a16z Podcast - The Founder to Investor Journey

Episode Date: May 4, 2022

This week, we have a special crossover episode from June 2021: Joel Beasley, host of the Modern CTO podcast, interviews a16z general partner David Ulevitch about David’s journey from working at an ISP and Dot Com company mp3.com in high school; to starting, running, and selling his own enterprise security company, OpenDNS; to becoming an investor at a16z. They also discuss the value of product marketing for enterprise, David’s philosophy around pricing enterprise products how to survive and lead through hard times, new trends in startup investing, and more. This is part of our occasional series where we feature relevant episodes from like-minded shows on the a16z Podcast, to surface other shows you might be interested in. The Modern CTO podcast is by and for CTOs and other technical leaders at places like Microsoft, NASA, Reddit, Launch Darkly, and more, all sharing how to build strong companies and organizations. It’s hosted by Joel Beasley, CTO of Leaderbits and author of the book, The Modern CTO. Check out more episodes of this show wherever you get your podcast. And for more on how to grow from a technical to product to Sales CEO, check out David’s previous episode on this podcast called “What Time Is It”.

The startup founder's journey doesn't ever go neatly from Eureka moment to product market fit to growth to exit because there are many twists and turns along the way. But while every journey is different, some of the lessons remain the same. This week, we have a special crossover episode from June 2021. Joel Beasley, host of the modern CTO podcast, interviews A16Z general partner David Yulevich about David's journey from working at an ISP and dot com company MP3.com and high. high school, to starting, running, and selling his own enterprise security company OpenDNS, to becoming an investor at A16C. They also discussed the value of product marketing for enterprise, David's philosophy around pricing enterprise products, how to survive and lead through hard times, new trends in startup investing, and more. This is part of our occasional series where we feature

relevant episodes from like-minded shows on the A16C podcast to help surface other shows you might be interested in. The Modern CTO podcast is by and for CTOs and other technical leaders with interviews from leaders at places like Microsoft, NASA, Reddit, LaunchDarkly, and more, all sharing how to build strong companies and organizations. It's hosted by Joel Beasley, CTO of LeaderBits, and author of the podcast The Modern CTO. Check out more episodes of the show wherever you get your podcasts. And for more on how to grow from a technical to product to sales CEO, check out David's previous episode on this podcast called What Time Is It on Future.com? So I'm curious, I was looking at your history and you got started, your first job was before, like right when you started high school

at ISP, can you tell me about that? Yeah, I realized a while ago that I've had a W2 or 1099 every year since I guess you had the summer after eighth grade. I was one of those people who my sister hated me because rather than getting like AOL, like every other normal kid, I was like, you know, we need the real internet. And so we found this local mom and pop ISP. We got them as our internet provider. And then I emailed the owner basically asking for a job. And he was very nice enough to sort of give me something between like an internship and a job.

I guess it paid me something. And but it was amazing because I learned about that was like my real first exposure to Unix. And I learned on Suno-West and then eventually Solaris. and then they had BSD machines. And it was a great experience. I learned about peering and routing and networking. We had a great systems administrator who was a great guy. And he sort of taught me a life lesson there that stuck with me,

which was the bad, like, when you're a young kid, you're sort of like a little hackerish. And he sort of said, look, you know, it's easy to be a hacker because you only need to know one way into a system. But if you're a good guy, you need to know all the ways in. And I was like, oh, that's true. That was a really good point. that probably kept me on the straight and narrow

through the rest of my technology career. So where did you go from there? So I worked at that ISP for a number of years, sort of after school and then the summers. And then in 11th grade, I was really interested in journalism, and I really enjoyed writing. And when I was in high school,

the way our high school worked, we only had three classes a day. They were two hours each. And if you did journalism, it was one of the last classes every other day. And you didn't really have to go to class. You just had to make the newspaper. So it's also like a life hack to not have to do very much work other than if you, I mean,

assuming you enjoyed journalism. And so I really enjoyed journalism. I interviewed the CEO of this new company in San Diego called MP3.com and MP3s were getting really big. And so I was able to turn that into an internship and eventually a job at NP3.com. And I watched them go from 30 people to over 300 people. I got to see a, this is like in the height of the dot com. This is like 1999.

I went to an IPO party. they snuck me in because I was a minor and it was supposed to be 21 and over. I saw things that no minor should ever see at an IPO party because you have to remember at mp3.com, this was sort of just pre-Napster, was at the intersection of like music and technology.

So all the cool music people from L.A. came down to San Diego to hang out with the nerds. I had never really seen drugs in my life before. Like way too much drinking and alcohol. And, you know, I didn't do any of those things, but like I saw it on. And I was like, all right, this technology thing, you know, you can have just by writing code, you can have a huge impact. And, you know, programming is one of those few things where your input is not at all equal to the output.

And that was something that was really always exciting to me. And I was always a decent programmer. So I worked there. And then I was, again, I told you I was like a good kid more or less. I finished high school and I went to college. everyone said hey you know it's 1999 I graduated right in 2000 the dot-com thing was still amazing had the bubble hadn't burst and you know I had friends and peers being like why wouldn't why would you go to college it's a waste you're already good at computers but I

went to college I went to st. Louis at Washington University in St. Louis Missouri they actually studied anthropology which I deliberately wanted to get out of California I wanted to have a broader liberal arts education and I knew I was never going to be like a computer scientist like I was I was I was was good at programming, but I was never great at programming. I would sort of describe myself as a duct tape programmer. Like, I sort of did enough to prove it was possible. And then somebody with actual talent would sort of look at it, you know, scoff and then be like, we can, we can do this better. But I always loved writing code and writing software, but anthropology was a study

of people and culture and society. And I just found it like this whole new world. It was so interesting to me. So went to the small liberal arts school, studied anthropology, loved it, and eventually graduated and immediately moved out to the Bay Area. I moved out to the Bay Area because, to me, San Francisco was like Mecca for nerds. And I knew my whole life I wanted to be in San Francisco. And I, you know, this won't sound weird to your audience. It sounds weird to, like, other people. But, like, I had friends on the Internet that I had made in, like, these, you know,

internet chat rooms and programming chat rooms. And I wanted to meet them in real life. Like, I wanted to be in that community of engineers. and programmers and sort of people that were entrepreneurial. And so I moved to San Francisco. I had started a project when I was in college to manage domain names, which I was very lucky that we can talk about that if you want. I don't know.

But I was very lucky by the time I graduated, it provided enough money for me to essentially live. It wasn't like an amazing company, but it was enough that I paid my rent and had food and could sort of sit around and tinker on other things. And so while my parents were freaking out that I wasn't going to job fairs and applying to work at my job.

Microsoft, I was instead moving to San Francisco and was going to try to leverage my technical skills. And that started my professional career. Yeah, I know exactly what you're talking about. It can sound weird to people if you make your friends online. But my background, software engineering, and that's what I was growing up. And when I wasn't engineering software, I was playing Xbox Live, right? And I remember when I was, I think, 16, I'd gotten my license and I'm 33 now for context. So I'd gotten my license and one of the first things I did was I drove up to Tampa because that's where my dad had lived at the time. But there were like three people that I had been playing Xbox Live with like in their clan for like two or

three years. And I went and like met all of them and hung out with all of them. Some of them, you know, we're at the college up there in Tampa. Some of them, you know, owned refrigeration businesses. And it was just weird. It was so cool to do it. but my parents saw it as like a very you met a person on the internet like a very strange weird thing i was like i've spent more time with this person than i spent with my parents in the past three years just through playing games but i get we're like the digital like the last generation before the digital natives right like i equally got locked out of my house and had to drink from the hose but people three years younger than me because i have siblings they just missed that cut off of like fear don't let

your kids outside anymore. That's exactly right. And it's funny when you're talking about the Xbox and meeting these clan people. I'm like, there's the first thing you said when you met them like, hey, what did you say you were going to do to my mom? We had a positive clan culture. That's important. That's important.

And that's good because you have to remember there's always somebody on the other side of the screen. Yeah, no, I'm actually, I'm still friends to this day with many of the people that I was in these sort of networking and programming and Linux sort of. of IRC chat rooms and I've actually hired a bunch of them I've worked with a bunch of them I've invested in a couple of them and uh you know it's really it's really ended up being something that at the time obviously I didn't know but really did both teach me a lot and give me a network like you said of these people you spend so much time with um that then when you meet them in real life it's

it's actually uh it's awesome and yeah I think it's less weird now but at what we were right on that cutoff I'm a little bit older than you but not not by much and uh you know I I think it was unusual for my parents to, like, know that I would, like, go to DefCon and have a roommate who I hadn't met in real life to split a hotel room. But then over time, you know, they got sort of progressively more comfortable that I was, you know, these are responsible. Actually, this is sort of funny. I remember one time I was going to DefCon to share a hotel room with somebody and my

mom was totally freaked out. But then I said, oh, well, he's like a sophomore at Stanford. And then she's like, oh, okay, well, then it's okay, because maybe he'll be a positive influence on me, and that was the case, and I'm still friends with the guy now. Parents' job. Make sure your kids are hanging out at the right people. Totally, absolutely. Not the people at the IPO party.

Right, right, right, right. That's right. I haven't kept in touch with them. Tell me about, he winked for the record. No, I'm kidding. I'm joking. He did not. But tell me about the story of Open DNS.

Sure. So Open DNS is, this is again, a company. It's a cyber security company. It was cloud-delivered security, but that's not how it really started. It started out as a consumer security company, and the origin was actually that I got an email from the founder of CNET,

who was now sort of investing and helping to start companies. And he had seen that company that I mentioned, I started in college, a company called Every DNS, and he had sent me an email sort of saying, why wasn't I doing more with that original company? And I wrote back to him, And I said, hey, well, you know, when I started that business, managing DNS and domain names was really, really a complicated, hard thing.

You had to go to network solutions. It was very expensive. But now we had GoDaddy and Dotster and basically anybody was registering domain names by the point. I had graduated college. And so the need for that original company sort of went away. But I said, hey, there's this other thing that I would do that's more security focused around the domain name system where, you know, If somebody doesn't want to go to a malicious website, we could block it, but if someone else doesn't care, we could let it through. If maybe a parent wanted to block inappropriate websites for their kids, but let them be online, we could block it for them.

But we could basically give somebody a much more customized Internet experience just using the DNS, which had never been used in this way before. It was, you know, the DNS is like this control plane for the Internet. It's the phone book that sort of helps you get, you know, connects names to the IP addresses on the Internet. I know all your listeners understand this. But, you know, it is that phone book for the internet, and it had never been customized for the recipient where you can say, I want the DNS sort of in the way that I want it, and someone else can pick a different set of configurations. And he said, well, that sounds like a great idea. How are you going to make money? And I said, well, if somebody types in a website that doesn't exist, maybe we can show a page of search results and ads. This is back in the era of like toolbar, it's like the Google toolbar and the Yahoo toolbar and, you know, Netscape sort of still rule the day on the browser with Internet Express.

and on Windows. And so, you know, he said, that's a great idea. Let's do that. And he put in money and we got the company started. And a bunch of things happened. First was that everybody wanted this. It was a faster and safer Internet experience. We grew almost instantly to millions of users,

which today is like a small number on the Internet. But back in 2005, when we launched the service, millions of users very quickly was a big deal, especially because they had to change their settings on their computer to point to an alternative DNS service away from their internet provider. The bad part was that we basically made money from search results

and ads, and over the years, after we launched, we became more and more security focus. We realized that DNS was a fantastic vector for stopping internet threats. So if you think about botnets, they often use DNS to phone home to connect to

what's called a command and control to sort of get instructions. That's how they spread. That's how they basically exploit. trade information backups, how they download updates. You can also imagine fishing sites, like if somebody tries to get you to click on zamazon.com, it was a great control plane to block zamazon and say, hey, wait a minute, you really are trying to go to Amazon, not zamazon, or some other kind of typo of that. And so really we underestimated when we launched just how really novel of an innovation

it was and how good and lightweight of a control plane it was. And then the timing of our launch in 2005 was fortuitous, because if you think back, 2007 is when the iPhone launched. And at the same time, people of their houses had like these Nintendo Wees and the Xbox was then out. And so you couldn't install endpoint antivirus software because there was nowhere to, like on the Nintendo Wii or the Xbox to install any kind of security controls, any kind of parental controls. There was just no, there was nowhere to install that software. And so by making a change on your neck gear or lynxys or router, you were able to then protect all the devices in your home, even these wireless devices, even guest devices that came on.

And so that all was great and we were growing really fast. What I didn't really appreciate, what I did appreciate was that we hated the advertising model. We hated that actually advertising was, and this is unique to our business, not advertising in general. We didn't like the advertising model because advertising, online advertising back then, was often a vector for infection.

Like you'd get banner ads or things that would have click links to malware. So, you know, it was like, we're trying to provide a security service for free, but then we were getting paid by advertisers, and those advertisers were not, we didn't get to pick who they were because we were just using these sort of networks of ad providers.

And so that sort of relationship became more and more tenuous. So while the company was profitable, it was just becoming more and more difficult for us as a business model and sort of to continue, to innovate on security while we were still making money from a thing that was actually a vector for malicious internet behavior and activity. And so that part we understood. What we didn't understand was that businesses were going through the same experience

of having all these devices show up on their networks that were employee-owned. They were bringing their own devices, their own iPhones, their own smartphones. They had guest Wi-Fi policy issues. Wi-Fi was proliferating. You couldn't do sort of network access control as easy. because people weren't plugging into the network. They were just signing on to the Wi-Fi. And this whole like sort of B-Y-O-D model of bringing your own device to the office was just exploding.

And so all of a sudden, lots of companies were starting to just turn on open DNS on their guest Wi-Fi or on their wireless networks or even everything and just using us. And at one point, we realized that, you know, like there was a company that was like a Fortune 100 company and we looked at the stats and they were sending us, you know, millions and millions of DNS requests for day. They would send us customer support tickets. They were asking for active directory integration. Then we looked at like that we were able to track revenue sometimes by a customer. And we made like $1.87 in advertisements from them. And at some point we're like, wait a minute, we can be smarter here. Oh, and they wanted to turn off the ads.

I think they were clearly already blocking the ads with some mechanism because they weren't making any money. But then they wanted like a support contract. They wanted things like that. And so finally we said, look, for $100,000 a year, we'll give you a phone number you can call for phone support. And we got one of those virtual 1-800 numbers that rolls to, like, a cell phone. And it rolled to one of my ops guys first, and then a woman in support,

and then eventually would roll to my cell phone if nobody answered. And they immediately said yes to the $100,000. Like, there was no rhyme or logic or anything. But that was our first sort of major customer. And we were like, okay, well, there's probably a thing here. And so in 2009, I've skipped over a part where I wasn't CEO for 11 months. So maybe we'll talk about that or not. I think we should.

Yeah, sure. It's fine. You might have to pay for the therapy later, but if you're going to make me dredge it all up. But in 2009, we basically pivoted the business because we were sick of the ad model, just becoming too tenuous for us to maintain as a security company. And we saw this great opportunity in the enterprise.

And so I then basically started down the path of what became the next five years of my life, of trying to become a student of sort of the enterprise go-to-market and really evolving from a very technical CEO. I still had enable on the routers. I still had commit access to the code base to really a product CEO, to a go-to-market sort of sales CEO, and ultimately to sort of a general manager, at which point we sold the company of Cisco. And the process of building an enterprise cybersecurity company was really an incredible one and one that was a lot of fun. And I learned all kinds of lessons on hiring and leadership, but, you know, the foundation of everything was a great product that, and then we made the consumer service free. We always kept it. We never

really got rid of it because all of the data, we ended up building a security research team and security lab, and all the data from the free users, which wildly outnumbered the enterprise users, provided us a huge amount of data to do real security research and analysis, to be able to build baselines and patterns of what did good websites look like, what did malicious websites look like to do predictive sort of threat analysis of, you know, if a website got registered yesterday, pointing to an IP address that was hosting malicious sites for the last two weeks, well, like, maybe you don't want to be the guinea pig and go to that new website that just got registered and pointing to an IP address that has always, you know, that for the last couple

weeks has been hosting compromised websites like that, we would be able to do all kinds of analysis based on the fact that with this massive amount of free users generating. trafficked for us to be able to do that kind of research. So let me pause there because I covered a lot of ground and I don't know where you want to go from here. Well, I think the therapy bill would be really expensive, so we'll probably skip over that. How did you meet the team at Andreessen Horowitz? Oh, this is good.

You mean, in terms of like how do I work, how did I end up working there now? Yeah, how did you meet them? So in 2009, maybe 2010, I'm not entirely sure. we actually, as part of that transition to going from a consumer to enterprise company, that original investor also needed to sell his position in the company. I think 2009 had been sort of 2008 and the economic crisis had been rough on him. He needed some capital. We were shifting our focus for the business.

And so we found, we went out to meet with investors. And I went to go meet with Andreessen Horowitz, which was a brand new firm at the time. But they had a huge, you know, Mark and Ben are like these big celebrity personalities, super, super smart guys. Mark is like a visionary for the future of the world. Ben is a huge organizational leader and a great, great investor, and they had an amazing portfolio. So I wanted to go meet with them,

and they basically were like, you're great, the idea is great, but your whole company, like the corporate structure, your capital history, you're pivoting the business. Like, it's all so messed up. There's just no way we're going to touch you with a 10-foot pole. But we think you're great. That was sort of the very nice way that they rejected me.

And I thought they did it in such a way. a first class way and such a nice way that every year or so I would sort of send out updates to Ben with like, hey, here's what's happening with the company. Here's like what I'm learning. And we ended up raising money from other investors, great, great investors also. But I always kept in touch. And then when I sold the company in 2015, there's a guy at Andresen Horowitz who runs our executive talent network, which is a function that basically keeps track of like all the best CFOs, CMOs, heads of sales, CTOs, VPs of engineering, like, you. he basically is like the world's greatest executive recruiter part of his job is to keep track of potential general partners of the firm and so i think he's so smart that on the when i sold my company he put a little calendar reminder on the anniversary of my sales to reach out to me every year and so after the first year you know jeff jeph calls me up and says hey david you know ben and mark always always liked you do you want to come in and talk to us about working here and i was like no i'm i'm both contractually stuck at cisco but i also like it and uh i

enjoy the job I was in. So not good time. Next year, second year, he calls me, hey, it's been two years. Do you want to come talk to us? And I said, hey, well, I'm no longer contractually required to be at Cisco, but I still like it. So I'm going to stay. At that point, I was running Cisco security business. It's the largest security business in the world. And it was a great experience. I was learning a lot, developing new leadership muscles. So I said, not the right time. Third year, he calls me. And at that point, I had been on airplanes, like every week for two years straight, traveling to visit customers and partners and other engineering offices. And while I loved it, it was sort of felt unsustainable.

And I was thinking about doing something else. So timing was perfect. And I came in and I never thought I was going to be a venture capitalist. I loved being an entrepreneur. I had sort of had my own weird experience. Like I said, we didn't really talk about it. But I did get fired by my original investor as CEO for 11 months and had to be CTO. So I sort of had this one impression of VCs that, you know, they really, you know, are obviously stupid because you

did that to me. And so I never thought I was going to be a VC, but I met the team at Andreessen Horowitz. And a lot of the team are former CEOs. I sometimes joke. It's like a refugee camp for entrepreneurs. And I don't think that's on the marketing party line, but that's sometimes what I joke. And so I think we have both an empathetic investment team, because a lot of us, it's like, whatever the worst thing that's ever happened to you as an entrepreneur, like, whatever it is, like I've seen worse or personally done worse or been in worse situations. And, you know, we also believe, and, you know, people know this about our firm, but we're more, we're in service to entrepreneurs. Like, when I was an entrepreneur,

you know, I would have to like trek myself down to Sand Hill Road, beg for a meeting, but now the tables have turned. Entrepreneurs have way more resources. There's a lot more capital in the system. There's things like Y Combinator that really educate and inform entrepreneurs. There's podcasts like yours that take people that are really technical and start to inform them about the broader sort of entrepreneurial world and opportunities out there. And so the entrepreneurial ecosystem is so much more informed that now, if you want to be a VC, you can't just like sit behind this big desk and just sort of hope people come to you asking for money. You got to go out there and really decide that you want to be in service to entrepreneurs.

And our firm believes in that. And that doesn't mean there's not other great firms out there, other great investors. But that is our model. And that's our approach. And ultimately, what made me decide to work here is, Ben, you know, sort of sat me down and just said, look, if you come here, you can be the kind of investor that you wish you had had when you were an entrepreneur. And that was that sort of me sealed the deal. I didn't want to do nothing. I really didn't want to start another company.

I needed to not put myself through that mental anguish. I wanted to be a cheerleader, supporter, coach, you know, mentor, helper, partnered entrepreneurs. And I didn't want to do it on my own. And so this has been a great home. And I've been here now two and a half years. I've written a lot of checks, made a lot of investments. There's general wisdom in the industry that you should come in and not do anything for your first year. Just take meetings and not write checks so that you don't make mistakes. I ignored that, and we'll see if it's at my peril or not. But I like the job of investing. I love working with entrepreneurs. And as Mark tells me, writing checks is the job. So that's what I do. Do you guys have a minimum revenue requirement?

we don't so we'll do everything i mean so one thing that that's um it's there's a few other firms like this but we're a multi-stage firm so i will meet an entrepreneur and write a check on an idea someone who's just deeply technical the best in the world of what they do they have a vision for the future but maybe they haven't written a single line of code i'll write that check um or i'll come in there was another company where i came in the company was quite mature had you know they were on track to do about $100 million or more in revenue last year. And I wrote a very large check coming into that much more later into the process. So I'm fairly agnostic. I do prefer the earlier stage. I like the messy stage. I don't believe that investors should be the ones helping to sort of

design your product or tailor your product. I feel like that's the founder's job. But I'm certainly down to help on hiring. How do you hire those first few key hires that really can make a transformative difference in the company, help you sort of just in terms of organizational development, leadership, you know, a lot of founders, especially technical founders, if they're like me, they're sort of more introverted. And so thinking about, you know, when should I have an all hands? Should I have an all hands meeting when I only have four employees or is that too, you know, cheesy and ridiculous? It's not. You should have an all hands of four people. It's fine. It can be casual. But, you know, and then trying to help entrepreneurs basically scale through figuring out

product market fit and then ultimately bringing their product to market. I focus on enterprise software. So almost everything that I invest in is something that ultimately gets sold to a customer. So I'm not going to be the right person to find the next Snapchat or Clubhouse or Facebook kind of thing. I have other partners that do that. But I like the infrastructure, the security and enterprise software world. Yeah, given your experience with taking the products to market inside of the enterprise,

what's like the 10,000 foot overview? How do you do that? somebody says, hey, how do I take a product to market inside enterprise? How do you respond? Yeah, so I would say, look, the foundation is you have to have a great product. In fact, having a great product will make everything else easier. I'm not going to say that there's never been enterprise software companies that have been successful with bad products because obviously we know that there have.

We've been on the buying side of some of those products probably. Sometimes they make it up with services and support and professional services. But I think in today's world, we're increasingly in an environment, where enterprise buyers are very sophisticated. They often want to try before they buy. You see things like Slack or like Zoom, where the company might even have users inside the company before the CIO and the decision maker,

whoever that decision maker is, before they buy it wall to wall, there's already people using it. And so I think that model is here to stay. I think, you know, organizations have empowered their employees to have much more, you know, both buying decision as well as choosing decision.

They can choose to use a product for a while, and then eventually the company will decide if they want to go wall-to-wall. And so I think you have done that foundation of a great product. The other thing is that I think product marketing is something where a lot of founders are sort of make a big miss. They often think that if you build it, they will come. And that's just not true. Even the best companies that you feel like you just heard about organically or through

friends or word of mouth, they've done a lot of work conscientiously to communicate a narrative to tell a story about why this product exists, why you need to be using it, why it's better, why it's easier. It's not just that it's free, but there's something about it that lowers the friction. With Zoom, you can connect through the web, anybody could create an account. You didn't have to have an enterprise sort of conversation with a sales rep. You could just start using it. So whatever it was, whether it's through go-to-market, whether it's through the product

itself, there's a narrative of the best enterprise companies that gets created, that they communicate, and that's product marketing. Product marketing, for those that don't know, it's translating the sort of what you have into a value proposition for the customer. And you don't want to leave it up to the customer to figure out why your thing is really special or good. You sometimes just need it to tell them.

This is why it's special and good. This is the real benefits, not just a list of features of, you know, this provides SSL encryption. This provides, you know, high-speed, you know, packet processing or whatever. What you want to say is, like, this will enable your employees, to connect more reliably, to connect faster.

Those are value propositions. Those aren't just a list of features. And I think that most early stage companies trying to go to market, they really neglect, they get so myopically focused on the product and the capabilities, they neglect the actual translation of that

into value proposition. And so there's great books out there on product marketing. There's great people out there in product marketing. It is one of the hardest things to do, I think, in a company, and you have to iterate on it. But that might be the most important. So if you have a great product and then you need your product marketing,

which is a component of an overall marketing strategy, then ultimately you want to do sales. And the last thing I guess I would say before I pause here is that as a baseline rule, when I meet with a small company that's out in the market selling, whatever their price point is, I already know they should double it, especially if it's a technical founder. Technical founders almost always underpriced their products. oftentimes it's because they themselves are cheap, like me.

Like they don't want to pay a lot for products. They underpriced the product, but they're discounting the value that they're actually providing. And if they listen to their customers and they spend time talking to their customers, they're going to hear what the value proposition really is. And so they don't need to price based off what it cost them to serve it. They should be pricing based off the value they're providing. And most enterprise software, to me, is some sort of a replacement for an IT function.

So, for instance, if you use Salesforce, which is a SaaS CRM service, you're just not having to run some massive internal CRM system, dedicating headcount to it. Like, Salesforce just does it all for you. And so, you know, while it might only cost Salesforce a few hundred bucks a year to offer a Salesforce account to a customer, they're saving that customer tens of thousands, if not hundreds of thousands of dollars, because that company doesn't have to go stand up infrastructure, hire experts, hire people to set up Salesforce, all these things. And so I think pricing is the last piece where, you know, companies need to generally have a better sense of what the market will bear and probably increase the pricing. So that was, again, another broad 10,000 foot answer, but hopefully that was on the mark. Yeah. Well, it's tough, right? Because as a founder, you're sitting there watching your runway and you need to make sales. And so you can really play some weird mind games with yourself. And like for me, I got this one customer

GE Health Care small customer yeah dude it came in at like the perfect time right because they saw us on a podcast and like oh we heard the product you were talking about and we were trying to like scotch tape

and level gum something like that together and then it was that you made something exactly for that so we want to buy it and at the time I was trying to sell to SMBs and so I was trying to sell people that only had 100 liters you know and they they bought it and then you know it's been what like eight months

and we've run multiple countries of their leaders through it and things. And they love it, right? But Peter pulled me aside. He's like, dude, we would usually pay like $750,000 for what you did. And I was like, are you kidding me? He's like, yeah. And then he told me like how to structure the sales presentation. He's like, you need an ROI study done by it.

And I didn't know any of these things even existed. So I was like, oh, okay, well, great. I just spent a lot. I told my team, I was like, I'm working directly with Peter because I need. need to learn everything from this guy. Such a learning experience, though, about value, because it's the same software, and it solves the same problem. And if I had gotten $750,000, do you know how much we could have, like, competed?

That would have, like, been insane. Right. Well, that's the other thing about charging more is that then it enables you to have more than basically resources. You have more margin to go invest in the business, invest in the team, invest in the customer outcome. And you get this very virtuous cycle. And look, what the experience you went through is the same experience I've gone through

and everyone goes through. And by the way, it's great because there's plenty of other big customers out there that you haven't talked to yet that you haven't sold. And, you know, there's something to be said about, look, they're a lighthouse customer. Now you have a reference there. You have a champion who, you know, the next customer you can go charge the 700 grand to. You know, I wouldn't, you know, you're not going to, I know you're not, but you don't have to beat yourself up over it.

And so, but it's a great experience to go through to realize really that value is something quite different. In fact, I often tell entrepreneurs, like, especially because I like the model that you've gone through, like starting with SMB, and then you move up a ratchet, and you move up a ratchet. Because, by the way, there's a customer out there. If you got 10 people paying 700 grand, I promise you, there's a customer that will pay you $7 million. I believe once you get 10 customers paying a price point, I've written a blog post about this, once you have 10 customers paying a consistent price point, there's a customer, there's at least one customer out there that will pay 10 times that. And if you then get 10 of them, there's at least

one more customer out there that will pay 10 times that because it means that you've built a product that's really filling in need at that current price point but there is someone else out there who's willing to sort of slum it slum it with you and because you're really that you know you're really preventing them from having to build that duct tape solution you really have solved that that it's that they really need to scratch and and you're able to do it and then the whole company comes along for the ride the customer support team comes along professional services comes along marketing comes along and then And that's sort of the rising tide that helps company to sort of increase their average deal size and their overall revenue.

And it's a great journey to be on. I mean, it's exciting that you're on that journey. Yeah, yeah, we got crushed down a little bit when COVID happened, right? Sure. Everyone would think that, like, leadership would skyrocket. But what ended up having, everyone froze up for, like, clenched for like six months, right? And even current customers, we had contracts with just withheld payment because it's just the way.

And I get it because we had to turn around to the same thing. It was just tough. But we had a strong team. And so we said, what are we going to do? And the podcast was doing really well, popular. So we had people that were willing to pay to come on the podcast. And so we said, all right, we have to think quick on our feet because the leadership software is an eight-month sale cycle because they plan annually.

So it averages eight months. And so we built a PDF, did a quick design, put three sponsorship packages together, and we ended up closing out the year, 325% revenue. growth, although it was on a different product, but we went from, like our first year, we did 50,000, our second year we did 230,000, and that's when we had the issue, or I'm sorry, and then the third year, we had the issue of COVID, but we ended up growing and closing out like $760,000. And that was just, it was like $200,000 of recurring revenue from the leadership stuff and 500 plus of podcast, and we're just like, oh my gosh, it's rinse and repeat.

So we can support like $5 million revenue from the podcast. So what I said, was, let's just keep hiring salespeople. And then once we have enough cash flow, which will be like in August, September, we can parse off some of the cash, because it's so profitable, the podcast advertising. We can parse off some of that, and we can just build the enterprise sales team

because we'll have enough cash flow to not cannibalize the growth of the podcast business, but still grow the other one. And I found when at raising money, we had some, you know, I did a couple pitches and things like that. People had a really hard time wrapping their mind around that. They're like, you're losing focus. and you're doing two things.

And I was like, I don't know. I don't really feel like it's that way. I feel like it's a journey. Or surviving, and this is also marketing. And like these things are virtuous, right? Like you get this virtuous cycle where people know about the podcast and they know about you

and then they know about the company. You know, you mentioned something, though, that's really important, which is that when COVID hit, you talk to the team, right? Like, everyone knows that COVID was bad. And for a lot of companies, the employees inside these companies know that it's bad.

But you talk to the team and said, like, what are we going to do? And I think that, Real leaders are open and transparent about the state of the union with their teams because it's not your job to have every good idea, right? I mean, you may have every good idea, but it's not your job to every good idea. And other people in the team want to know how they can help fix it. And if that means reprioritizing and devoting resources of the podcast or some other idea, like you want to sort of solve these things openly and with the team.

And when you mentioned that, it made me realize that. That's a really important part of leadership. Yeah, you have to do that because if you don't get buy-in on the vision, especially when you're in crunch time like that. And if you don't crowdsource and if you don't use every single available resource, then you're doing a disservice to yourself and your investors. That's right. Yeah, and the employees, I mean, the worst thing that people do is they just put their head in the sand

and say, oh, no, business is great. It's fine. You know, maybe things are slow. But then all of a sudden they realized one day they're just out of money when they could have spent that time working with the team, sort of scrambling and hustling and saying, what are we going to do to get through this tough moment? It's hard to be calm when things are going down.

I'm the person, this whole journey of, well, first of all, I've always, like you, since age 13, like 1099, right? But it's, I've gotten the point where it's reflexive for me. The plane's going down and I'm just like, okay, guys, what do we do? Like, let's figure this out. What resources do we have? How do we not let this plan? go down, and that calmness permeates

through the entire team, because if you go crazy, which obviously there was times when I have, you see that it's like chickens with their heads cut off. It does not work. You have to be cool-hand Luke, right? Yeah, that's right. And I think you just have to be honest with people. By the way, you hire these people.

They know they've joined a small company. They know there's risks. You know, people understand that. And I think it actually makes, it builds trust, it builds camaraderie in those tough moments. And then, like, you know, obviously it sucks when you're in these tough moments. Like, you know, it's terrible. But when you're on the other side of them, you look back and it's actually one of the best times

because you really sort of galvanized as a team. You had the, you know, you stretched your muscles into new areas and, you know, you tried new things. And then when the things are working, it feels really, really good, you know. And like those, you know, I think some people call this sort of like type two fun. I don't know if you've heard that term. you know that term? No.

Type 1 fun is like you're on the carousel, you're at a birthday party, whatever. Like that's like fun in the moment. Like you're at the event and it's fun in the moment. You're having fun. Type 2 fun is like you went on this big backpacking trip. It was actually grueling. You didn't think you were going to make it to the top or you're working through this problem with your team and actually everything's horrible.

But when you get to the other side, you look back and the level of satisfaction that you have and achievement is so good that you look back and it actually was fun. Even though in the moment it felt terrible, that's type 2 fun. And, you know, I would describe myself as a type 2 fun enthusiast. But it's just, you know, the satisfaction level is so much more fun than just like, you know, going to a party and seeing your, seeing your buds. Yeah, you're exactly right, because type 2 fun comes with growth. That's right. That's right.

Yeah, so I guess we only have 15 minutes and I've gotten through like 1% of the notes. Oh, yeah. Okay, we'll go back. You ever do lightning rounds? Yeah, you want to do lightning round? All right, let's do something. I'll just turn it into lightning round, just like that. We can just do it. All right, here's one.

I was talking with Ron. He is a board member, entrepreneur type guy at Yield Street. And they do, you know, they've tried to democratize access to investments, alternative asset classes, right? And after that conversation with them and they'll make yield more accessible to other people, I was curious, like, I hear all these great people come on the show and they'll tell me about either their startups or whatever. It's like, I want to invest in them so bad, but there doesn't seem to be a vehicle out there that just, like, lets me jump into anyone I see.

Do you think that'll ever exist? Yeah, first of all, it should exist. And there are things already that are opening the pathways and the doors to that. Angelist is probably the best way. There's something on angelist that people don't know is somewhere between a database of startups, as well as a fundraising platform, as well as a set of services for startups themselves. to do everything from manage their cap table to raising money. But one of the services they do, and I'm not really an expert on Angelus, but I think I can do it justice to explain it here,

is they have this thing called syndicates, where people that are sort of in the flow of good deals are putting together to these syndicates, you can contribute like $5,000, you know, which from an investment standpoint is a small amount of money. I'm not, you know, in life it's a real amount of money, but as an investor, it's a small amount of money. And that $5,000 can get spread across maybe 10 different angel investments,

And you're sort of just grafting behind the syndicate operator who's making the investment decision. So you don't, you know, I think that having sort of a bad, if somebody wants to invest in startups, I always tell people it's better to sort of just do like the basket strategy rather than try to assume you're going to be a great picker. And maybe you are a great picker. I don't, you know, but if I look at my portfolio, I just think the basket was when I was an angel investor was much better.

And so the syndicate model at Angelus lets you just contribute, this is not investment advice, blah, blah, blah. are marketing leaders. It's going to be like freaking out. This is not investment advice, yes. Not investment advice. I don't know anything I'm talking about. But if somebody is interested in,

get angelists and learn more. But you put money into the syndicate, and then the syndicate periodically invests in deals as they come up. And a lot of these people, if you look at their backgrounds, maybe they're like a senior engineer at Stripe. Maybe they work at Dropbox.

They're in the flow of Bay Area Silicon Valley startups. Maybe they're a full-time professional angel investor and they do the syndicate, both to create access for other people, but also just have more of a bankroll to write bigger checks. Maybe they can only write a $25,000 check on their own, but with the syndicate, they can make it a $50,000 check. And so anyway, the Angelus has a whole bunch of different programs to invest in startups. And the nice thing I like about the syndicate is that you sort of can do the basket.

You don't have to pick individual companies. And I think that's a great way to get started. If you're interested in that sort of that kind of an asset class, which is much riskier and the capital's locked up for a long time. But, you know, historically has been a good asset class on the basket approach, at least. So companies can just go on there and like my company, I could just go on there and post some, really?

Well, first of all, you could have your own syndicate, which is not necessarily a bad idea, because you have a following, you have a brand, and people are like, all right, Joel's in the mix of entrepreneurs, maybe that are out, even in particular, maybe there's an interesting angle of people that are outside the Bay Area. Right? Like, you know, there are great companies being started everywhere. And, you know, you have access to them in a way that maybe the engineer at Dropbox or Stripe doesn't have access. And so you go out, you start a syndicate, maybe you're able to go raise a couple hundred grand from whether it's, you know, 20 people or 200 people. And then you're able to make those investments. And just like a venture fund, you get some of the proceeds. But then your listeners that think that you're a good picker can invest in you. And then on the entrepreneurial side, if you're a company raising money, yeah, Angel List also has. a way to raise money if you're a startup.

And I think that part is, I don't know exactly how that part works because I haven't done that part of it. I haven't been on the fundraising side, on the startup side, but I know that there are some capabilities around that as well. Awesome. I'll take a look at it. As we start to wrap up here, what are some of the hardest lessons that you've learned as an entrepreneur?

The hardest lessons, I think, as an entrepreneur are always around leadership and just being really intellectually honest with yourself. I sometimes tell people sort of like, what time is it, which is sort of. of a version of like what inning are you in and what happens is sometimes people ship a product and they think it's ready to go so they hire a bunch of salespeople but then it turns out the product doesn't work or does not product market fit and they get over their skis and so being really rigorously intellectually honest and part of that involves having a team around you that gives your honest feedback you know I think that is one of the hardest parts of being an entrepreneur

is really knowing what inning are we in in the game and what should I be doing to make sure that I'm winning the game, people get sort of, you know, delusionally optimistic or they get delusionally cynical. And neither one of those is good. So having mentors and people that give you that feedback is useful. And I think managing your own psychologists and entrepreneurs is really that one of the most important things. And so what do you look for in? But also, obviously not running out of money is also. I mean, it sounds stupid, but like the number one reason companies fail is they run out of money. So, you know, not running out of money also is important. Yeah.

They said that to me when I was raising. I've only ever raised myself, like without business partners, just Joel as the founder, only ever raised one round from a VC firm here in Florida, 500,000 for 25%. And when I was standing up there in the hot seat that they call it, right, they said that exact same thing. And I looked at them and I said, no, I said the reason why the companies fail is because they gave up because I'd be cleaning twice. at like Walmart to continue to fund it.

Like, I would never give up. And I learned that, like, early on from just personal struggles that I went through. And I think that's what clinched the deal with them. Yeah, that's true. Obviously, right, you've got to have the hustle and the grit. And at some point, some people like paychecks. But, you know. Yeah.

Well, I mean, I would let the company boil down to just, hey, we're not there, right? I'm actually having, like, the best time of my life because I've never been at the point We're like, I founded something and it's like just going. It's like, let's wait for the last two sales people to ramp because it takes them three months and we'll take that cash. We'll hire three more sales and we're just going to rents and repeat and we don't need, like we're not dependent on anything or anyone else. We just keep doing our thing.

And that freedom, the first year, I would say raising venture capital was scary. It was like, after the check got written, it was like, whoa. It was a really weird moment because it's now like, oh, look at, we've got burn and we've out to figure this out and ooh it was it was hard but um yeah i don't we did it you know there you go that's it anything else uh what's what's the most important thing you look for on a founder when you're investing i want someone who there's i mean there's different things so there's not one thing uh and i don't think it's fair to say there's one thing incredible product founder i think is important somebody who has a chip on their shoulder where they want to prove that they can do

something that maybe someone told them they couldn't do or they want to overcome something or they want to demonstrate their ability to sort of make their dent in the universe, as Steve Jobs would say. And then somebody who is able to translate something that's usually a more broad sort of world-dominating global vision into something that's articulate and tangible. I think people that are able to translate a broad vision into something that seems actionable and intangible, that's an important skill for hiring, retaining talent, communicating to your talent, what's important. And so I would say those sort of like either great product CEO, you know, world sort of dominating chip on the shoulder kind of personality. But then they have to be, you know, somewhat grounded

to the earth to be able to translate that broad vision. Like if you look at the Elon Musk's of the world, like Elon can talk about going to Mars, but then he can then talk you through the A through Z steps he's going to take to get there and it starts with reusable rockets. And then like, you know, in space refueling and like he's he's like mapping out the steps that now all of a sudden like going to mars doesn't seem crazy at all now it's just a matter of time but before that mapping of the steps it sounds crazy you know and so that that's what makes for an iconic founder i think thank you so much for listening and if you found this episode useful please share it with a friend or a colleague who you think would get value from it and if you have topics that

you'd like to hear discussed on the podcast either at Add me on LinkedIn or send me an email, Joel at modern cTO.io. Every time I get an email or LinkedIn message, it absolutely makes my day and inspires me to keep going.