This Week in Startups - Ask Jason LIVE!: Navigating startup growth with Real-Time Q&A | E1937

Episode Date: April 25, 2024

This Week in Startups is brought to you by… Vanta. Compliance and security shouldn't be a deal-breaker for startups to win new business. Vanta makes it easy for companies to get a SOC 2 report fast. TWiST listeners can get $1,000 off for a limited time at http://www.vanta.com/twist Squarespace. Turn your idea into a new website! Go to ⁠https://www.Squarespace.com/twist⁠ for a free trial. When you’re ready to launch, use offer code TWIST to save 10% off your first purchase of a website or domain. Mercury. Mercury is the fintech startups use for banking* and all their financial workflows. Paying bills, staying in control of company spend, and closing the books doesn't need to be so complex — that's why Mercury powers it all from the one thing every business needs: the bank account. Join 200K startups who use Mercury to operate at their best at http://mercury.com *Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust, Members FDIC. * Todays show: Jason kicks off Ask Jason live! 5 live guests ask questions on key topics, including finding job opportunities (1:43), the “likely winner” and “definitive winner” framework (26:19), how a non-AI startup with traction can stand out to potential investors (1:04:05), and more! * Timestamps (0:00) Jason kicks off another Ask Jason with 5 live guests! (1:43) Dustin asks about how to find job opportunities and market his generalist skills (9:50) Vanta - Get $1000 off your SOC 2 at http://www.vanta.com/twist (10:42) Dustin asks about how to find job opportunities and market his generalist skills (24:57) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://www.Squarespace.com/twist (26:19) Francis asks about defining the terms "likely winner" and "definitive winner" in a strategic framework using specific metrics (39:15) Mercury - Join 200K startups who use Mercury to operate at their best at http://mercury.com (40:17) Mathew asks about choosing between mission-aligned sponsors and more lucrative, unrelated advertising opportunities for his podcast (52:23) Jason asks whether to continue low-cost growth strategies or seek seed funding to boost growth through advertising, as their product is the advertising itself (1:04:05) Douglas asks about how a non-AI startup with traction can stand out to potential investors (1:15:37) Host or join Founder Fridays! Go check out https://founderfridays.tech * Send us your questions for the next episode of Ask Jason LIVE! http://www.thisweekinstartups.com/askjason * Follow Jason: X: https://twitter.com/Jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Subscribe to This Week in Startups on Apple: https://rb.gy/v19fcp * Thank you to our partners: (9:50) Vanta - Get $1000 off your SOC 2 at http://www.vanta.com/twist (24:57) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://www.Squarespace.com/twist (39:15) Mercury - Join 200K startups who use Mercury to operate at their best at ⁠http://mercury.com⁠ * Great 2023 interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland * Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin Instagram: https://www.instagram.com/thisweekinstartups TikTok: https://www.tiktok.com/@thisweekinstartups * Subscribe to the Founder University Podcast: https://www.founder.university/podcast * Founder University: Cohort 8 begins May 9th. Apply here: https://www.founder.university

Welcome, everybody. Ask Jason is where founders, investors, even folks looking for career advice. Any of those things get to ask me a question. I've seen it all folks. Invested in 400 startups. I've built a couple of companies. Post five podcasts a week have done almost 2,000 episodes of this week in startups, 175 episodes of All In. I've written a book. I'm 53. I got a lot of battle scars and some knowledge and some hacks here. there, I've read a lot of books. So let's get started with Ask Jason. This Week in Startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a sock to report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist Squarespace. Turn your idea into a new website. Go to Squarespace.com slash twist for a free trial.

When you're ready to launch, use offer code twist to save 10% off your first purchase of a website or domain. And Mercury. 90% of startups fail. Just 10 out of every 100 make it. Mercury exists to click. close that gap. Helping companies succeed with banking and credit cards engineered for the startup journey. Join over 100,000 companies banking with Mercury at Mercury.com.

Okay, let's welcome our first guest. Our first guest is Dustin. Oh, there he is. All right. Hey, Jason. Hey, Dustin. How are you, sir? Doing pretty well.

How are you doing? All right. You sound great. My team did a good job vetting you and me. making sure you had a tight question. What is your question? Yeah, thanks. John's on top of it.

So, yeah, my question is, I'm 28. I've got a technical degree. I just shut down my startup after about three years of working on it. My near-term plan is to work at a post-product market fit startup and try to build some financial stability and learn from some really bright founders before starting a company again. Got it. That's kind of my goal.

but I'm struggling to find roles that fit the more generalist skill set I've developed for the past three years and going beyond that, knowing how to like market myself in that sense, because a lot of companies are looking for specialists. So I was curious if you had any advice

on like where to look and how to pitch myself. Great. You're an operations specialist. You're a jack of all trades. You're somebody who the CEO or the co-founders of a company could say, hey, we need to solve problem X with the outcome of Y. And we want you to update us Z, right? So X, Y, Z. Hey, here's the problem.

This is the outcome we're looking for. And you can come up with the process, et cetera. Am I correct that that's your skill set? Yeah. I mean, that's what I felt like I did for three years building this software startup. Okay. And as you know, as you build a startup, you add specialists.

So when you're the jack of all trades, a super important position, this is somebody who can play defense all five positions, OG Ananoby on the Knicks, Draymond Green, right? And so you are one of those utility players who can, you know,

basically work on any problem with the exception of maybe you're not going to be the designer of the product. You're not going to be the developer of the product, correct? You're not the designer or developer. If you're talking about a company that already has product market fit, they obviously have designers and developers already there, right?

Right, right. Got it. So, but you did do the product in your startup. Yeah, I wrote code. I was in Figma. Oh, wow. Great. Yeah. All right. Well, so this is why I asked that question, because you have three swings at bat here. And you could actually design products. You can write code. and you can do operations. So you want to maximize revenue to build up your chip stack and learn.

Am I getting that right? As opposed to starting another company? Yeah, next three years ideally would look like, yeah, building some cash to get ready for another startup and learn from some really bright people. Let me ask a personal question here. Why do you need to build up cash? Do you have debt? Do you have family?

Do you have kids? You have a mortgage? No family. I've got a bunch of student debt. How much? Ballpark. How much you're going to pay every month every year? About 100K.

It works out to like 600 bucks a month right now. Okay. So that's de minimis. All right. So I am going to question this concept of, I need to build a chip stack. I need to build up money. Do you? Or should you lower your burn rate, personal burn?

What's your personal burn right? Just as a ballpark, what do you pay in rent and where are you based? I pay about a thousand bucks a month in rent. I'm based in Denver. Amazing. Yeah. Okay. So you have microburn.

You have very low burn. You have $600 for your student loan. You got a thousand for your rent. And, you know, you put in another $500 or $1,000 in other expenses. I don't have you got a car payment, whatever. I mean, you've got about a $40,000 a year burn. which means you could accept a job offer for 100K, pay a third in taxes or something to that effect and have a little wiggle room.

So you're actually in an incredible position to be a co-founder of a company. And were you a solo founder or are you a co-founder of your last company? I was a solo founder for the first year and a half. And then I brought on at first an employee and then kind of upgraded to a co-founder. after a while. Tell me your experience, solo versus co-founder. It was pretty similar. I mean, as a solo founder, I got the company to almost to its first revenue.

And then it was after we launched our first customer that I opened the door for my employee to come on as a co-founder with a stake in the company. I felt like I kind of had a handle on everything. And I really just wanted more help. And this guy was kind of going above and beyond. So I opened the door for him. So you felt like he should have that. truth be told

you set the thing up you did all the hard lifting alone very admirable also quite crazy I always advise and it's just you know it's kind of like

Joel and B trying to beat the Knicks right now you know it's like everything's on his back and you know it's really hard for to put the whole team on your back and get there it's you know when you want to win championships pretty good to have three all stars on the team as we saw with the Warriors

or have we seen with other teams two or three all stars they tend to win the championships not since Michael Jordan have we seen or Kobe maybe you know people be able to put a whole team on their back it's just this is rare and it requires a lot of luck etc so okay I want to ask what is the thing you learned

during your startup process a marketable skill a technique, a category. Let's just, let's just chew the fat here. But what were, you know, three things you learned and you became an expert on inside your startup that you weren't an expert on before your startup necessarily, or maybe you had some expertise, but you really sharpen the blade there. In other words, superpowers, things he got really good at.

Yeah. I think, so we were a construction SaaS tool. And I did all of the implementation and training, you know, going out in the field and literally teaching guys how to use iPads before I could even teach them how to use our software. Okay. And so being a, you know, a translator between some really blue collar personas and, you know, Silicon Valley engineer types was something I got really good at in that period of time. So you developed a skill at taking a complex product and getting it in the hands of customer and making sure they were successful with it. And you were fearless about this. You didn't have a fear in talking to those customers or embracing them.

No? No, we did over. I mean, there was fear for sure. But I knew it was absolutely critical. And we did over 100 customer discovery interviews. We were tracking down any job site we could get on, you know, just going up and talking to people. Did you enjoy it? Yeah.

Got it. So you were initially scared of talking to your customers, and then you got great joy from it, right? Yeah. Once you start to build relationships and get into the world. Okay. So customer interviews, figuring out the ideal customer profile,

and what they need in a product is something that you've gotten really good at. Okay, let's put a pin in that. Listen, a strong sales team can make all the difference for a B2B startup. But if you're going to hire sharks, you need to let them hunt, and you can't slow them down

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So here's your call to action. Stop slowing your sales team down and use Vanta. Get $1,000 off at vanta.com slash twist. That's Vanta.com slash twist for $1,000 off your SOC 2. It's a number two thing you learned at your startup. That was a great first one, by the way. Number the second thing you learned and that you became an expert at. You know, it's hard to say I'm an expert at B2B sales at this point.

You know, I was doing this for three years. But, you know, I came out of school with an electrical engineering degree. I hadn't really done sales before that. And, you know, through an accelerator we did and through just going out and doing the sales process, building the pipeline, prospecting demos and in closing, I felt like I am, you know, an order of magnitude better at sales than I was when I first came out of school as an engineer. Amazing. So you're the engineer who learned customer discovery and success, and you're the engineer who learned B2B sales. Yeah. Amazing. Okay. Let's stop there for a second.

Of those two, which one do you enjoy most? That's number one. And number two, which one do you think is more in demand in the market? I mean, I think I enjoyed the customer discovery more. Great. Especially because it was also involved the product side and, you know, customizing this product to meet the needs. But I imagine sales is probably more in demand, going back to that concept of companies want a specialist who can sit down and turn, you know, A and a B.

Okay. So you got to go with what you have the most passion for. I can tell you both of these things are in high demand, especially at startups. Now, what I want you to do is instead of making a decision to start another company, and instead of making a decision to go work for somebody else, I want you to pause for a second, and I want you to spend but 30 days, a 30-day program,

where every day you work on your socials, your substack, etc., and you build a brand, Dustin, the customer discovery engineer. Come up with a really tight brand for it. I like customer discovery as, you know, like a concept, but there might be a better word. Is there a better word for customer discovery that you did? This is kind of buzzwordy,

but the value proposition design. Value prop design? Yeah. Okay. Doesn't roll off the tongue like customer discovery. And you're an engineer. That's something special about you. So, customer discovery engineer.

D.D. Just created a new title. Customer discovery engineer. You're engineering customer discovery. You're taking something that most people consider loopy-duppy, touchy-feely, granola hippie-dippy, and you're making it a science. Now, want you to brand yourself on X, Instagram.

LinkedIn especially, maybe TikTok, and certainly a substack. I would say LinkedIn X and substack will be the top three most important ones there. And I just want you to create content about customer discovery

and what you've learned. And I want you to highlight other people's learnings and your opinion on them. And you go on a 30 day because you seem like a very disciplined person. I get the sense you're a discipline.

You disciplined individual? I think so. Yeah. You work out regularly, take a shower every day, eat healthy. I was a collegiate athlete before I got into startups. Enough said.

This is why there are some people who hire specifically, I've seen it in sales groups as well. There's some sales managers. Like, I only hire people who are collegiate athletes and played, you know, sports. Some people have the same thing about military. Why discipline? You need people with discipline. So you are a disciplined person, me telling you to do 30 of the 30 days of this, not a big deal. And you just brand yourself.

in your marquee image, etc, that you are passionate about this and that you're an expert on it and they have a lot of experience. Maybe you do an interview with somebody else and you record it. You write some blog posts.

You start a substack. See if you can get to 100 people reading your substack. Now you've established yourself as the credible expert on this topic. And so, when you email somebody, you just put, Dustin, your last name is Ramsey.

Ramsey, yeah. Dustin Ramsey, comma, customer discovery engineer. Who got, hmm, customer discovery engineer. I never heard of that.

Tell me more. It has a link to your link tree. Go to your link tree. My subscribe to my substack. Here are my interview, my 10 principles on customer discovery. You come up with your own, come up with your own thesis and playbook,

right? Your own best practices, you know, around what you believe leads to this. And then, after 30 days of this, I think what you do is you find, you know, 10 startups that are in the seed stage that have raised their seed around. They got a million dollars and they've got something to that effect. And you say, hey, I really think what you're doing is interesting. I'm a former founder myself.

And I am an expert on customer discovery. I'm wondering, looking at the customers you have, if you need help with this. I charge reasonable rates, and I'm passionate about startups, and you can book a 20-minute discovery call with me at my Calla-Li link here. Now, let's see if you email 10, how many reply, and you should just do one follow-up to each one. Hey, I know how busy it is to be a founder. Just wondering if I could help you with customer discovery in any way. I looked into your competitor

and I saw some other discussions about your product and similar products on Reddit, hacker news, Twitter, LinkedIn, whatever. I'm curious if you've looked at their customer bases and studied them, I could help you with that with competitive intelligence.

So anyway, this is all recorded. You don't have to take any notes. But what I'm trying to give you is a playbook. To establish yourself as an expert and then engage 10 startups you think are amazing. Let's say two of them hire you.

Come up with a race. that's reasonable, but covers your $40,000 in expenses a year. Let's see in month two, month one, you're just putting your ideas out there and building your cred. Month two, you're trying to get an engagement or two. And then let's see if any of them bite and, you know, maybe you got to send 10 of these custom emails per week. It's really important that these be custom emails. You spend time, maybe an hour researching, 15 minutes writing. that means you got to spend

if you want to send 10 of these a week, 12 hours, something, 13 hours on it, not a lot. You're a disciplined person, so you're just sending to a day because you're a discipline. You know how to do this. So what will happen at the end of these two months is you'll have an idea if this skill, specifically, is marketable,

and if people engage with it, and if there's a business there. If there is a business there, two things will happen. One, you'll start ringing the register, and who knows what you could charge for this, I think there are startups that will pay you five thousand a month to do customer discovery, 60,000 a year. You might get three of them. And now you're making 180,000 a year, which is much more than any salary you would get at a startup,

you know, which typically pays, what did you pay at your startup? 50 to 100K? Yeah. For founders typically spend 50 to 100K on startup employees. Those same employees, if they can get a job in corporate America, maybe they get it for 20% more, but they get paid 60 to 120. So, you know, this is people take a discount in a startup because they get more freedom, more opportunity, more growth, and we all know the deal. And then what might happen is you find one of those in month three that you really vibe with.

Now you've started to pre-vette these. So instead of just sending them nonsense, you say, you know what? I really love your startup. I notice you got two co-founders. I think I've proven my worth here. I'm wondering if you, Jane and Steve, running Acme Corporation, would be open to a discussion about bringing me on as your co-founder. because I, you know, I make a fortune at this consulting. It's incredibly lucrative. But I think

you have a billion dollar business on your hands here. And gosh, Donard, I know you guys own 40% each. And I think if I own 20% of this company and was your third co-founder, I understand you guys started it, willing to vest like y'all are vesting. And I think I could, you know, help you get this there, you know, and more than earn my 20%. I think I can make this company five times more valuable with my contribution that's unique in the world because I am a customer discovery engineer. Yeah.

So anyway, this is the way I like to approach you things. And if you look at the people who became the all-in creators like Young Spielberg or Ray doing the meetups, you know, there's just a bunch of them, the all-in talk duo. There were a bunch of people who did work on spec that wound up making big careers out of it because they got attached to a rocket ship.

that pockets. Yeah. What you could do here is, you know, attach yourself to one of these rocket ships. And the fallback is you're making your own schedule. You've got three, four, five customers paying you, you know, two, three, four, five thousand a month. And every time you get a customer, you raise your fee, you know, 50 percent, see what happens. So the first customer might be two thousand a month. The next one's three.

The next one's four. The next one's five. The next one's eight. And then you just stop accepting customers. And then you raise the prices with the lowest one. say, hey, you know, I'm getting $8,000 a month now. I charge you two. I got to bring you up to six.

I'll still give you a 25% discount. You start firing customers. You might be able to build this into a half million dollar a year of business in two or three years. And then think about your optionality. Yeah, you're building a war chest. Now you can fund your startup, you know, for the first six months. And many people have consulting firms that are ringing the register like this. They wind up having the ability to discover really good ideas along the way.

you're learning while you're doing this customer discovery engineering for everybody else and you're turning customer discovery into a science from an art and that's a good tagline. Turning customer discovery into a science, taking customer discovery

from an art to a science. That'll appeal to a lot of folks. So anyway, this is a long ask Jason, but I think it's an important one because, you know, this strategy, you said you wanted to build a chip stack could do both these things. What city are you in?

Denver. Denver. Okay. One of the things I want to encourage you to do is to become the host or co-host, a founder Fridays in Denver. So go to founder Fridays. That tech. I started this just so eight people could get together in a chapter.

And founders can just sit there and talk about their biggest problems. And, you know, a founder who's, you know, wrapping up their startup and getting ready to start their next one, that qualifies for as far as I'm concerned. And now you're meeting with eight founders every, first Friday of every month. Got to get in that discipline. You're hosting it. You know, you might, founder Fridays.

Tech, everybody, and you might find your customers there. You might find your next co-founder gig. And so I wish a great success. With that, any questions for me, Dustin? No, it's really well said. Open my eyes a lot to alternative to the job application and the networking my way into a full-time gig. Job applications are for suckers.

let me say that clearly. Going through the front door, stupid. What you want to do is you want to go through the side door and say, where's the owner? Yeah. I have something very important.

Somebody says, you have an appointment. This is critically important that you get me in touch with the owner of this business because I have something that's going to change everything here. And you just kind of just barrel your way

into the top of the company. Now, with Sarvus is really easy because they have five employees and you can just, there's ways to get people on social media, and you just be relentless. Dealing them, whatever. This is one of the things I've been teaching my team.

If people aren't complaining that you're being annoying, you're not pushing hard enough. Yes. So I would rather see you, if you went after 10 a week for three weeks and there's 30 of them, if you're not getting four or five people saying unsubscribe, stop emailing me, I'm not interested. You didn't do your job.

You didn't push hard enough to get the meeting. And you should just say, listen, I noticed you opened the email, but you didn't choose to book a meeting. Here's a 10-minute calendar link. I only need 10 minutes to explain to you what you're doing wrong and what you need to fix with your startup. And I'm happy to do that for free. It's only 10 minutes of your time. And I'm willing to do it seven days a week anytime you want. So pick 365 days a year anytime. But we should talk about this now

because I think I have critical information for you, including X, Y, and Z. So be a aggressive and, you know, turn all your startup knowledge and pain into a high paying gig and don't go through the front door. I wish, I'm trying to hire like a community manager, a GM for Founder Fridays. Tech. I wish somebody would just aggressively tell me, here's what you need to do. Here, I'm going to join as the, I'll be the GM of the co-host of the Denver one. Let me show you what I can do. I'll work on spec, whatever, you know, somebody just aggressively went after the job. And you know what I get? Get cover letters that look like their chat,

cheap E.T nonsense. They don't even read. So, you know, really be thoughtful and do a sniper shot, not a machine gun, you know, or a shotgun approach. Yes. Of course. Okay. Dustin, I'm going to put a 30-day requirement for you. You're agreeing to come on Ask Jason in 30 days and do a follow-up, correct? Yeah, you got it. You got it.

Okay. We're going to review your work in 30 days. Awesome. Thanks, Jason. Hey, startups, you ever notice how successful businesses are constantly evolving? Well, that's because they add fresh features to get their customers excited. And that's why I am all in on Squarespace and you should be too. Squarespace is adding new features and revolutionizing their platform all the time. I've told you this before. This includes powering all their tools with AI. You guessed it. And one of my favorites, this is incredible, is Blueprint AI. Yes, it's their guided design system for building a new website. It's fast, it's custom, and it's built specifically for your

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That's Squarespace.com slash twist. Francis, good like we've met. We have. How you doing? I am doing great. Francis, you're an investor. You're passionate about startups and you have a question for me. What is it? You have mentioned your framework for likely winner versus definitive winner when it comes to deploying follow-on capital. Can we define those terms in a more concrete way, a particular level of revenue, a particular growth rate, a particular type of lead coming in, something like that? Fantastic question. When you run a venture capital firm for people who don't know, for example, our launch fund for it will be a $50 million vehicle, give or take. we plan on deploying the first half of the fund into what we call primary investments, our first investment in a startup.

Now, we are a high-scale investor. So we have our accelerator, we have our pre-accelerator found university. So we'll make, let's say, 200 bets with that first $25 million. On average, 100K, sometimes it's 250 or 500K, sometimes as little as 25K, just to get somebody started with their first check. and then my team is examining of those 200 names which ones are likely winners which one are definitive winners coming out of the seed stage

this doesn't mean they're definitively going to win an IPO and become Uber, Robin Hood, or like a huge company like com. Definitive winners, let's start there. A definitive winner has a known VC with a known partner just like somebody who is a real VC from a real firm

who is leading the round. And when you lead the round, what that means is, you pick the price of the round, the terms of the round, and you originate the term sheet, you're giving an offer to, you're giving an offer to the founder.

And you're joining the board. And you're owning more than 10%. Generally speaking. So if we break that down, it's a priced round. The terms for the round came from the VC. They're joining the board and there's proper governance happening. And it's pretty nice if it's a competitive round and there are multiple term sheets,

although that's not required in my framework. And again, this is just coming out of seed. So if we see that Mark Suster from Upfriend Franchers is putting the Series A term sheet for density, one of our unicorn companies that I'm on the board of and we did the seed round, we're going to go, whoa, Mark Suster up front, joining the board. He's only got a certain number of board seats he can take. He's a legit investor. He's thoughtful, and he priced the round.

And, oh, they had other offers. That's for us a definitive winner. Robin Hood, that happened. Calm, that happened. And superhuman that happened. So we had four unicorns come out of the first launch fund. Launch Fund won, $10 million vehicle, four unicorns. In all four of those cases, there was a definitive lead, they joined the board, they priced

the round, they sent a term sheet, et cetera. Now, let's put aside growth because in the likely in the definitive winners, there's always some amount of growth. It could be 2x, it could be 5x. You know, sometimes you're starting in the seed stage with very low number, so they made 50k in year one, and they went to 500K in year two. 10x. Huh, you know, but it's 10x on a small number. Let's put aside growth, but that was what we saw when we looked back on our biggest winners. Now, sometimes there is a party round. And a party round is typically the, it's a convertible note, so it's not priced. The terms typically come, as you know, from the founder.

The founder says, I'm raising $2 million at a $15 million valuation. I want this, I'm going to raise $1.5 million at a $15 million cap note. I'm going to dilute 10%. nobody's joining the board. I have four people soft-circled for 400K, and I'm looking to fill in the other 1.1 million. The largest check right now is 250, and then we've got two other 250K checks,

so they're passing the hat, etc. But if they get that round done, it's a likely winner. And then there's everything else, which is people did an equity crowdfunding site, they did a bridge round, but they didn't get any new money in. Those are pretty easy for us. We're going to stand packed.

which is a poker term for we're not folding our carts, we're still on the cap table, but we're not putting any more money into the pot. We're going to stand pat. We might get a little diluted if you raise some money, but we want to wait and see because we can only invest in one out of every 20 companies. We're going to take those 200 and maybe pick the best 10 to 30,

depending on the quality that comes out of it, to get additional funding. Definitive winners, we want to back up the truck, likely winners. We want to keep our pro rata, or at least place a bet, maybe a little less than pro rata. If we own 10%,

maybe we get diluted one point and we get down to 9%, and we put an extra 50K in instead of getting diluted down to 8.5%, or we stay at 10%, or maybe we put a little extra in, but we're generally going to place a small bet in a likely winner.

We're going to place a bigger bet in a definitive winner. What this means is when you look at our portfolio at the end of the day, 200 bets will equal half the portfolio. and 20 bets, let's say, 10%, will equal the other head. Those 20 will have on average a million dollars put into them after they graduate from the seed stage, and the rest will have 100K on average put into them.

And so this is the framework I created for our firm, which operates at the seed stage. A series A firm might have very different criteria. You might have follow questions or thoughts. 20 definitive winners get approximately a million, is that all, coming into their A or is that spread out over A, B, just trying to get a little more detail. So, yeah, we could, I mean, it's going to be situational. And so let's say it's Sequoia coming in. Andresen Horowitz, you know, somebody who's really tier, tier one with a lot of money and

they're joining the board. We're going to try to maximize. And so in that case, let's say we, our pro rata is 500K. We might ask for 750K. we might ask for a million. Maybe we can only take our pro rata. But at least we got 500K in. And there will be, it would probably,

it most likely be in the seed round, or the Series A. In rare instances, it might be Series A, Series A, series B. The overall goal is to get ourselves to 10 to 15% ownership in our definitive winners. Why is that important? When we look back, when I was a Sequoia Scout,

you know, in Robin Hood and Uber, we owned basis points. In other words, less than 1% of those companies. Now, those were extraordinary outcomes, so it wound up being massive returns. Then when we got to our fund one, we owned, I think now we owned 2% of superhuman, 5% of calm, maybe 6% of density. And so we were able to get up until, let's say, low single digit numbers. And then when we got to Series B, when we got to our second fund, we had Grin, which became a unicorn. And we wound up having, I think, 15 or 16% ownership.

That became a unicorn. Now, 16%, you know, 15% ownership in a billion dollar company is a lot of money. It's 150 million. And even if the company were to sell for 500 million, maybe it's a $75 million position. And so what's really important because you and I operate in a power law business is that when you see something could be in that power law category, A company that is a category leader with high gross margins and is growing violently, you got to back up the truck because they're rare. And you know what?

We didn't in Fund One. In Fund One, we did 109 names. We didn't do follow-on funding. And that was the nature of Seed Stage and Solo GP investing. It was called Spray and Prey, Chris Saka, Ron Conway, all these people came before me and I watched them. I think Spray and Prey is like a silly term, but it rhymes so it sticks. people remember it. But the idea of spray and prey was get a large enough number that you have a chance at an outlier. And if you hit a power law winner, it makes up for a lot of mistakes.

You can take a lot more risk. But the high art, I think, is to have enough surface area, which I think you and I would say is 50 to 100 names to hit an outlier and then have some capital left over and have the discipline and the system to understand it's a likely winner. or a definitive winner, hopefully, and be able to put more money. And so this is what I've come to after, you know, being a fund manager, just, you know, getting to my fourth fund. And you really could combine my first three, Sequoia 1 and 2, as my first fund in terms of dollar amounts.

That would have been about $20 million. And I was doing it part-time up until Fund 3. And Fund 4, I think, is when I've gotten good at it from being 12. And most people would be like, you're crazy. You've already crushed it. But I think I got lucky on a lot of cases, had a great. network, but I think now I have a great process. In fact, I think I have the best process in the entire industry or maybe, you know, in the top 10 in terms of process and team right now,

currently on planet Earth. I think I'm in the top 10 in terms of processing. Any other question or follow up? Just a comment. And the data is backing what you're doing. There was something that came out of primary BC yesterday data saying that, you know, for the very best funds, they went from a 3.5x multiple to an 8x simply by having a larger amount of reserves, which average around 40% in those cases, versus less than 20% for those 3.5x multiple funds, which are still great, but 8x is obviously better. Yeah, I mean, 8x is absurd. 3x is way above the average.

And so, you know, I just think as a fund manager, be thoughtful about this. I LP other funds, I was talking to. Sophia Amarosa from Trust Fund, who I'm an LP in, and I was like, make sure you have some reserves, and she's on her first fund. And, you know, I don't know where she wound up with that, but I did have this discussion with her as an LP. You know, I would rather see you if you had a 10 million fund and you were going to do a hundred names, 100K each.

I'd rather see you do 50K, 100 names, and then take the 5 million and put 500K into the top 10 of that group. I think that would be a better strategy. But you know what? Being a fun manager's hard. You got to come up with your own strategy. And so I just like to share my strategy publicly for two reasons. One, when I share my strategy, smart people like yourself, will amplify it and you know, kick the tires, bang the drums and see if they can figure out if it's flawed or not and tell me, hey, that's not a good strategy. And I'll get better at my game. The second thing is that we're really not in competition. I learned this at the seed stage.

If you are below Series A or before Series A, how many times do you see but one name or two names on the Cap Table? It's almost always, yeah. And what do you think the average is of the number of people, investors on the cap table or entities by the time a typical startup gets a gets a series A done? What do you think the number is? Unique investors.

Well, I just take the one I saw recently. It had 49. including mine. I mean, we'll just take that as an example, right, as they're getting their aid on. Yeah. So I think the number's probably 25 to 50. I think that might be the high end. But I do think it's like most typically 30 names, you know, they pass the hat a whole bunch.

And then people have been very good about doing SPVs. Maybe they'll work with one syndicate, uh, etc. But you're an early stage investor. Tell the audience since you're here how you invest and your vehicles and your philosophy. I'm curious. I basically stole yours and adapted it to a much smaller scale. I invest with your syndicate, other syndicates, direct wherever I can find the best deal, and I do 50% reserves because I'm seeing that.

Like what you're saying, I'm just really grateful you put this information out there on the podcast, Angel University, wherever. So I can start with the experience that you have now. And I don't have to learn all this for myself. So that's just hugely impactful. That's incredibly kind of you. if anybody out there wants to learn, Angel. Dot University.

We have one coming up in May. It's a three or four hour class. $300. All proceeds go to charity. And we've given $175,000 to charity over the last five years. Mike Savino and I have been doing the Angel University course.

It's open to everybody. Anybody wants to take it. It's all good. Okay. Great job, Francis. And we'll talk to you soon. Being a founder can be overwhelming. Don't I know it?

You know, I get those phone calls on the weekend. and sometimes people are a little overwhelmed. They need to talk to J-Cal. They got my phone number. I know the reason why there's a hundred different things you're responsible for. You've got to take care of your office space or remote workers, HR, software, raising money, product, customers. It never ends. And I know you just want to focus on your product and your customers.

Well, fortunately, Mercury is here to help simplify your banking and finance operations. Complete any banking task in just a few clicks. Streamline your operations with real-time data from your bank account. And they've got an amazing interactive demo right up. on their website that lets you explore all the tools and how it works. With Mercury, you're going to pay bills faster, you're going to stay in control of company spent, and you're going to speed up reconciliation. The end result is the precision control and focus your startup needs to transform how you operate. Join over 100,000 startups that trust Mercury for financial excellence, growth,

and of course the community. Mercury, the art of simplified finances. Apply a minute's mercury.com and start transforming your startup's journey today. All right, Matthew, you have a question for about podcasts. Go. Yes, I do. So this is about sponsorships and ads. My main podcast, Laws subscribed, has two sponsors already, but as it's grown over the last yeah, thanks. As it's grown over the last

three years, I've had other opportunities come my way, but they're not aligned with the niche of the pot. My current sponsors are. Twist has some of the best alignment with its sponsors, products that help entrepreneurs with their businesses, but I've noticed a few times you've gone outside that, nuts, mattresses.

I'm just, I wonder is it about the size of the bag, which I kind of imagine was a giant bag of macadamia nuts, but or was the trade off, you know, with the lack of brand alignment, worth it? I'm curious to know what the numbers have shown as I get those opportunities. Yeah.

So, you know, for people who are doing consumer products, they want a low CPM, they want to hit a large number of people. So if it's Audible, which I am passionate about, I'm a platinum member for Audible for 10 years, which means I've

spend $2,000 with Audible. It's some of the best $2,000 ever spent. I get 20 credits or 25 credits per year. Anytime anybody mentions a book on the podcast to me at a restaurant, I just buy it. I don't even think. Because books are, as an example, the greatest value you could ever have. Now, is Audible, you know, going to get an ROI on me reading them an ad? Good question.

Or should they do Joe Rogan or somebody who's got massive scale, right? Joe Rogan has the largest scale. they should probably do Joe Rogan because if they're trying to ring the register, we're a very niche audience, and it's a very low lifetime customer base. Now, maybe they could make it work if they had me selling the platinum

and telling my experience from that. We sell out every year now. We've been doing it for over 10 years. We know which brands are going to do well because the minimum ad buy is $30,000 for our podcast to buy five ads, I think, and that's $6k per end. Okay. If you're going to spend $30,000 and your product has a, let's just say, $500 a month price point, which is cheap for a SaaS product, right? But let's just say it's $500 a month. That's $6,000 a year. And if your customers tend to stay with you for five years, that's $30,000. You need to get but one customer to break even. If I was running a business like that and my target audience included anybody in this week in startups,

And we price the ads lower than we probably should because we want them to pencil out that math and go, no-brainer. And so the reason you see so many advertisers on this week in startups, you know, you hear me reading the ads over and over and over again. And they come back every year. And we have relationships for five or ten years with many of these is because we probably underpriced the ads and then over-deliver and make it a no-brainer. And then we tell people, oh, okay, your product macadamia nuts isn't very. expensive. They say, you know what? We want you, JCal. We love you. We're fans. We love All In. We love this weekend startups. We love that. We love startups themselves. You know, we're doing some awareness so we don't actually care about ROI as much. Now, we might track some ROI. So what I

tell the advertising team is please, number one, don't accept anybody who's a lame advertiser, because I'm just not, don't want to read the ad of myself. So we've had people who maybe had something where I didn't feel comfortable reading the ad. Think about something you might hear on like repeated ads on Sirius XM that are just filling for a company that protects your privacy or your reputation or something like that.

Those services get a lot of complaints, I think, because they're kind of like subscription services that some people may get value for them, but many people who sign up have a hard time unsubscribing, yada, yada. So we say no to that. When vapes first came out, a lot of people wanted me to do vape stuff.

And, you know, there's been a lot of weird advertisers that we've said no to. And we'll just tell them, this is a B2B podcast. It's a low hundreds of thousands of people listen to each episode over the first year or two when the episodes get published. And we make them do a minimum ad buy. So I think always have the targeted folks because then you don't have to deal with Matthew, people being upset that they didn't get the ROI. And then if they're ROI people, you know, I think just asking them, explain to us how you're doing your ROI calculation. Because I think maybe one in 20 people use the codes.

So if somebody uses the twist code or your code for your Laws Subscribe podcast, I think maybe one in 20, one in 50 might use the code. So you should just times it by 20 or 30, 40, 50, depending. And, you know, if they say to you, well, you know, our product costs $6,000 a year. and our lifetime value is 30,000, and we want to get 10 people per ad buy. I'm like, so you want to get, you want to put 30,000 and get 300,000 back? Really?

And you want to track all of them? That probably doesn't make sense. I think you're probably overestimating your LTV and your KAC, lifetime value and customer acquisition cost. I think you should look at podcasting as two-thirds brand building, one-third ROI.

That's what I think the proper calculation should be. One third ROI, not that you can track it perfectly, but you're getting some amount of the money back. So on a $30,000 ad buy, you get $10K back in customers, and you spent $20K getting marketing value and also the host reading your ad,

you know, means something. So having a trusted person read your ad, maybe you break it into three bucks. $10,000 to get the influence for reading your ad and whatever value that provides. $10,000 for general awareness and then 10,000 for ROI. And just generally speaking,

I don't do it for the money, which then means it sells out every year, and then people demand I do more shows. And I've actually been trying to do less shows, as you've noticed. I'm trying to get down to three days a week on this week. And so we peaked at six when I had Molly as a co-host, but it almost killed me.

It was just way too much content for me to do or my team to do. And I think that's why a lot of people who are daily talk show hosts, you know, James Gordon just quit. Jimmy Kimmel's going to quit. Howard Stern went down to three days a week.

I mean, just it's a grind to be daily. And so I think a lot of people quit. So I hope that answers your question. You're putting yourself in those categories of those, that caliber of late night. Well, no, I don't because they have huge reach. But, you know, if you were to say, you know, who was the Jimmy Kimmel or the James Gordon of startups, I would be on the short list, I guess. So, you know, and I think you have to understand what the natural audience is of your podcast.

So for yours, I lost subscribe. It's obviously it has to do with law. Lawyers. Legal technologists. Okay. So, you know, it might be... Very niche. 5% of lawyers, 10% of lawyers?

I mean, any lawyer who hates billing by the hour. So that's all of them. But, you know, realistically, right now I'm at around 300 listens an episode. It's been growing, though. It started with, you know, five, and I knew all of them. And so it's growing. And since it's very niche and there's brand alignment with the sponsors, they're happy, I'm happy. My listeners are happy.

And, you know, as I get, you know, some random company or even, I don't know if you've had this, but people want to pay me to be on my podcast. And I don't know about how I feel about that either. No, Bwana. Yeah. Just set them to ads. It doesn't scale. Then the audience is just going to tune out because they don't feel you have objectivity. Already, you know, I think the audiences have adjusted to this, but I'll tell you, 10 years ago, when I would read an ad, people would think it would compromise my objectivity.

because the first advertiser on the speaking service was this search engine that Microsoft was launching called Bing. And we were their launch partner when they launched Bing, Bing, Bing, Bing. And I used to do these ads. Bing, Bing, Bing, Bing. And I would just, they said, do whatever you want in the ads.

I mean, this is the early days of podcasting 12 years ago. And I would just pull up the Bing search engine. I'd say, hey, let's look at the Bing search engine. Let's do a couple searches compared to Google searches. And look at these cool features they've added that Google doesn't have. And they just trusted me to do that. And I just picked a number for the ads. I think I told them was $1,000.

an ad or $2,000 an ad, and they weren't even buying it for that. So what you really need to do is pair your podcast with a newsletter and, you know, try to give some value with the newsletter between episodes, and then you can really grow it. And then you should also think about subscriptions for it because you have professionals. But the great thing about doing a niche podcast in the stage you're at right now is you can literally email it every week programmatically, like with an assistant or something or a $10 an hour outsourced person doing 10 emails from your account or from an account you create with your name on it saying, hey, I'm Matthew, I have a podcast. It's about law. I did five episodes so far. I thought

you might be interested in to it. You can subscribe here. It's a one-time email. Don't worry. I'm not adding you to any list. But if you want to be on a list, you can go here. I'm curious if you have any thoughts on these topics or if this is of interest to you or any friends, hit reply and introduce the pod to your other friends. I'm really having a good time doing it. Like just a simple email like that, you might add 100 people a week or 10 people a week, 50 people a week.

One of the nice things to be in year one of your podcast like that. But just focus on the content and connecting with the audience. I'm now going backwards and trying to figure out who the top 1% of the audience is for this week in startups.

You know, we're in a 13th year, I think. We're almost a 2,000 episodes. So I like the idea of trying to own the relationship with the 1% and that's why we invested in a cover called a company

called River that was doing the all-in meetups and now they're doing Tim Ferriss's meetups, my first millions

meetups, the blueprint meetups, apologies meetups, and this week and this week and star us I'm actually

hiring a full-time or half-time person to manage our meetups founder Fridays. dot tech.

You can go and check that out. There's an equivalent for you, Matthew. So I think email and in person, you didn't ask

this question, but I'm just giving you a little mentorship as a podcaster. I think in person and email as parts of what you're doing are super, super, super, super creative at this stage. I think a creative is like a fancy word for additive. So I think it would add a lot. Let me stop using silly word. I think it'll add a lot if you did an in person meetup. What city are you in? Chicago. Perfect. Just do the law. It's called law subscribe is your podcast.

Laws subscribe. Just say law subscribe. is doing a monthly meetup in Chicago, the first Friday of every month. We're inspired by J-Cal, and I wanted to invite everybody to show up and just have a mixer. What if 50 people show up? And then you tell your sponsors,

you're automatically giving them a sponsorship to your no-host meetup at a pub, you know, near a certain law firm. I mean, this thing could blow up for you. So I'm giving you the playbook here. In-person drives online, online drives, in-person. Email is a bit of glue,

especially in those legal spaces. to make things grow and to have a direct relationship with your audience. Because you don't have a direct relationship with your audience by podcasting because you just have an RSS feed. How did I do, Matthew, rate my advice here, one to ten? Me rate your advice? Yeah, go ahead. You have me do this live now, too?

Why not? I'll give you an 8.5 out of 10. Ah, I see. You're giving me room to improve. Any follow-up questions for me? No, that was great. Thank you, Jason. All right, my brother, good luck, podcasting.

sound quality is everything. All right, great job. And let's take our next caller. I love doing this. I love doing Ask Jason. I can do this every week. I love hearing what your challenges are in your career, your startup,

your podcast, your life. I like giving advice. So let's just keep going here. Ask Jason. Ask Jason. Jason David. Wait, pick a name. You want to be Jason or David?

How do you want me to refer to you? I'm Jason. You could be J.K.L. Okay, great. All right. But your last name is David. David? Yeah, I got two first names. I'm going to call you, I'm going to call you Mr. David.

That's fine. You have a question for Jay Cal? Go ahead, J.D. I do. When I sent it, I didn't realize it was a crucial moment in our startup. But we are working through the standard, I guess you'd call it cold start issues in building our hard side of our network, which is the first product of three, which is a network of independently owned gym.

that we need to build up so we can move forward. So our product is a network marketplace, but our customers are paying us for world-class marketing and advertising. So my question is, should we continue to focus on the low-cost growth and traction initiatives or because of our value prop to our customers and that money or VC money would be spent on advertising, which would also double as customer acquisition cost,

Should we look to push for a seed round as a way to accelerate growth, whereas most startups would spend the money to kind of build awareness of their product? It is our products. Okay, great. You're trying to decide if you should go to the venture route. You should put jet fuel into your startup. Let's understand a little bit more of your startup. Who is your customer?

Our customers are independent owners of, I would call it, community coaching focused gyms. Got it. One other thing I would say we did, I think, answer this question and kind of went all in. So I'm really hoping to tell you what we did to see what you think. Okay. So some person owns a gym in Venice, California, and Brooklyn, and they do CrossFit or Pilates or yoga, and they've got a small personalized gym.

and then what is the product that you provide them with? Well, right now we started with a radio ad. The next one was going to be a billboard, but we kept running into... What does the billboard do? What does the radio ad do? You drive people to their business? Yeah, so if you imagine you hear a commercial that says,

come to this amazing gym for us, right? you go to the website, which is our MVP, and then you click on it, and it shows you the nearest ones to your location. Got it. Okay, so this is an arbitrage business. Like my friends, I was the first investor in a company called Thumbtack.

And Thumbtack was a very interesting business because Thumbtack, you know, would take a request for painting a house, and then they would find five pinter's to give you a quote, and they could buy ads, search ads, display ads, etc. For people looking to paint their house to get a plumber to whatever project

was popular, garden, pool, whatever. And they could acquire a customer, they could acquire a click for a couple of dollars, turn it into a profile of a job painting this house in, you know, I don't know, Palo Alto, pretty expensive houses there. And then they could sell that lead for $30 to three different painters

and arbitrage it for 100. So you're kind of like thumbtack in that way, an arbitrage business. These things tend to print money if you can figure it out. So my question is, have you figured it out in your pilots now?

Have you figured out the profitability of this? You buy the radio ads. And then how many people come to the website and then, you know, what do you wind up charging for those visits to the subsequent websites? We have a three-tiered pricing a philosophy, well, plan in place.

It starts low, then it goes a little bit higher, but it stays very low for what our customers are used to paying for advertising. We have 10 customers. They love what we're doing. However, it's really difficult to tell all of our customers, like, hey, we're going to do this amazing thing, which they're already happy with what we're doing, but we need to scale it.

And what I mean by that is, along the way, we've kind of built in what I think, is kind of a once in a lifetime opportunity for a CMO to come in as a, with a founder status, to implement a world-class marketing and advertising campaign to a brand that has never had one before, which is the independent owners of these gyms. And how I came up with that was talking to my co-founder, you know, we are, to our customers, we are representing them the way they'd never been represented before. They're not going to have to put a sandwich board outside and do their Facebook ads. You know, our vision is Super Bowl commercial, F1 car, Joel Rogan podcast, that sort of

thing. So we think that the right CMO can come in. We'll see exactly what we're doing, understand that they will be given the keys to essentially a brand new car with a freshly minted copyright. I think right now you're worried about things that come later. I think you're still in the experimental phase. So I'd encourage you, instead of thinking about CMOs, F1 cars, and VC, let's put all that on the not right now board. So you write it down, but it's not right now.

And I think what you have to think about is, is this a venture scale defensible business? And as presented, I think this is a money printing LLC that one or two people who are really good at this kind of arbitrage or maybe a team of five can build a business that generates $10 million in top line revenue and drops, you know, 40% to the bottom line and the founders just chop that up amongst them. because this is an arbitrage-style business. You're going to try to get people to a landing page and then send their traffic to a bunch of folks and hopefully bring them customers. There was a business in Chicago that did this named Groupon. Now, they used a different device than you.

Their device was like these cheap tickets to get into, it was unbelievable that you could take a yoga class for five bucks instead of 25, they just got the wrong customers, kind of broke businesses because those people then wrote bad reviews. But I think, you know, for this to scale, any VC who's going to look at this is going to think, hmm, this is more of an agency style business. And I think they would be correct in looking at it as such. It's not a platform yet. And so I think that's going to be the big decision here is, is it an agency business?

Is it a platform that can scale? And I think you're going to have to figure out, is this the best group of customers to do this? Are you bringing them more customers than ever? Or should it be a software platform where you figured out how to do it for small gyms. Maybe you can figure out how to do it for other categories. Maybe there's a better category. That's why I think you're still in the experimentation and triangulation phase. I would put off raising money and just do experiments in which, you know, you can figure out where the most arbitrage is.

And there were people who've done this like, I don't know if it's like 1,800 dentist or something like that, but I think some people figured out like, dentist appointments were a really good place to do this or hair salons somewhere where the ticket price was even more than a gym. And so I would keep running these experiments and then figure out, is this actually venture scale? Is it a software platform where, you know, anybody can come in and use the platform? That's what VCs would be interested in working on with you. If it was a platform. If you had a 30,000 conservative estimate beachhead market, for your first product.

And that 30,000 customer Beachhead Market created a $30 million ARR. Additionally, 50,000 customers for the secondary product of that Beachhead market. And then each market was scaled individually at the same cost. That's how we're looking at it. Yeah. So, you know, it will really be in a VC's estimation if this, This is a low margin business or a high margin business. And is it a software-based business that's unique and innovative in the world?

Or is it just a web-based business and more of a service-type business? And right now, I think to be perceived as a platform, what they would be looking at is like HubSpot, which is a platform for, you know, small businesses to manage customers in the customer journey. is it like HubSpot? Or is it more like hiring a local agency to do radio ads for you? And right now it kind of tips towards the latter as the former. And for it to feel more like a platform, that means people show up at it.

They sign in and they participate without a salesperson having to talk to them. And, you know, it kind of grows. And anybody can use it for whatever they want to try to do it for it. Like YouTube, YouTube grew into, because YouTube was a platform, people didn't look at it like a content business. So when YouTube first started, there was one group of people in the venture capital community who looked at YouTube and said, it's a content business. We don't do content. It's like CNN. It's like C&N. It's like Vice.

It's like Engadget. It's like any other content business. And then some people looked at it and said, no, no, no, no. They're going to let anybody upload a video. They're going to sell ads against all of the videos. And then they'll figure out the psychographics and the keywords and the videos. and they'll start matching the ads to it, and it's a platform. Anybody can use it for anything.

You could do cooking recipes, you could do a podcast, you could do a bird's nest of an eagle's nest with a video camera on it. And so VCs tend to want to be in platforms. They don't want to be in service businesses. They don't want to be in content businesses. So you kind of fall into the services thing. And so I think that's what you've got to figure out. If you had a highly fragmented market that was being,

top down fixed in terms of that and, you know, the consistency, that sort of thing. And then as the market grew, as your product grew, and then at scale, which we practice on each additional market, once it's a national ad campaign, then you have all of that revenue can be taken from one market, all these different markets and applied to one single market, which is the national campaign. And at that point, that's when we would look at adding the other two products. But we have to follow the Kazim rules, which we can't just sell our full product

to our end customers unless we have, you know, some long-term consistency and what we're doing and fix the fragmented market that we're trying to fix. Yeah. I think you've got work to do. And I think send me the links and let me take a look at it.

And I'll give you some further feedback offline. Great question, Mr. David. Okay. Well done. Thank you. Douglas, you're on. You have a tight question for me. Go.

Yeah. Hi. Hi. Thank you very much for your time. My question is we're a young startup with a lot of really solid traction, but we're having trouble selling ourselves against some of the sizzle of other startups of similar lifetime, really focused on AI. We have a lot of traction, but we're our product.

We don't focus on AI. How can we separate ourselves versus that when comes to pitching investors? and other valuable customers. Tell me about the startup. Who are your customers and what's the product? To use our formal pitch, we build premium experiences and revenue models for independent brick and more businesses so they can use that as an upsell to their customers. The less sexy pitches, we sell fast passes or Patreon for your favorite local bar,

coffee shop restaurant, but more like flower shops, hobby stores, bookstores, these businesses that are important. And people, you know, they love to go walk over and experience that. Yeah, it's a great idea. Membership programs and subscriptions for a local business. I've heard a pitch like this about a dozen times over the years. Of course. It's out there.

Crowdfunding's been out there. And so building a platform where people can buy subscriptions and white labeling it, where it's on somebody's website, and then figuring out the value proposition is a really great idea. I don't think people are going to look at this and say AI has any. anything to do with it necessarily. What they're going to look at it and say is, what do your customers say about you after three, six, and 12 months of using your product?

How many of them are successful using it? How many of them churn? That's really what you need to get focused on because this is one of those ideas that's been out there for a while. And because it's a software business that is trying to help small businesses, a lot of people in the venture community don't like those businesses. But I mentioned HubSpot earlier, HubSpot and Shopify figured out how to help small businesses, and then those small businesses grew into medium size and sometimes even large ones. But the point here is, how many customers, how many pilots have you done so far?

We have 31 customers with an LOI of another dozen. Okay. So, LOIs are letters of nothing, never bring them up again. That's supposed to meet entrepreneurs. So never bring them up. they basically mean you're focused on getting people to soft commit. In a startup, there's no time for soft commits. Let's go for the real ones.

So of the 31 that you have in pilot, how many are paying you? All of them. Fantastic. Great. So they're true customers. The reason I ask that is sometimes people say we have 31 customers and nobody's paying it. What is the average payment per month of those 31? In total or other subscriptions that we take a cut up?

the average revenue generated by the one in the that's number 15 from high to low median average is nine hundred dollars a month yeah in revenue great how much of that 900 do you capture uh that's that's your take that's our that's our take that's our take amazing so you're making 10,000 dollars per customer you got 300,000 in revenue um yeah you figured you figured something out clearly yeah Yeah. I think it's a market opportunity mostly. Yeah. The owners are younger and they're familiar with the business model. Great. Describe for me the number one business in the platform. You can say the name or not, depending on if you have permission or you want to,

but describe the number one customer in terms of their success with it and how it's changed their business. We have a very nice restaurant in a highly walkable suburb of So, and their average head per ticket was about $50. And they were really struggling because rent was going up, labor costs were going up, and they needed something to sell on top of that. And further, despite all their experiments, they were really getting burned out by food delivery software

and other software aimed at this stuff. They just wanted to focus on their customers. We came in and said, hey, why don't you offer this membership product to your best customer? And they realized, instead of like offering discounts or like value ads, It's that these customers care about them. They gave the, they bought gift cards during COVID because they were so afraid this business

because they realized they get treated in the membership into an upcharge because they, their customers can only eat so much beef and drink so much wine in a night. But, you know, the idea of buying a membership, the membership can include things like, hey, first table available every time. No, never way in line or take the, what was the number one reason their customers signed up for the membership? So there were three primary answers we got. One, people who just were looking for somewhere consistent, whether they could take customers

or friends out. So, hey, the perk of no reservation required was really sexy to these people. So seated first, fast pass is what they got. So they can be a hot shot when they come in. They pay. What was the amount they pay on average? On average, the per head was $50. The table was a little over that.

I'm sorry, the membership fee. For that customer, the membership, they charged $100. Perfect. So there were people in the local community who would pay $100 to be treated like royalty when they came there. And so all that, all they had to do there was reserve a couple of tables just in case those people came out. And it sounds like they were struggling anyway.

And so they got 10 people to do this, 50 people to do it, 100 people to do it. They converted a little short of 4% of their overall customers. We have currently 17 recurring customers from that local. So they're making $1,700 a month. And then I guess, what is there, we'll have to study their churn and see if people churn. And then what, with those reservations, I guess the, what is that equal compared to their rent? Are they pay $5,000 a month for rent, $10,000 for a month for rent?

Do you know? The owner has an upfront with me about some of those costs, but based on the area, I'm guessing, on the low end probably rents $5,000. Right. So you may have covered 30% of his rent with this. And then it costs them nothing to include dessert or wine in a subscription. Hey, you get, or you get like a special appetizer. You get a special thing.

I think this is amazing. And the question is, can you replicate it and can you grow it? And, yeah. So I think you got a great business. It has nothing to do with AI. I think most people are going to think that this business is small. you're not going to get a lot of love from the VC community necessarily. But what they will judge it on is how is it growing?

What are the customers say, the churn rate? So you've now moved into metrics and you're going to have to prove the value of the business. So I think you're in the Prove It to Me model. Have you raised any funding? Not a penny. Amazing. That's amazing. Congratulations on that.

The fact that you got it to hear, you should come to an incubator or an accelerator. That's a great way to get 125K into the business. Y Combinator launch, Techstars, etc. Or you could try to do a seed round and try to raise but 250K and then figure out if you can take that 17 subscribers up to 50, et cetera, and figure out who the great customers are here and just keep delighting them. How do you do customer discovery? How do you find out how are you doing from your customers?

Do you have any techniques? Yeah. So originally we were heavily focused on restaurants and bars. We went for this kind of like the best restaurant on the blocks or a thing, thing would be really aggressively pitch that customer. But if we could pick them up, consistently would have a quarter of the time to pick up the other establishments in the area. But when we kind of had this moment of like, well, we're doing a bar and a cop,

we're doing a bar and restaurant, well, I can't be do a coffee shop? We're doing a coffee shop, but we can't do a bakery? We can't do a bakery? And then from a deli, why can't we? Like, if all things, like the jump from deli to barbershop and then the hobby stores just kind of came out of nowhere. As people who approached us when they heard about the product, they're like, hey, can we use it? We thought, sure.

and while the membership costs are lower, the consistency of the ease of the accessing those customers are what's interesting. Our discovery, I think, was we focused on owners who were familiar with the product. So we started tapping, I started tapping like people like, hey, are they subscribed to like a business newsletter? Are they subscribed to something on Patreon? They understand subscriptions is I guess the concept. Fantastic.

I mean, you know, I think keep experimenting, you know, and going and talking to these customers. and running pilots with them. Could be really interesting with cafes, just thinking out loud here. There's people who like to be regulars in cafes because they like to work here because working from home is so oppressive and lonely.

Imagine some local cafe put in four standing desks. You know, really nice desks. They don't have to be huge, but standing desks. And they said, hey, if you're a member,

you get first shot at these. You can use them, you know, for a couple of hours a day, whatever it is, or you get 10 hours with them. You can run experiments like that. And I think running experiments at this early stage is the way to go.

And then try to figure out if one of these people can make more from subscriptions than they do, you know, from other revenue streams or if they can cover their rent. And then you get the testimonials going and boom. And, you know, you have a zillion different experiments you could run. You could have, you know, every month that coffee shop does a special coffee tasting. And as part of your membership, you get a pound of coffee. and you get to come to that membership and they just pick whatever the slowest time is

and you come pick up your coffee membership or maybe you get a locker, you know. So membership clubs are a thing like Sohow, so I look at this and just think membership club benefits. Part of it is being baller and being a VIP. Part of it is an actual perk like a standing desk or getting seated first or the coffee or the free dessert. But overall, I think people have an affinity

and they want to support folks. And so just really interesting, really interesting. I think density in a geo is also very important so that people, you can just have your team talking to people. Do you have an extroverted, incredible person who is passionate about small businesses, who walks into businesses and talks to them? I kind of learned to become that person because I recruited a better engineer than me to be the CTO.

Perfect. So I think it's great that it's you. It would be amazing if there was somebody else going out and doing that and you just made them an evangelist. And that person might be a $50,000 a year person who just loves local businesses. And if they convert, you know, five a year, or they convert one a month, they pay for themselves, right? So I think you're, you might be getting close to the time to do that.

I really think your business is interesting. I think you should talk to my founder university team or the launch accelerator team. I know you have spoken to somebody at some point, but I'm just going to have my team circle back around with you. and see if like it's a fit for our incubator. That's very exciting. I think a lot of people have tried this and I think you might be the one to figure it out.

Thank you very much. Have a lovely day. All right, everybody. This has been another amazing episode of Ask Jason. If you want to be on the next episode, this week in startups.com slash S Jason. This week in startups.com slash askjason, no spaces, no dashes.

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