that talk to people who might.
And so, actually the lead to our lead investor in the seed round, the Series A, came from a family friend who met us at Denny’s and said, “Listen, guys. I love this idea. I think it’s going to be successful. I don’t have enough money to invest personally, but I have a close friend of mine who, as he describes it, plays in another sandbox. He has a lot more money than me. And so, I’d be glad to introduce you.” He actually went right outside, literally after the meeting, picked up the phone, called, and we had a meeting within a few days.
It took a while. It took six or seven meetings with this individual and a whole bunch of other shenanigans that went on with another potential lead investor who he gave us [inaudible 33:02]. But outside of that, we ended up being able to find a lead investor, a very founder friendly lead investor who did a lot to help bring together the round. There’s no way we’d have got that seed round done without this individual because we didn’t know enough people to do that.
But, it all led from just a belief that the money should be raised, that this was the right idea, and then not being afraid to pitch people who had money to invest.
Andrew: You said “and other shenanigans.” I’ve got to stop and ask you, what kind of shenanigans? What are we talking about?
Mike: Well, I mean, anybody who’s ever raised an angel round knows the sort of things that go on. It’s not like when you raise a venture round where you might have one or, maybe, two VCs and they all fund at the same time. And they all generally agree on how things should work. When you’re dealing with angels, they come from all different backgrounds. They believe all different types of things should be in that term sheet.
So some of the initial term sheets that we got were obscene. We showed them to our attorney who said, “I’ve never, in 20 years worth of time I’ve been doing this, ever seen any terms like this.” That onerous. Things that you just can’t really imagine, like a warrant for 10 years to own 20 percent of the company.
Andrew: So, somebody’s offering to invest in your company, but the terms clearly don’t make sense. And you’ve got to somehow get all these different terms and all these different demands together. How do you do that? How do you go back to these guys and straighten it all out?
Mike: The first thing that I learned is that you need to separate between what on the term sheet comes from that individual’s heart and what’s coming from that individual’s attorney. So, sometimes there’s a whole bunch of bombs in there, but it’s only because that individual’s attorney isn’t sharp and he’s trying to make himself look good to that client.
Other times, it’s that that investor really doesn’t have your best interest in mind. If that’s the case, then it really doesn’t make sense to do business with them even if the terms are biased. Ultimately, the terms are just the terms. What really matters is how that investor is likely to treat you over time?
And so, I was able through that process to very quickly figure out what was coming from that investor’s heart and what was coming from that investor’s attorney. Obviously, you ask your attorney for advice on which terms they think are either bad for you or whatever. But at the end of the day, I tend to trust my judgment a little bit more, people’s character more than anything else.
Andrew: What did you learn . . . I’m looking at my notes to see how much of this I can get to. What did you learn about how to pitch investors from having done this now twice, two rounds?
Mike: Well, there’s simple things that sort of everyone knows, like make sure that your deck doesn’t suck. Make sure it covers all the main things that the investors are interested in.
Andrew: How do you make sure that your deck doesn’t suck?
Mike: I don’t know. I think there’s one thing that I would say. Go to somebody who has raised money and ask them for their deck.
Andrew: Who did you go to?
Mike: One of the guys that helped us was Russ Mann from Covario. That’s a VC-backed company here in San Diego. They do SEO.
Andrew: How did you get him to do that?
Mike: We didn’t go there looking for that. We went to his office asking him . . . he was one of the guys that somehow I got referred from somebody else that I knew to go talk to him. We were actually talking to him about our idea and where to raise money. This was early in the funding process. He was sitting at his computer and he turned it around and he said, “Okay, here’s the deck I used to raise $10 million.”
That’s the same thing I do now. It’s actually one of the things I do at the Founder Institute is I offer to provide the deck that we used to raise the money to anyone who wants it. Because whatever worked, helped get savvy investors to invest something before, you don’t have to use it exactly, but at least look at the structure to see how other people have structured their deck in a way that it was successful.
Andrew: All right.
Mike: So, having a good deck is important.
Andrew: That helps me transition to the Founder Institute. What is the Founder Institute?
Mike: The Founder Institute was started by Adeo Ressi. He basically started it as a way to . . . I think his goal was to start like a thousand startups or a million. I don’t remember what the exact number is. His goal basically is just to spread entrepreneurship wherever he can, and I think it’s a great goal given that it’s probably the only thing that is likely to turn this country around is more great companies and entrepreneurs.
And so, he basically has a formula that he has put together where the entrepreneurs sign up, they go through a three-month session where they once a week listen to different speakers and work on various aspects of starting a company from scratch. And what I do is I just come in, I usually get involved in helping with refining pitches. I gave a presentation a few weeks ago on how to raise a round of funding as an early stage entrepreneur.
I just think it’s a great outcome. There’s a lot of other organizations, like TechStars that do this sort of work, too, that I’ve been very impressed with. But I just happen to be involved with the Founder Institute because that’s the one that invited me to be a part of it.
Andrew: And so, since you’ve met so many different investors, if an entrepreneur who was in the Founder Institute comes to you and asks for an introduction, is that one of the things that you do for them? You make that introduction to an investor?
Mike: Yeah. I don’t make an introduction just because somebody asked. I make an introduction because I really believe in the idea and I actually think it fits that investor’s parameters. So, one of the things that I’ve learned is you don’t want to burn any relationship capital you have on things that aren’t likely to be successful.
And so, I’ll do the screening, sort of for them, if I know an investor. Anybody who’s invested in my company I know what they think about. I know what they look at. [inaudible 38:55] And so, I’d be able to tell for them whether or not that’s a good opportunity. Somebody might ask me, but unless I’m actually going to get involved with the company advising them on something, not officially but unofficially, I probably wouldn’t just make an open introduction like that.
Andrew: I see. Yeah, you really can burn those bridges very quickly if you start passing the wrong companies on. But what I’ve found is that a lot of entrepreneurs, if the entrepreneur isn’t the right fit for the investors in their network, will help the entrepreneur repackage his idea in a way that investors might be interested in, or at least give them feedback on how to adjust the business a little bit before they go after investors.
Mike: Obviously, I think that I can do that too sometimes. So, what’ll happen is they’ll say, “Do you want to introduce me to this person?” And I say, “Well, let me see the deck as it currently is.” I’ll read it, and I’ll realize there’s like 15 holes in there that I know that person’s going to ask. Rather than just go ahead and forward the introduction, I’ll say, “You really should work on these things first.” And I also see what their attitude is about then.
Andrew: What I don’t understand though is how do you have the time to do that? You’re building a new business. You’re creating a whole new product. You’re going on TV, on CNBC and ABC News. You’re making sales. You’re managing new employees. How do you, while you’re doing that, have time to help a new startup?
Mike: Yeah. I don’t know how you have time not to do things like that, because ultimately all of these things come back to you in spades. I mean, I can count probably 50 specific instances where somebody, who had no particular vested interest in helping BrightScope financially or personally or whatever, did something. They made a call for me. They sent an email for me. They made an introduction for me, whatever.
And so, look, that’s just sort of the way this works. You have to do things like that. The other thing for me personally is I don’t think the job of the CEO is to be ridiculously busy, because I think the CEO’s the only one who’s going to be ultimately responsible for strategy. And the only way that I found to come up with good strategy is to get out into the mountains, run along single track trails for two or three hours in the middle of the afternoon, so that I’m not distracted by email, phone calls and such.
And so, I try to keep tremendous amounts of white space on my calendar. I don’t try to be busy. I try to not be busy so I actually have time for things that are important. I think mentoring other entrepreneurs and all the benefits that come from doing that actually helps refine the way you think about your own business. So, to me, there’s absolutely no reason why you don’t have time to do that. If you say you don’t have time to do that, you’re too busy with stuff that doesn’t matter.
Andrew: If you say you don’t have time to do that, then you’re too busy with stuff that doesn’t matter. Well, let’s leave it there. Thank you for doing this interview. I’m especially grateful because I don’t have financial advisors in my audience. My audience isn’t Lockheed Martin who is going to listen to this interview and then go out and buy your product. You’re doing this just because you’re here to help me get a good interview, and you’re also here to help the audience. I’m especially grateful to you for doing this. Thanks for coming.
Mike: Thanks, Andrew. Appreciate it.
Andrew: All right. The company is BrightScope. You can see them at BrightScope.com. And by the way, I think this is your first time on Skype. Thanks for finding a computer with Skype and working with the technical issues to make it work. So, check out Brightscope.com. Thank you, Mike. And thank you guys all for watching. Bye.
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