Your Next Move - Marc Lore’s Guide to Making a Successful Exit

Episode Date: December 17, 2024

You’ve achieved everything you could ever want for your startup and it’s time to sell. This episode offers advice from founder Marc Lore, who has built brands he sold to goliaths including Walmart and Amazon. It also offers insights on how to prepare for an exit through every stage of a company’s growth.

With the Venture X Business card from Capital One, you earn unlimited double miles on every purchase. And with no preset spending limit, your purchasing power adapts to meet your business needs. Capital One, what's in your wallet? Find out more at CapitalOne.com slash Venture X Business. Terms and conditions apply. I'm Sarah Lynch, and you are listening to your next move, Audio Edition, produced by Inc. and Capital One Business. On today's episode, host Ayesha Boe talks with serial entrepreneur Mark Lorry, whose latest company is Wonder Group, a company that aims to create a Mealtime Super App,

featuring a collection of delivery-first restaurants, experiences, and meal kits. In their conversation, Mark, who has sold multiple businesses to giants like Walmart and Amazon, shares invaluable insight on every stage of a company's growth from inception to exit. But before we get to that interview, let's hear from Stephanie Metta, CEO and Chief Content Officer of Mansuido Ventures,

about the tools that founders can use to help plan their exit. Thanks, Sarah. Like virtually every area of life, technology offers solutions that can help existing business owners gather information, analyze data, and make decisions. Those tools help business owners better run their companies, and they can help founders when it's time to think

about exiting their businesses. Options like valuation tools, deal management platforms, and marketplaces give owners information. That information can then help them determine how much their business is worth and make decisions for their exit plan. While your exit may be far off, it's still a good idea to know about these tools so you can be ready when you need them.

First, let's talk about valuation tools, which help you place a value on your business. Here's how they work. You input data like business revenue, profit, expenses, assets, and liabilities. Then you choose how you want your business value to be calculated. There are generally three approaches. One, an income-based approach, which bases your company's value on its ability to generate future revenue. Two, a market-based approach, which compares your company to other companies that have recently sold or which are currently for sale. Or three, an asset-based approach,

when the business value is determined based on the assets it holds. The best valuation approach for your company will typically depend on the type of business you own. For example, some businesses may have valuable assets, making an asset-based approach the best option. Other companies may hold their value in their revenue, making an income-based approach a better option. There are some other tools you might consider when planning an exit.

For example, a deal management platform, which is sometimes called a deal mergers and acquisitions platform, is a software solution that helps manage the paperwork and progress of a deal. Another kind of solution is a business sale marketplace. These platforms are more focused on connecting buyers and sellers of businesses. Think of it like eBay or Amazon's marketplace, where you list something for sale and buyers can see

the details and contact the seller. Before you begin using these tools, make sure the tool you're thinking about is reputable and has good reviews. If possible, talk to others who have used the tool before you enter sensitive data about your business. Also, remember that online platforms and apps may not be as accurate as having

a professional like an accountant or valuation consultant work with you. In any event, be sure to consult your lawyer and accountant before you decide to use them. Back to you, Sarah. And now here is Aisha Bo's conversation with Mark Laurie. Enjoy. Mark, I'm so excited to talk with you today about exit strategies. This is a topic that many entrepreneurs find daunting, but is also a potential eventuality. But first, let's hit the scene. You've had this amazing career.

You have built and sold four businesses, and that's just what you've done thus far. I get the sense that you never think small. Can you tell me what's going through your mind when you start a business? How are you gonna build it? How are you gonna scale it? How do you approach it?

Yeah, I mean, it starts with just a seed of an idea, and you just sort of keep building on it. So you get to a certain place and you think, how do we make it even bigger? Go take it to the next step, the next level, I mean. on it. So you get to a certain place and you think how do we make it even bigger, go take it to the next step, the next level I mean. And you just are thinking all day, every day about it. You know, in the morning when you wake up, when you go to bed at night and just brainstorming about how to push it further. But you have to make sure the organization

is ready to go further. So it's, there's timing involved timing involved in when and how to do it, that I learned over time. Maybe some of my execs at Wonder would disagree that I haven't learned the lesson fully. But there's definitely an art to it. What lesson would that be? You have to bring people along. Otherwise, it seems like you're lacking focus and

distracted because you're lacking focus and distracted because you're constantly talking about the next thing. So it's building off a foundation that everyone feels comfortable with and then pushing the org a little bit further, getting them comfortable, pushing it a little further. You can't just keep pushing, pushing, pushing. If people aren't coming along with you,

it'll seem like the company is losing focus and is rudderless, right? So you have to do it in stages. And just when people start feeling comfortable, they're like, okay, I think I've got the strategy, I'm locked in on it. You kind of push it a little further, make people feel a little bit uncomfortable. And I think that's the key is like not too uncomfortable,

but uncomfortable that you're pushing the boundaries of what's possible and pushing people to do things maybe they didn't even know they were capable of doing. And I think that's the mark of a good entrepreneur. You have to have that right balance. Some people, they just keep having people run through walls without bringing them along and eventually they tire of that. Or you can be the type of entrepreneur that likes to live in being comfortable, and those usually don't make it. You should never feel comfortable.

And a startup, never. It's just part of the game. Can you share a little bit about feedback and metrics? When you talk about bringing people along and making sure that people are with you, and then once you get to a point where they're comfortable, pushing them a little bit more, how do you gauge that? Yeah, it's a little bit of an art, but I think it's really important that the vision and the core strategies on how to get to that vision are discussed and talked about on a regular basis.

It's not something that's just you do it an exercise and put it in a drawer and it's done. It's an evolving organism. It's just the strategy evolves over time and so does division. But it's more just around the nuances of it. So I think it's really important to get it on paper and as a leadership team talk about the nuances of the strategy. So that when you do push the strategy further, it hangs together for folks. Because I think at the end of the day,

it's your people that are out there making things happen and executing, and you want to make sure everybody is pulling in the same direction. So we spent a lot of time as a leadership team on vision and strategy. Can you talk a bit about your approach when it comes to vision, capital, and people? It's been said that you spend 90% of your time in this area. How did you develop this approach? This is just over the last 25 years of being an entrepreneur,

you start to realize the most important things that a founder can focus on is vision, capital, and people. Those are like the three things, and a lot of times people get too distracted in the weeds of the day-to-day, and they kind of miss the big picture, and I did, certainly, and that's how I learned from it. But each of those areas, when I say V for VCP vision, I'm really talking about the sort of 10 to 15 year plan of what you want to become,

the strategy of how you expect to get there, like what's your competitive advantage and how are you gonna attack it in a way that no one else is. The organizational structure to support that strategy, this is usually a missing piece where people think about org structures more like a people thing under P. It's not really, the org structure has to support the strategy so that people have end-to-end ownership and

accountability for the most important areas around the strategy. And the org structure needs to align with that strategy. So if you have five really big high-level strategies, you want to make sure that you can say that this individual, you're accountable for delivering this part of the strategy and build the org structure around that as opposed to build it by functions,

which is the way people typically build it. And then what are the most important metrics and make sure that the org structure is also built on them. That's like the V part of it. Then C, capital, it's really about the capital. Starts with the capital plan. So how much capital do you need over time to execute against the vision?

Typically would break down raises into 18 to 24 months. And so how much capital do you need now? Where do you expect the valuation to be and what do you need to accomplish over the next 18 to 24 months to raise the next round? And then what do you need to accomplish over the next 18 to 24 months to raise the next round? You should have that all planned out.

I think people kind of just say, oh, I need money now, I'll go raise it. It's not really about the round that you're in now, it's really about the next round that you should be thinking about when you're raising this round. Because you need to make sure you have enough capital to do what you need to do to get to that step up. And I always like, as a rule of thumb,

to want to double the valuation every time you raise money. And so how much money do I need now to double the valuation every time you raise money. And so how much money do I need now to double the valuation and accomplish what I need to accomplish to get to that next round of financing and every round, whether it be now there's pre-seed, seed, A, B, C, every round stands for something, something you need to prove before you make it to the next round.

And so you want to make sure you have enough capital to do that. So, you know, in the first, you know, when pre-seed, it is the big vision and it's the founder. And that's enough to sort of get it done. Then you get into seed, you should have a little bit of traction on, hey, I can show customers do love this product or service.

Just some early signs, nothing, no cohort curves yet or anything like that, just, but there's some love signs, nothing, no cohort curves yet or anything like that, just some love there, something there that excites investors to want to put some money in and say, yeah, you've got product market fit with the beginning of it. Then when you get into the A round,

you really need to have actual customer cohort data where you can show that the customers are not only coming in, they're repeating, and your ability to attract customers, your CAC, cost to acquire a customer, is very attractive relative to the lifetime value that you expect from that customer because you start to have some data on the cohort.

You won't have it fully flushed out, but you'll have the beginnings of what looks like a really healthy CAC to LTV. That's really important. Some of the early shoots around unit economics. Like, can you make money on this business? Then by the time you get to the B round, you really have to have proven the unit economics that is working.

There's nothing other than capital needed now. Customers love it. You've got the cohorts, people are repeating, you're proving the unit economics, you're not making money yet, but everything looks really solid. Then you go into the next round and that's really about, can you execute, have you built up the team to really scale this thing and how big is the market and how much capital do you need to raise to support that growth ahead?

Then profit and then hopefully you'll sale or IPO. So that's the trajectory, but you should have that mapped out. It changes, you obviously don't know trajectory, but you should have that like mapped out and it changes. You obviously don't know exactly, but you wanna make sure you know how much capital you need and then how the stock price is gonna go up. So you're selling in an investor and you can tell them, hey, if you come in now at this stock price

and we raise these amounts of money going forward at these prices, here's your ownership percentage, here's what the stock price is going to be, here's your return. The early investors, they're going to want to see that you can make a 10 or 20X return and see that path. So the capital plan, it starts with that. It's having obviously a great deck,

having a target list of investors, having the terms in your mind that you think makes sense. So that's all under the C. And then P is all about people. And the people part of it starts with building an incredible culture. Because P is all about, can you attract, retain and get the best out of the best people?

And in order to attract people, yeah, the vision and capital is important parts of, but also what is the culture? What's your mission? What do you stand for that's bigger than just dollars and cents? What are your values? What are the types of behaviors that you hold in high regard within the company to make sure that there's good alignment with people you're bringing in? And I think once people come in, a big part of people's motivation and want to give their all in addition to being in the right work structure with clarity around vision and strategy

is to have a really robust performance management system. So people want to know what do they need to do to get to the next level and how they're going to be judged against that. I'm going to have that clear path set out for people. And I think people really appreciate that. That's something that's lacking in a lot of startups. You know, you sort of just, everyone's just go, go, go, go, go.

And it's very ad hoc in terms of like performance management, when you get promoted, what you need to do. And I think startup founders could have more clarity around that. It would help a lot in terms of employee retention. Let's talk about the people component. You've been known for leading amazing teams, people who follow you from company to company.

I've heard that you prioritize hiring ahead of HR in the first round of hires. Why do you approach it that way? Yeah, I didn't know this too. When I started a company, you think that the person running HR or the people function is sort of something that you do later on in the company's life. But I didn't appreciate early on in my career the importance of recruiting the best people

and also getting the best out of them. And I think having a really good chief people officer early in a startup's life can really help shape that culture around performance management, compensation, recruiting, because it's hard to recruit some of the best people in the world to come work at an early stage startup. So I think you need every arrow in the quiver you possibly can have, and I think a great chief people officer, if they're

really good, can help make the difference. So I would definitely recommend bringing in that Chief People Officer earlier. And recognizing that it's really hard to hire great people and great people make all the difference. So it seems very logical when you think about it. So I'm curious what advice you might have for a small company and an early stage founder.

When I started Lingo, we were really small, right? Maybe five people. I'm not sure that in that scenario, I would have been able to bring on a chief people officer in order to manage the behaviors of five people. What advice would you give to a founder who's in a smaller situation? Yeah, small.

So not somebody who aspires quickly to get venture capital, because you're right, a lot of founders aren't in that position. I think it's really important to understand how to read a resume. I think the resumes don't lie. I think a lot of people make the mistake of looking for people with experience, whether LinkedIn

or from a friend and things, and then just interviewing them and thinking that they're going to have the ability to sit with somebody for an hour and determine if they're going to be good or not. And a lot of times I call it honeypotting, where you're talking to somebody and they're like talk a good game, they know the thing, they tell the story about their experience, everything sounds great, they seem great, somebody you can go have a beer with, that kind of thing.

No, that doesn't, I've got burned too many times from that. You cannot tell in one hour conversation. with, you know, that kind of thing that no, that doesn't, I've got burned too many times from that. You cannot tell in one hour conversation. You can tell like values, core values and like is going to be a good culture fit, but whether or not they're going to be a superstar performer cannot tell in an hour. I've just been burned too many times and I've seen others burned. It just doesn't work. The resume, you have to rely on the resume.

And the resume is very, very simple. You need the person to demonstrate success in multiple companies, a demonstrable level of success. They come into a company, they stay there for three to five years, and multiple promotions, especially early in the career,

they should be moving very quickly if they're a star. When they move from a company to another company, it makes sense. It's like a step up. You want to see that, you're like, oh, I get why they left. That's a huge jump. If you see any kind of lateral movements, if you see people stay in a place for a year and a half, a year and a half, no promotions, just don't even look at it. A lot of people criticize me and they say, well, you might miss somebody,

like I have an excuse for why that happened. It's like, yeah, but you can't shift, sift through the diamond in the rough that it was just true or not. So I don't even look at that anymore. You have to have, that's why as an employee, you gotta really think about your career because the moves you

make affect the net present value of what you're worth in the market. If you're not even getting a look from wonder because your resume is, that's a big price to pay. So I would give the advice to anybody coming out into the workforce. The first two jobs, it's okay if you want to work a year or two on the first couple because you're figuring things if you wanna work a year or two on the first couple, because you're kind of figuring things out.

You go into that third job, that's where you, you better be there four or five years, and you better have multiple promotions. And then when you leave that job, it better be a really good, a really good step up. And then you gotta do it again in that company. And then it's very hard to find people with those resumes, believe it or not,

because that's what a top 10, top 5% looks like. And that's what we target. And so if you're starting a company from the beginning and you can't afford to get it wrong, do not risk it with a resume that has some yellow flags in it. Potential. Yeah.

But we didn't throw it and willing to go through 100 resumes and pick that one or two that really stand out, and then go after them hard and pay them what they need. Because the difference between a top five percenter and a media performer, could be the difference between a company being a home run and failing. I think there's always a lot of conversation from the employer perspective on how to find,

how to retain talent. But one of the things that you said that I feel comes up so rarely is how to make yourself good talent. Aside from your raw potential, this idea of you want to go into a career, you want to stay for a certain period of time, you want to be gunning for promotions, you want to be able to demonstrate to someone in

your resume a certain level of success. I had an incredible mentor early in my career and he encouraged me to keep an Excel sheet. And on the Excel sheet he was like, I want you, every time you do something that has value to this organization, you write it down, you date it, you include an asset to back it up and like you bring it in your performance review, you send it before your performance review to let your supervisor know that you're performing. And it made it so that every time I was able to be promoted, I was promoted.

But that approach is something that a lot of people don't necessarily think about. And they don't think about it in terms of preparing themselves for the decisions that we have to make, which is we want to grow great things with great people, but how do we know that you're the one? Right. Yeah. We hear a lot of conversation about culture.

Why are you so passionate about creating mission-driven cultures at your companies? Yeah. I mean, the culture is your everything in a startup. If you can have a culture where people want to come work, some of the best people in the world, and you're able to motivate them and get the very best they've got to give. Because there's a lot of companies that can hire great people, the biggest companies in the world able to hire great people,

they pay them well, but not necessarily able to get the best that they've got to give. That really comes with having people fall in love with the mission and the vision of the company, where they really feel part of something bigger than themselves and they want to do whatever they can to participate in what's happening, you know, and the impact you're making on the world. And so there's a level and a gear that people have that they reserve for those special companies

where they really feel the mission and they want to see it come to life in the same way that the founder does. And I think if you can create a culture where people want to give it everything they've got and they're really good people, and again, they're in the right structure and there's clarity around the vision and strategy, magical things will happen. I really believe that. The culture is the key to everything.

So I understand that building culture is a bit of an art. Are there certain things that you see in your workforce that let you know, hey, I'm on the right track? Yeah, culture is, it's not playing ping pong and playing video games and things like that. That's not, when people think of culture, they kind of picture that office with games and things. Sure, you could have that, but that doesn't really matter. I think what really matters are the core values of the company.

How do you treat the individuals? How do they feel? Do they feel respected? Do they feel like the organization is treating them fairly and that the organization is transparent and trusts them? So our three core values are trust, transparency, and fairness. And I do believe if the company itself is very transparent in sharing information with people, not hiding, not secretive, but sharing information, and they generally trust people,

it's not trust but verify, but just generally just trusting people, and create a very safe, fair, equitable work environment, where people are respected and people are kind, then people feel safe to go ahead and do their best work because they're not going to be judged, and they have all the information, they're trusted, they feel empowered, and they're wanting to give their best. But that's really what you're trying to do at the end of the day.

You're trying to create an environment where people feel compelled to want to give their best. But that's really what you're trying to do at the end of the day. You're trying to create an environment where people feel compelled to want to give their very best. And usually it's like if you're in a relationship, like any relationship, you know, you want to give and do more when you feel respected, appreciated, and it's the same thing in a company. And so many people in companies get that wrong where they use the sort of stick tactic

to try to like motivate people or they use money to motivate people. And either one is very short, both are very short lived. If you want long term sustainable motivation from employees, you have to treat them right, you have to trust them and be open with information. Was there a point in your career that you learned this? Was there a company situation? How did you decide that this was the right approach? I think it's more just an iterative approach over time where you see when you do certain things,

people react negatively and you do other things and they react positively, and it's just a learning over time. I think you just have to treat people the way you'd want to be treated in a situation. The golden rule is actually very simple, but a lot of companies, they get stressed, the founder gets stressed, people get stressed, and you revert to tactics that are probably not conducive to long-term company love. As someone who has founded and scaled an enormous rate, several successful companies,

do you have that, I'm stressed, I need to take a time out? Are there certain signals that you give yourself, you're like, oh, Mark's going to go play golf, or you're going to go catch a game in Minnesota? Yeah, fortunately for whatever reason, but when I get stressed, it basically pushes my body and mind to a whole different level.

It's almost like fuel. The stress makes me better, stronger, more resilient, which is, I think it's been one of the sort of things that really helped me throughout my career. It's like some people stress and they sort of like become an ugly person kind of, because you just like, that's just the way, I think that's probably normal for some reason. I don't know why, but when I get feel stressed,

it becomes like turn on the sort of superhuman kind of thing where suddenly you get hyper focused and it's like life or death. That's what it feels like. It feels like life or death. When I start feeling that stress of like need to raise money, it's like survival. And I would imagine, it's never happened to me, but if you were being chased by an animal

that was going to devour you, that I would imagine at that point you'd be running your fastest, you'd be as focused, you know. So I do feel like I'm being chased a lot, you know, as a startup founder and the adrenaline and the sort of focus and everything goes to another gear. I call it sixth gear. It doesn't work like that for everyone. I'm like, well, considering how fast you are, I don't want to be chased by a bear next to

you. Hoping there's a third person in this equation. If you're going to be chased by a bear, you've got to run downhill. Okay. They don't, they run very fast uphill. Just in case you were wondering. It's good to know. I, you know, I, so a few years back, so I'm 11 years into the first business and I took a personality test and one of the things I was looking for were these indicators of when

I was stressed. So what I've learned to do is when I feel stressed, I strategically delegate things that I know that maybe I'm not going to perform the best in that environment, and that would be a better situation for the people. But I need this superhuman lock-in, like I'm stressed, I'm better. I want that.

I want that. I'm at my worst when there's no stress. That's where you can get sort of lazy, lack focus. I sort of need that little kick in the ass that like, no, this is life or death. By the way, in a startup, just when you think everything's good, you're faced with some life or death situation.

That's the way it is. I say it's like eating glass every day. As an entrepreneur, you don't know if you're faced with some life or death situation. That's the way it is. I say it's like eating glass every day as an entrepreneur. You don't know if you're going to get cut as it goes down. You just, that's tough. Mark, can you share a little bit about diapers.com? What was it? Why did you build it? What was exciting about it to you? Yeah, I think this is the early days of e-commerce.

So this is 2004 is when it really started. I had two little daughters at the time. One was born in 2000, 2003. So they were very, very small. And it's kind of a pain always going out and buying diapers and just thought, you know, there has to be a better way. And on Amazon and other sites, they weren't really selling diapers for delivery at that point at a price that made sense.

They were like silly prices, like Amazon wasn't selling it first party. They didn't warehouse diapers. Procter & Gamble and Kimberly Clark, the big diaper manufacturer said it doesn't make sense to sell them online at all because they're too heavy to ship. So they wouldn't sell us diapers for two years because they just refused to believe that it was a thing. Meanwhile, now when they talk about it, they say that they don't understand

why anyone would ever go in the store and buy diapers. So it's funny how in 20 years, how things could change. Yeah, I just wanted to create a website that made life easier for new parents. That was the sort of starting sort of mission that we set out. And it was about getting diapers and formula and wipes and everything else for your baby overnight, fast, at great prices, with really cool branding. And it was working.

And then we added a pet site, wag.com. And then we added an online drugstore, soap.com, and YoYo.com, a toy site. They added these websites together so you can shop across everything in every category via a common shopping cart. But they were literally different websites, so the shopping experience was very specialized. And we were onto something big. We had, we were the first ones to use robotics in the warehouse to do all the picking of the product. We were quite sophisticated from a logistics and technology standpoint and thought this was gonna be

a multi-billion at that time company. It could have been a lot bigger, but that was at least the goal was to create a multi-billion dollar business. And Amazon caught wind of what we were doing and cut the price of diapers by 30% overnight. And it definitely slowed our growth. It didn't, we didn't lose share, but slowed our growth. But more importantly, I think investors looking at it

knew what Amazon was doing and saying, hey, they've got a bullseye on your back. They're coming after you. And so we could have raised some money and kept going, but not the amount of money we really needed to take the company to that multi-billion dollar and then tens of billions of dollar level. Like we really needed the right investors

and the right amount of capital and didn't feel like that was available to us just given what Amazon had done on pricing. So rather than take a small amount of money and kind of just try to make it work, we were open to being bought out. And that's what happened. Can you tell me a little bit about the steps

that you took in order to exit? The steps were pretty straightforward. I think it was making sure that we were able to showcase the great people that we had. It's just like any, I think it was making sure that we were able to showcase the great people that we had. It's just like any, I think, like any investor pitch, putting together a deck that really showcases the company in its best light, introducing as many key people to the choir as possible to feel like it's not just the two founders, but like real depth of leadership beneath it. So I can think it really depends on what

your company's core assets are and making sure that those are showcased. I think now that I'm thinking about it, I haven't thought about this in a while, but it's looking at the acquisition from the point of view of the acquirer. What are the assets lacking? What things if you were them,

would you like about the company and think is attractive in terms of like synergies and putting those elements once you think through front and center. And almost providing the acquiring company with the roadmap of like, if we were together, this is what it would look like, this is what we can do for you. You have this gap here, we can help fill it.

So it's being a little bit more aggressive in thinking about what the combined company can be even before they acquire it, I think is important. It's really interesting. I mean, I'm listening to you in real time and I'm just thinking like, wow, even if you weren't going to exit, that could also be a very useful document, right?

Because it would give you an opportunity to look the other side and say, maybe these are areas for strategic growth or partnership or investment as something that a founder could do way in advance of an exit. Is that something that you think about now? Like, do you think about what a potential exit could look like and what people would need

in your current company? It's not exactly an exit, but it's similar. It's thinking about when you have venture capital and you're investing in the company. Are you investing a large percentage of the money into building the value of the asset? Because as long as you're building asset value, and when I say asset value,

I mean like technology, product that you know will always have value that should sort of backstop. It's the companies that raise a lot of venture capital and they burn it on marketing, they burn it on overhead, people, not like the asset itself. In the beginning, you should try and put

as much money as possible into the technology or the product to make it the best it could possibly be. Because you know, in a worst case, there's always going to be value in that asset. And if you're doing your job well as a startup founder, you're probably able to create technology or a product at a fraction of the price that would cost a big company to do it. So as long as you're in the money, I call it, in the money, where anybody from the outside looking at the asset you built would want to buy it for at least what you put into it.

That's always like a safe place to be so you know, okay, we're never going to lose investors' money. At the very least, we've got this incredible asset that we can sell and monetize. So it doesn't mean you're thinking about an exit, but you're thinking about building equity in an asset that has value to others as your backstop. From what I've read about you,

you had this tremendous rebound. I mean, you went back, you built another company, it's amazing, it's skilled, and you had a different approach, or different experience rather, in that exit. So the question that I want to ask is, having gone through that experience, are there things that you took out of it that you were like,

you know what, I'm definitely applying this moving forward? Around the specificity around the exit? I mean, literally, it could be really anything, right? Like what was it about that experience that really stuck with you, and that maybe you applied moving forward? Yeah. I mean, it's funny. I learned something that I didn't apply at the next company,

Jet.com, but then applied at Wonder. Okay. So it's interesting. I think Diapers.com was all about customer love. We were so maniacally focused on making sure the customers absolutely loved the experience. We invested in shipping, the box, the dunnage that went in the box to protect stuff,

the experience on the site, speed, price. We had the customer value prop doled in and customers absolutely loved it. Even when Amazon dropped the price of diapers 30 percent, customers didn't leave. They loved the brand and if you met people that used the brand at the time, they would always tell us,

wow, I absolutely love it, you're a lifesaver. Like we had something. And I think that is the key. Like if you're a startup founder, no matter what it is, you have to have that customer love. And in the beginning, you might not have the scale that you will have in the future, but you have to create the value prop today to get that customer love and even take a loss on it. If you know that when you get to scale, you'll be able to make the economics work. So that's what we did at

diapers.com. We were selling at diapers for a loss on every box. But we knew that in the future when we had scale that that math would work. But if we would have started and sold it for the price that we could afford to sell it for, we wouldn't have had that customer love. We really over invested in the value prop early on and were taking a loss knowing that we would eventually make it work at scale. So I think the takeaway was you have to work backwards from a value prop that customers absolutely love and invest whatever dollars you need to to make that happen. Started Jet that wasn't didn't take that lesson I think with us. I think the value prop at Jet.com was more commoditized.

It wasn't focused on real customer love. It was basically a competitor to Amazon. It had its business model angle that made it competitive, but there wasn't that deep customer love. And then started, fast forward to wonder, got back to that, no, like, let's start and make sure customers absolutely love this product. And that was really the learning,

and I'm never gonna make that mistake again, you know, to, like, you have to, whatever you're doing, whatever startup service product, make sure that customers absolutely love it. And it means that you might have to lose money in the beginning. Many times you would because you don't have scale. So you have to take advantage of the fact that when you're small, even if you're taking

losses, the absolute dollar is just not that much because you're small. A big company would have a much harder time matching you on that value prop and taking a loss because it's at such scale that it would be challenging. So that's your advantage as a startup, I think. We're going to take a quick break and be back with more from Ayesha and Mark. We're going to take a quick break and be back with more from Ayesha and Mark. Here's a little tip for growing your business. Get the Venture X Business Card from Capital One and earn unlimited double miles on every purchase. Plus, the Venture X Business Card has no preset spending limit,

so your purchasing power can adapt to meet your business needs. And when you travel, you'll have access to over 1300 airport lounges. Just imagine where the Venture X business card from Capital One can take your business. Capital One. What's in your wallet? Terms and conditions apply. Find out more at CapitalOne.com slash Venture X business. So you sold diapers.com to Amazon in 2011 for $550 million or so it was reported. Did you build diapers.com with the idea that you would sell it?

Absolutely not. When I built it with my co-founder Vinny, we wanted to create a massive company, household brand. It was a very sad day when we sold it. Even though despite making life changing money, we didn't even want to go celebrate and have a drink. That's how sad it was. So that's probably the mark of a missionary versus mercenary.

Because if it was just about the money, we would have been celebrating all night, but it wasn't. It really, it was our baby. We put our heart and soul into it for many years got it to a great spot and It was sort of in a situation where we kind of had to sell it Amazon was Coming after us pretty hard. It was very difficult to raise money Yeah, so we sold it. It was a great outcome for employees and shareholders and and for the founders, but it was pretty hard. It was very difficult to raise money. Yeah, so we sold it. It was a great outcome for employees and shareholders and for the founders, but it was a sad day, actually,

which is, you wouldn't think that, and I never probably would have thought that as, my younger self in college, like, hey, you just sold this thing for 550 million, you made life-changing money, you're gonna be so happy, it's amazing you did it. Wasn't like that, it wasn't like that. I was like, to Vinny, we were like, hey, you want to go celebrate, have a drink?

He was like, no, no, me either. What was it about that that impacted you emotionally that made you feel as though you didn't want to celebrate? Because I knew, and I think think Penny knew as well, had we just gotten the capital, we were onto something incredible. So we created diapers.com but also 10 other websites, a pet site, online drugstore, toy site, all these sites.

Each one was a specialized shopping experience, all connected by a common shopping cart. We had incredible customer love and repeats. if you're shopping for your baby, the shopping experience in diapers.com was incredible. It was made for parents shopping for a baby. If you had a pet, you go to wag.com and it was a specialized site for pets. We just felt like that was the winning formula.

It was like this incredible specialized shopping occasion, a dedicated website but all connected with a common cart so you can like shop for your baby, then shop for your pet, and then just do one checkout. We had robotics in the warehouses. We had overnight delivery to 70% of the country. It was like we thought we were onto something massive. And so yeah, it was sold a lot earlier than we had hoped. We had hoped to take it public and create a massive company. And we had put, you know, at that point, six years of like heart and soul into it.

The market was spooked by Amazon and they're like, you know, they're coming after you, we don't want to invest. And that was really unfortunate. Yeah. After the acquisition by Amazon, how long did you stay and why did you leave early? So I think the contract was we had to stay three years post the acquisition to sort of integrate the company and continue to grow it.

And we did. But I left just shy of two and a half years into it. I think the company knew that we weren't going to stay longer than three years and just managed to negotiate to get out a little bit earlier than that. I enjoyed what I learned and being in a company that size, but I'm an entrepreneur at heart and it just wasn't as fun as being your own startup founder. So left and then did it again. We do a quick pivot into mental health. I'm really curious. So you've been acquired by a company

that actively changed the future trajectory of the company that you originally founded, and now you're getting up and you're going to work there every single day. How are you making sure that you're staying mentally healthy? That was easy because that was sort of like after you're sprinting at a startup for, it was like six years of sprinting, that was sort of a, you go into a jog for two and a half years, right? You're still doing well, doing your best, but it's different. You don't have the weight of the world on your shoulders

where everyone's counting on you to make sure there's a positive outcome for employees and shareholders. You don't have that same weight on you, and it makes you able to just sort of jog. And as you're jogging, you're sort of building that drive again. And so it's very healthy, you're jogging, you're sort of like building that drive again. And so it's very healthy. You get in shape, you know,

cause I was not in shape in diapers, everything goes to shit. And then you sell and then you jog, you get healthy, you get focused, you start eating better, exercising, you just get into a really, really healthy state and then you're ready to do it again. And that's, so that period, I think if like,

if they just bought it and there was no time at Amazon and I just like left, I mean, yeah, I would have to like, just take a year or something and just do nothing, right? Because it's intense. The startup phase is super intense. Yeah, I do appreciate your nod to the other version of the freshman 15. Yeah.

Starting a company is a real weight. I call it the financing 15, because you'll always be raising ABR. And the fundraising portion of it, I don't know about others, but I just eat. Yeah. It's just. So stressful.

Fundraising is, yeah. So the financing, 15. Yeah, but I also feel like you're always having coffee or a pastry or dinner. Everything. Something with someone somewhere and it's usually- Sugar, sugar. Yeah.

Not optimal. Yeah. I started my career in banking and I was the first one in the morning, last one to leave. I was just a really hard worker. I would have this mentality that nobody's gonna outwork me kind of thing.

And I'd never shied away from working hard or doing exactly what my boss wanted me to do. You know, I wasn't like some of the people now in the younger generation where they have like an agency, like what do I want out of this job? What are you gonna do for me as I come? I wasn't like that at all. When I came to work, it was like,

boss, what do you need me to do? Boss, what can I do more? Boss, can I help you? Like it was, I was just motivated to do whatever my boss and manager wanted me to do and do it to the best of my ability. That's how I was wired. So when I sold the company, when we sold it to Amazon,

you go back to that wiring like, okay, you bought what do you want me to do? And we'll just do whatever you want us to do. And we're going to do it to the best of our ability. But it was still a job, meaning not that we weren't working hard, but just there wasn't the stress. It was like you just work hard, do the best you can, and there was never these guys,

like they're making us do this or that. It was just, you own us, what do you need us to do? We're going to do whatever you need us to do for as're gonna do whatever you need us to do for as long as we're here. Now, didn't want to do that forever, but for a couple years while we're getting back in good health and good mental state,

and at the same time doing good. But I think that's the mentality. You can make it hard or you can make it easy. They bought your company, they paid a price for it. That was fair market value, whether you liked it or not. We didn't like it. We didn't like the exit.

But it was what it was. Now, you have a job and you do it to the best of your ability. That's it. I want to talk about another one of your exits that made headlines, jet.com. How long did you start jet.com after you left Amazon, and did you build that with an exit in mind from the beginning? Yeah, like never want to start a company with an exit in mind.

It's always grow it, build it, household name, go public at some point. So never start a company. Nobody should ever start a company with the idea that I'm going to build it to sell it. That mercenary mindset usually doesn't work out. Because again, if you're asking for people to put their heart and soul into something

and give up a lot to make it successful, nobody wants to feel like they're part of this sort of just building it to sell it to make money. Like it has to be bigger than that to really get people motivated in a way that they can only get when there's like a true mission behind it. At Jet.com, it was about six months after I left,

started it, and it was from the very first pitch to raise money until the sale to Walmart was 26 months. It was very, very fast, very fast. After we launched, we got to close to a billion in revenue in 10 months after we launched. It was like a rocket ship. And by all accounts, if you look at that exit, it's like a founder's dream.

Start a company two years later, sell it for 3 billion. It's like, it's a founder's dream. Start a company two years later, sell it for three billion. It's like, it's a founder's dream. But that's the experience that I'm least proud of out of anything I've ever done entrepreneurship-wise because it was, we didn't start from this framework of like build something that customers absolutely love. It was raise a ton of capital, build an e-comm competitor very, very quickly,

get it big, get it to scale quickly. It was focused on business objectives instead of customer objectives. Customer wasn't at the center. And I think that was a real problem and never gonna do that again. But that's a good lesson to learn for other founders. Just make sure whatever you're doing,

it starts with an incredible customer love. Like you're building something that customers will love in a way that they have never loved that particular product or service before. I think there you've really got something. Talk about the asset that you can then build off the back of. But if you're doing it strictly as a financial transaction, like put an X amount of dollars in, get it to this size, you know, get it to this profit, and you're

thinking through the lens of like the financials, I think it's not the right approach. And I think we were fortunate that it worked out, but not a playbook that I want to replicate. Can you talk a little bit more about how this exit, the Jet exit, differed from the Divers.com exit? You transitioned, you were acquired by Walmart, you stayed with Walmart. You didn't necessarily stay with Amazon. Yeah.

What was the difference between the two? Well, it's interesting. So I said before with the diaper sale, we were depressed. We were depressed because we had set out, we had a vision that we had set out. And when Amazon bought us, they sort of squashed that vision. And we became a subsidiary to Amazon. We weren't part of Amazon, the mothership.

So our diaper business was competing with Amazon's diaper business instead of like bringing the businesses together. Had Amazon said to us, hey, you guys know consumables, you know, pet food, diapers, online drug store, you know consumables better than anyone in our company. We want you guys to sort of merge with Amazon's consumable business and take it to the next level

and bring it all together. That would have been much more interesting and motivating than sort of stay over here and just stay out of our way and compete with us. That was very disheartening. I think the opposite happened with Walmart. Walmart and Doug McMillan, the CEO, basically said, hey, we've been doing this e-comm thing for a long time, we're not where we want to be. How would you like to come in, take Jet and Walmart.com, bring them together.

Mark, you would be the CEO and run this whole thing. You have a dream of creating this massive e-commerce business that's going to compete with Amazon. Why don't you do that together with us? We have the capital, you have the technology, you have people that know e-commerce, let's bring it all together and let's go after it.

So that was really inspiring because that was the vision that we had. But now we had the support of Walmart, we had the capital to go do what we weren't able to do on our own. So I think it was actually exciting to be a part of Walmart because we were furthering our vision. We were getting there with a higher probability of success, getting there faster. And it wasn't the ego thing, like it had to be jet.com.

It was the broader vision of, let's create an absolute killer e-com business that gives Amazon a run for their money. Like that's the fun of it. And that was the competitiveness. In Walmart, we're over here fighting with pistols and knives, and we're looking here and they're like, ''Hey, do you want some tanks and planes?''

''Yeah, let's do it. Let's go.'' By the way, you're going to run the whole thing. That was really motivating. It didn't feel, I think with Amazon, I like to say like we sold out. This wasn't selling out. This was a sale that I think we were all very excited to be a part of. So.

Having raised such significant sums of money, I'm really interested in your approach to fundraising. Can you tell us a little bit about how you raise dollars? Yeah. First of all, it requires incredible preparation, and you have to be prepared to dedicate most of your time to fundraising. I think a lot of people don't realize what it really takes, and that you're going to get no's 95% of the time. And if you're really lucky, maybe 90%.

But you're getting nine out of 10 VCs that you pitch are going to say no, and you can't be discouraged. It is a numbers game. You have to find the fund that is at the right time in the right space that is interested in the stage that you're raising money for, right? So it's a lot of variables that have to line up, and it's a numbers game.

You have to go out and do 100, 200, 300 pitches, somewhere in that range. It's not tens of pitches, that's hundreds. You have to put a lot of time into the deck into the financial plan, into the story, it all has to hang together, you have to have a roadmap of how much you expect to raise in each of the successive rounds, so you can be able to show the investor what sort of return they could potentially make from making this investment. And then I think there is less people raising bigger dollars at earlier rounds. So in some ways, it's easier to raise bigger dollars than it is smaller dollars.

So if you're going and raising a $10 million seed round, there's not as many people raising a $10 million seed. Most people are raising a million dollar seed, right? So there are certain investors that are looking for those big swings, those big bets. Now, the market has to support it. So if you're raising 10 million seed and the exit is going to be a multi-hundred million dollar exit, it's not going to work. But if it's a 10 million seed and you see a path to creating a market cap that's in

the tens of billions, and you can show that that's a realistic path, that gets people really excited. And as a rule of thumb, it's double the amount raised and double the valuation with each round. So if you start at a 10 million dollar seed round, you want to double the valuation with each round. So if you start at a $10 million seed round, you want to double the valuation and raise 20 million, then raise 40, then raise 80, then raise 160. And sort of that seems to be the way it's worked out for me

in multiple startups where whatever the first round is, sort of able to double the valuation and double the amount raised with each round after. We've talked about your approach to people, VCP, how do you prepare and lead your teams through the transition of an exit? I mean, I guess it's different depending on what the exit is. So in the case of Walmart, it was very easy because it was like,

hey, this is exactly what we've all been talking about from day one. Like, our vision, everything we've been talking about is now a reality, you know, with Walmart and with their capital. And it was very motivating, I think, to the folks that we were going to just go bigger, faster, with a higher probability of success. In the case of Amazon, it's tough because, you know, we're disappointed. We didn't want other people to feel disappointed. So we talked about how Amazon is, you know, one of the hottest tech companies in the world, and you get this incredible opportunity

to be a part of this and be at a company like Amazon and have this story of being part of this exit in the sale and trying to keep people motivated that way. I think one thing I've learned is that people that are in a startup that go through a successful exit, that it catapults their career. It's really interesting how much more valuable employees are that have been in a fast growing startup

that had a successful exit versus someone who hasn't. So I don't know if people fully appreciate it at the time, but I'm sure they do now, that it's a big deal. Like if you're in a startup and you go three, four, five years and you like a rocket and then sell to a big fortune 50, fortune 100 company, in the case of Walmart fortune one, it's a big deal. When do you know that it's time to exit?

It's an art. So I, again, cause we're never looking to exit, don't want to exit. It's an art. So again, because we're never looking to exit, don't want to exit, it is sort of sometimes either you're sort of forced to, like in the case of diapers.com or in the case of Jet, too good of an opportunity to pass up. In addition to too good of an opportunity to pass up, it was really the opportunity to carry the vision forward. So it's sort of the combination of like really good shareholders are like, wow, that's an incredible return.

Yeah, go do it. I think if it was not tied to, yeah, mark here the keys, like go do and carry out your vision, I think we probably wouldn't have sold. I think it was a combination of like, yeah, shareholders are really happy, employees are happy, they like the exit exit and we're able to sort of continue the vision that kind of made it ideal.

I can't say when is the right time, but I've seen people make mistakes and not sell when they should. It usually comes down to ego. So I think I would say the best thing to do is to really check your ego and make sure that you're being objective about where the company is, what's the probability of raising money, what's the probability of getting to

where you want to go. Like, you got to be really objective and honest with yourself. And a lot of people aren't. Maybe it's in a really attractive fundraising market and they find raising money very easy and don't realize that that isn't easy and then it's gonna get harder in the future and taking that into account and thinking that through. So I think be objective and sort of check your ego and it's not about you,

it's not about your baby or anything, it's like what's the right thing to do for the shareholders, for the employees and it's not up to you to go all in with other people's money. So it's like playing poker. At some point, you look at your hand and you get to decide whether you're in or you're out. And I think a lot of that is doing probabilities, but also being objective about the math behind

it. So if you are an entrepreneur and you're out there and you're listening to this conversation, can you give me like a top three things you should think about that might indicate that you should exit even though maybe you're thinking that you should? Yeah, I'll tell you the one thing. There's only one thing. This is the most important thing. When you're thinking about having to slow growth to conserve cash because you're worried about running out of money.

If you're even thinking about that, it's time to exit. Because what people don't really realize and appreciate is you're raising money from VCs because they're excited about this potential growth trajectory that you're on. And at some point, people will start pushing for, when are you gonna start making money? There's two ways to go there.

You could say, yes, we're going to make money, but if we keep growing, we're going to get to such scale that the profits are going to start flowing. Or you could try and slow the growth rate, cut marketing, cut your overhead, and try to get profitable and force profit now. In that latter scenario, you might as well just die now because it's very, very rare that a company cuts their

growth, cuts their overhead to try to squeak out a little profit. Then you're left with a company that is marginally profitable with no growth story and very unhappy employees, right? So I think if you're thinking about that, it's time to sell. If you're not able to convince investors either existing or new that the right strategy is to continue to invest and continue to grow and eventually your fixed will be a lower and lower percentage of your revenue, and you'll start making money. By the way, if that's not true,

that if you invest and you get a lot more scale and you still can't make money, that means your unit economics are upside down, you should have already sold. So actually, in either scenario, I think it's time to exit. But if you are able to have conviction that all you need to really start generating real profit in the future is scale, and you can get scale by more capital and your customers love what you're doing, then you have to stick to that and you have to go to the mat and raise that

money. The process of building a company requires a lot of passion and conviction. How do you let go of something that you've worked so hard to build? Yeah, I don't find it that hard because it's not a control thing. It's sort of like I have two daughters, and you could ask the same question, how did you let them go off to college

and then go out into the world when they're in your home every day? How do you do that? And as a parent, you do it proudly because now you've hopefully done a good job of raising your children, and then you're happy to see them go out in the world and flourish and grow, and you don't need to be there to control

every moment of their time. I think it's the same thing with a starter. You build it, you grow it, you nurture it, and then you wanna hand it off in a place where it can continue to flourish and grow. And you don't need to be there to control every moment of it. It's still your baby. You're still watching it grow.

And you just want to make sure when you do hand it off, it's in a good spot to continue to flourish, that you've nurtured it in the right way. You're not letting... If your children left the house at 10 years old, that would be a different story, you know? You need to get to a certain place where you feel like they're ready to be on their own, and I think the same thing goes with a startup.

So no, it doesn't, it doesn't impact me at all. Just gives you, frees your mind to then focus on doing it again. Did you always separate your identity from the business's identity, or was that something that you learned over the course of building and selling several companies? I mean, early on when I started my first business 11 years ago, I really could not separate

who the company was from who I was. It wasn't until I started to feel a little bit of burnout that I took some strategic steps to kind of say, this is the business and this is me. I find your, no, this is easy, let it into the world, really interesting and inspiring, and quite frankly something that a lot of

entrepreneurs probably need to hear. So I'm curious about how you developed that outlook. Yeah, maybe if I thought that I was never going to start another company again because my identity, as you said, was tied to the company. With me, it's tied to being a startup entrepreneur, being an entrepreneur. If I could never be another entrepreneur again, I'd probably hold on to that thing and never let them go.

It would be because there would be this fear of like, well, what am I then without... But for me, it was not about the company. It was about being an entrepreneur. And after that, baby was sent off into the world. It's like, okay, now I'm an entrepreneur. I'm going to do it again and create my new company and send that off into the world. I get the sense that you never, like ever think small. What's going through your mind when you start a business?

Yeah, it's all, it starts with passion. You know you've got it when you go to bed at night and every night you're thinking about the same idea and you're shaping it and molding it, and you're willing to put 100 hours a week in for the next 10 years. When you're willing to make that commitment, you know you've got the idea.

What's your next move when it comes to exit strategies? My next move when it comes to exit strategies is as simple as three letters, I-P-O. What advice do you have for founders who may be considering their own exit strategies? Well first I would say don't ever focus on exit strategies. I think you've got to focus on building a great business and creating a value profit to the consumer that separates you from the competition. So you've got to be maniacally focused on that. But if you do find yourself in a situation where you really do

have to exit for one reason or another, I think the right way to do it is to build a partnership with potential acquirers, not go in saying, hey, we want to sell the company, but we're looking to partner. And I think it forces both companies to think about the synergies and the ways in which both companies can work together. And I think once you put together a strategic plan that makes a lot of sense for both companies,

then you can push it to that next stage where you say, hey, this is an incredible partnership, but if you owned us and we were owned by you, we can do so much more together should we consider going and taking it to the next level. But I think it has to start with the partnership. You definitely don't go out and say, hey, we're looking to be bought, or you're interested in buying us. That is not typically the way these deals get done. That's great advice. Selling out versus selling in. Mark,

thank you so much for having me here today. We're really looking forward to your next move. That's all for this episode of Your Next Move. Our producer is Matt Toder. Editing and sound design by Nick Torres. Executive producer is Josh Christensen. If you haven't already, subscribe to Your Next Move on Apple Podcasts, Spotify, or wherever you listen. Your Next Move is a production of Inc. and Capital One Business.