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Insights on Restarting Startups with Dave Hersh
4 Plays4 years ago
Unicorn. If you're an entrepreneur you've probably heard that term before. It's a coveted title for companies valued at over $1B and it's safe to say every founder dreams of hitting that status. But can that level of success actually work against you? Join us in today's conversation with Dave Hersh, CEO of Mobilize and investor Gavin Christensen of Kickstart (a VC firm for startups in Utah, Colorado, and the Mountain West) to bring you both sides of a Perfect Pitch. In this episode, we'll talk about:
Why it's dangerous for startups to get stuck in the "wannabe-unicorn" mindset
Why founders should focus on being the "best" within their small-scale growth, rather than attempting to tackle an entire market
What it means when Gavin claims that "dragons eat unicorns"
Early warning signs that a company is beginning to lose focus
Recommended
Transcript
The Unicorn Status: Boon or Bane?
00:00:00
Speaker
Unicorn.
00:00:01
Speaker
If you're an entrepreneur, you've probably heard that term before.
00:00:04
Speaker
It's a coveted title for companies valued at over $1 billion, and it's safe to say every founder dreams of hitting that status.
00:00:12
Speaker
But can that level of success actually work against you?
Meet the Hosts and Guests
00:00:15
Speaker
Join us in today's conversation with Dave Hirsch, CEO of Mobilize, and investor Gavin Christensen as we bring you both sides of A Perfect Pitch.
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Perfect Pitch is a podcast from Kickstart that reveals the minds of both investors and entrepreneurs throughout a startup's journey.
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I'm your host, Karen Zelnick, and I'm excited to introduce you to today's guests.
Dave Hirsch's Journey and Insights
00:00:46
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Dave, first, I'd like to tell everybody a little bit about you.
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Your professional history brings you back and forth between both working as an investor and as a founder.
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You've served in positions such as the founding CEO for Jive, a computer software company, and on the board for Andreessen Horowitz.
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You're an author of the upcoming book, Fighting Shape, where you're explaining how to transform startups into lean and focused organizations, which it's going to be amazing.
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And we'll be sure to include a link to that in our show notes when it releases.
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And is there anything else you'd like us to know about you?
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No, I'm also part of a small partnership with a guy named Bob Tinker, who was the founding CEO of MobileIron.
00:01:24
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Very similar background to me, where he started and took a company public.
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And we look for these types of companies where really strong bones, but maybe got overcapitalized and had ambitious growth expectations they couldn't meet and acquire those businesses and restructure them for healthy, sustainable growth.
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That's
Current Trends in Venture Capital with Gavin
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exciting.
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We're really excited to get into the discussion.
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And Gavin, of course, it's always great to have you on the show.
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Well, thanks for having me back, Karen.
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Anytime.
00:01:50
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Really nice to be back.
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As always, we'll link to your bio and our show notes.
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And what's something you're seeing in the VC scene right now that you're interested in?
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There's a lot of deals happening, M&A deals.
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There's a lot of financings happening, a lot of big financings happening.
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There's clearly some great fundamentals behind a lot of those financings, and there's clearly some that there's not.
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So we're trying to make sure we stay grounded to make sure that we're building real companies of substance and value that can take advantage of these times, but also build even when times get leaner and more challenging.
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Yeah, it certainly is very fast paced right now, which is exciting to watch.
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But to your point, probably won't last
'Blitzscaling' - A Book's Impact
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forever.
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Karen, we would love to ask you something that you're thinking about right now or reading that the audience has not heard yet.
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I've just started reading Blitzscaling, that book on scaling organizations.
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And I'm really excited to dive into that.
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Have you read it, Dave or Gavin?
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Have you read it?
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Definitely read it.
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And I think it's kind of controversial because I think you're seeing a lot of people buying Blitzscaling out there in the market.
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There's a lot of merit to it.
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It's also bad advice for a lot of entrepreneurs.
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So I put it in the category of pretty binary.
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Yeah.
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That's why I've seen some discussions around it.
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That's why I wanted to read it because it does seem to be a divisive book and I'm interested to dive in.
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So yeah, I'm excited about that.
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Yeah.
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I'll be the anti-blitz scaling voice today.
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Yeah.
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Okay, great.
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So I'll write up a summary of the book so everyone can see what we're talking about after I finished reading it.
00:03:25
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And you can take your own stance, but Dave is against and Gavin is, seems like it's, they're both, it's not going to be too much of a debate if we debated the book on this podcast.
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Yeah.
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But so let's dive into stuff about you, Dave.
From VC to Founder: Dave's Experience
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As I mentioned, you have a unique perspective of having been both a venture capital professional and a startup founder.
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What have those transitions been like for you across your career?
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Yeah, it's been super helpful to me to see both sides of the table and to also understand some of the inherent inefficiencies of the model and some of the misalignment.
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Oftentimes, venture capital can be a bit of a one out of 10 is successful hits business.
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which can work really well.
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And maybe that's the blitz scaling, those smaller percentage of companies for whom the flywheel is moving so quickly and they have to capitalize on a large scale and really grow things.
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But for the other 9 out of 10, oftentimes that's not the appropriate fit.
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And so what I saw happening from both sides was that it's okay for the venture investors a lot of times to have a one out of 10 model, and they can do really well on that.
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But for a lot of the entrepreneurs who put a lot of blood, sweat and tears, not to mention the employees and everybody else involved in these businesses, they are awestruck at the unicorn approach.
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and try to emulate it, but they are getting capitalized ahead of results, not based on results, and tend to work themselves into a corner by getting too much money and not being able to support that with the growth rates that are expected of the board.
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So I saw this inherent problem, and it was one of the things that led me to both write the book and do the work that I do, which is to try to rescue some of these companies that maybe aren't unicorns, to take these wannabe unicorns and try to transform them into companies that a Warren Buffett could love.
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Right.
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So there's nothing against venture capital by any means.
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In fact, I think it's a hugely important part of overall economy.
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What I saw happening was too many entrepreneurs assuming that was the right path for them to go A round, B round, C round, and just to kind of follow that and not necessarily see the destination of the train they were about to step onto.
Rethinking Unicorn Chasing
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So in 2018, I want to jump a little bit into 2018, you joined Mobilize and that you've had these years of experience both in VC and startup land.
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To coin your phrase, I've seen it on LinkedIn, you're restarting startups.
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I would love to know how not chasing the unicorn status led your strategy at Mobilize.
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Yeah, I'm a bit of an oddball in Silicon Valley.
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I'm like the blue collar Silicon Valley guy.
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Put my day's work in, do a good job, build a healthy business, which can be anathema to some of the ways in which people view startups out here.
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But in the case of Mobilize, I knew the investors.
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I knew the founder.
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I had actually helped the original venture capital investors do their due diligence.
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So I knew the company, I knew the category they were in.
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And like a lot of
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entrepreneurs and founders, they were pushed for growth rates and tried to accommodate those growth rates, but did so through a very wide aperture, meaning they were trying to please a lot of different masters, a lot of different types of buyers.
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And that's incredibly hard to do in the software world.
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So when I bought them, they had gotten stuck and didn't have a lot of options.
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They literally had 24 hours left to live.
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I was in the middle of writing this book and said, what I need is like a real-time case study for my book.
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You know, I'm sick of reading those books where people just call out, hey, let's use Apple or Amazon, right?
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That's these case studies.
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These are like very, very rarefied air that you can operate in that capacity.
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And I was like, I want to have a book where I'm doing the thing I'm talking about in real time.
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So I can't lie about the results.
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I can talk about what actually happened and what it's really like and be back in it.
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And I thought that'd be a book that I'd want to read, as well as the book that I wanted to write.
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So in the case of Mobilize, there was a big focus issue.
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They were trying to do too much for the sake of growth.
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And so when I first acquired it, it was, you're trying to do all of these things
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but you're good at this thing over here.
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Even though that's not a huge market, just go do that.
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Be the best in the world at this smaller thing over here.
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And that's going to be the best perch from which to identify larger market opportunities and what the actual growth rate of this company could be at scale.
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So that was the first thing, was just giving them focus as well as a sense of purpose behind what they were doing and the discipline to go and execute on something smaller scale.
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I like that you mentioned that it's discipline to execute on a smaller scale instead of the discipline to handle multiple projects.
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But Gavin, I'd love to know, do you see this as a problem with founders where they're trying to
Kickstart's Philosophy on Growth
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tackle too much?
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They're too focused on that unicorn status of being valued at over a billion.
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What's your perspective?
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Certainly our roots at Kickstart, having raised our first seed fund, $8 million in the Great Recession are very much in the vein of like, hey, let's build real companies that don't just rely on
00:08:31
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venture capital financings to allow them to grow.
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They've got just incredible customers that are raving about the businesses.
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They're creating all kinds of value.
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And fundraising is a trailing indicator of success.
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That said, the reality of the venture capital business is that the hits, those are ones that get over a billion dollars in valuation.
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Now, we call them dragons.
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And dragons for us are investments where our investment in that one company can return an entire fund.
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We're thankful to have actually multi-headed dragons at Kickstart.
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That's really what moves the needle from a financial standpoint for the fund.
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Is dragons eat unicorns.
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So I have sympathies on both sides.
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I'm very sensitive to what Dave is saying here, which is that venture capitalists have a portfolio and entrepreneurs don't.
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And that even though from a fund return standpoint, yeah, it's probably less than 10% of the companies, 20% of the companies that really matter for creating returns for LPs.
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All these are amazing entrepreneurs that are putting everything at stake.
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And so there is a huge duty to help those entrepreneurs realize the outcome, even if it's not going to be a billion dollars plus.
The Importance of Focus for Startups
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And so I think a key part of getting to the real business category, revenues, KPIs, growth, customer loyalty is focused.
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The reality is that most customers don't really want to deal with a startup.
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They don't really, they're not, no one's like dying to go buy stuff from a startup.
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They do that because there's such a gap between the world they experience in the world they like.
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So the really, the only advantage the startup has is just the ability to move fast,
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and to be flexible and focused.
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And so really, when you're a startup and you're not focused, you're removing the only advantage you have.
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Literally, that's it.
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Because generally, there's better finance, more talented teams out there.
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But your ability to focus is kind of your advantage.
00:10:24
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Dave, I'd love your thoughts on that.
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The reason I partnered with Gavin on Mobilize was because we were so simpatico when it came to this belief.
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And that businesses are not metrics.
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Businesses are people that breathe and have things they care about and lives.
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And there's a lot at stake in these businesses.
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Since we saw eye to eye on that, I was like, that's great.
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the agreement that we had early on with Mobilize was, look, I'm going to try to find a dragon in here.
00:10:53
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But if not, I also want to find a healthy, profitable, sustainable business.
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So we'll do the best we can trying to build a dragon.
00:11:01
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But if not, let's call it what it is.
00:11:03
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And let's build something that still has legs.
00:11:05
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So I believe that all businesses have a right to live out their destiny if they're working hard enough at it, and they're good at that one thing.
00:11:12
Speaker
And so the beachhead, this kind of being focused and being good at one thing,
00:11:17
Speaker
is the right path for both the dragons as well as the, what's the other, what term do we use for, for my kind of fighting shape companies?
00:11:26
Speaker
Yeah.
00:11:26
Speaker
The gritty ones that try and they keep working and it does well over the long run.
00:11:37
Speaker
But Facebook had Harvard and Amazon had books.
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Google had an indexing tool.
00:11:44
Speaker
Every company, even if they are a huge dragon, starts out by being the best in the world at one thing.
00:11:50
Speaker
And so oftentimes, what I see are these companies that have peanut buttered their strategy and are trying to do way too much for as small as they are.
00:11:58
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And that's in the guise of trying to go after what they see as a large market.
00:12:03
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So for them to raise money, they have to say, our total available market is $24 billion.
00:12:07
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Let's go right after it.
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And that's a very hard thing to do.
00:12:11
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It's much easier to say, hey, there's this quirky $50 million market over here, $100 million market that's underserved.
00:12:17
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Let's just go do this one thing.
Aligning with Investors: Tips and Advice
00:12:20
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At Jive, that was discussion forum software.
00:12:24
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That was it.
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We built a $10 million business selling discussion forum software.
00:12:29
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Not the sexiest thing in the world, but we were the best at it.
00:12:33
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And eventually, what that did was gave us a couple thousand customers and a lens through which to see this whole new category play out.
00:12:42
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And we were the best position to do that.
00:12:44
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And it was only because we solidified that beachhead in that smaller target market.
00:12:49
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So I think focus is a huge part of
00:12:52
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any entrepreneurial journey, that can often get lost in the shuffle for the sake of companies trying to raise more money to prove that they're onto something big.
00:13:02
Speaker
What would you say are some early warning signs for companies that they are losing focus?
00:13:07
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So warning signs tend to be like an A-round company who says, well, we serve three different markets.
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Or we've got a consumer side of our business and an enterprise side of our business.
00:13:19
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You can get in there pretty quickly and sense that you're selling to too many verticals.
00:13:23
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Those verticals have different use cases and needs behind them.
00:13:28
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You're clearly trying to grab money as opposed to be thoughtful and take your time and experiment.
00:13:35
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When you're in that figure-it-out mode,
00:13:37
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The last thing you want to do is just sell a bunch of projects or try to do a bunch of work for different types of buyers with different needs.
00:13:44
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That's going to ultimately kill the company.
00:13:46
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And that's hard to see.
00:13:48
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And if the quarterly numbers are a ham-fisted proxy for company success...
00:13:56
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you're just going to get in trouble.
00:13:57
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So I think being very articulate about where the company is and figuring out what it's great at, what it's the best in the world at doing, and having a board that's very supportive and taking the time and space needed to successfully execute on that initial offering, at which point you can start making decisions about scale.
00:14:17
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But scaling prematurely, as we know, is the biggest problem that entrepreneurs face.
00:14:21
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And I think a lot of times,
00:14:23
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Some of the board members can push too hard for growth too early.
00:14:26
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And that's what tends to break things.
00:14:28
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Amen.
00:14:29
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Yeah, Gavin.
00:14:30
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I just list a few things.
00:14:31
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I think that what Dave said last really important, which is that treating product market fit like an event.
00:14:38
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It's amazing when you're ready.
00:14:40
Speaker
It's horrible when you're not.
00:14:43
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A couple of things to watch out for would be, frankly, seeing investors as the customer, maybe listening to investors too much.
00:14:51
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That's a signal for me.
00:14:52
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And taking money off the table in the form of secondaries is much more available than it's ever been.
00:14:58
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But there's just a real trade-off.
00:15:00
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And there's a very real maniacal focus that is required to build an exceptional, remarkable company that endures.
00:15:08
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Any distraction from that can really be costly.
00:15:12
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Thank you both for those answers.
00:15:13
Speaker
And that raised several follow-up questions.
00:15:15
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And I want to start, Gavin, with you.
00:15:18
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How can founders know in the fundraising process that they're connecting with an investor that they're aligned with?
00:15:24
Speaker
Do you have any tips for them?
00:15:26
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I think about maybe the experience that Dave and I had where we actually didn't really have a preexisting relationship, but we just had several really great, frank, face-to-face conversations.
00:15:36
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I think it's a great thing that we did because we ended up having some of the scenarios that we've imagined, good and bad.
00:15:42
Speaker
So it's really important to know how someone's going to behave when things don't go great or they don't go according to plan.
00:15:48
Speaker
And the data is out there on most investors to understand that because shocker, most companies don't go as planned.
00:15:56
Speaker
The vast majority.
00:15:58
Speaker
And so I am shocked how little reference checking goes on in the entrepreneurial community to check on investors.
00:16:04
Speaker
I would really encourage our audience to do that among companies that did well and many that did not do well.
00:16:11
Speaker
That's a good tip.
00:16:12
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Reference checks.
00:16:13
Speaker
And the question I had for you, Dave, was you mentioned that sometimes boards push too hard for growth too soon.
00:16:20
Speaker
As an entrepreneur who's had both a perspective of the VC who might want that growth too soon and the founder, what can founders do to push back on that?
00:16:29
Speaker
Do you have any practical tips for them?
00:16:30
Speaker
Because that's a tricky situation to navigate.
00:16:33
Speaker
Yeah, it is.
00:16:35
Speaker
And you got to remember that board members typically spend about 5% of their time with your company.
00:16:41
Speaker
So it can be very hard for them to understand the real elements of the strategy and what's really happening in business.
00:16:50
Speaker
They're doing the best they can, but they don't have that innate sense.
00:16:53
Speaker
So I think for entrepreneurs, they have to understand that and have more...
00:16:59
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confidence and conviction and a deeper sense of intuition about the right thing to do for the company.
00:17:06
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And if they've done a good job to Gavin's perspective in finding the right board members, then they should be in a position where they have the freedom to do that, where they have the rope that they've been given to go execute in the way that they see fit in the best long-term interests of the company.
00:17:23
Speaker
Again, to Gavin's point, if you go and you're trying to sell a version of yourself to an investor who's fancy,
00:17:32
Speaker
it's not going to work out well in the long
The Role of VC Firms in Startup Success
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Speaker
run.
00:17:34
Speaker
And I've made this mistake, so I know it.
00:17:36
Speaker
It's like being in a relationship, right?
00:17:38
Speaker
If you're dating somebody and you're showing them some false version of yourself because you think that looks more impressive, that relationship is probably not going to last.
00:17:46
Speaker
That's not a good marriage, right?
00:17:48
Speaker
I think the same is true of VCs.
00:17:49
Speaker
You really have to be able to sit down with them and have an authentic conversation about the reality of the business and the reality of your skill set and the market realities that are out there.
00:17:59
Speaker
And that's going to...
00:18:01
Speaker
continue to play out at the board level.
00:18:04
Speaker
So, so vitally important that there is that authentic discourse that can happen.
00:18:09
Speaker
Otherwise, it's a lot of people trying to impress the other people and trying to do it in ways that are ultimately going to send the company down the wrong path.
00:18:18
Speaker
Gavin, do you agree?
00:18:20
Speaker
Yeah, I think that's very well said.
00:18:22
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As a basic rule of thumb, I think it's important to recognize the more national the firm, the larger the assets under management.
00:18:29
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And the bigger the fund size, the less creative that fund is going to be able to be and the more constrained they're going to be about how you have to fit into a box or they have to move on both from a business standpoint and then mentally and emotionally as well.
00:18:43
Speaker
That's not always true, but there's essentially a sliding scale where the bigger fund you have, the more professionals are on board, the more constrained you are, the more impatient you are for what something has to be.
00:18:55
Speaker
Because that individual might be facing pressure of like, I have to show results this quarter or next quarter or this year, or I'm out.
00:19:02
Speaker
It's just important to recognize that and say, okay, am I ready for the big fund and the big guns?
00:19:08
Speaker
Great.
00:19:09
Speaker
But once you're on that platform, it has to go according to plan or it gets a little chippy.
00:19:14
Speaker
Thank you both so much for those
Leadership and Personal Development
00:19:16
Speaker
insights.
00:19:16
Speaker
And Dave, you mentioned a little earlier in the conversation that the first tip was focus.
00:19:21
Speaker
As you're talking about startups that get stuck in the unicorn mentality, do you have any other tips for them?
00:19:28
Speaker
The second chapter of the book is all about understanding your own blind spots.
00:19:33
Speaker
The core idea being your company is not going to transform until you do as a leader.
00:19:37
Speaker
So a lot of these companies that get stuck, get stuck due to the insecurities of the founder and the blind spots that they have.
00:19:46
Speaker
And we all have them.
00:19:47
Speaker
Entrepreneurs by and large, and there's a lot of data behind this,
00:19:52
Speaker
do not have big egos, but they have fragile egos.
00:19:54
Speaker
And so oftentimes, our companies tend to be a vehicle for our own validation in the world.
00:19:59
Speaker
The biggest insight that I had as an entrepreneur, because I suffered this myself and was extremely insecure as an early stage leader, was I had to transform.
00:20:07
Speaker
I had to get past those hang-ups and...
00:20:12
Speaker
cloak myself in the leader's jacket, as it were, and to really do everything that the company needed me to do and become that person that the company needed me to do.
00:20:22
Speaker
And that not to see it as an extension of my self-worth, but that I am here to steward this thing to its ideal destiny.
00:20:31
Speaker
And that sounds like a lot of big words in highfalutin language, but there's reality in that.
00:20:35
Speaker
We can tend to be insecure.
00:20:36
Speaker
And I think if we can get out of the way of our own insecurities and do the right thing for the business, that's honestly that has more of an impact on a company's success or failure than anything else that I've seen.
00:20:47
Speaker
And I wouldn't have said that 10-15 years ago.
00:20:50
Speaker
But having gone through that process myself, I believe that's the biggest change that any entrepreneur can make towards the success of their business.
00:21:00
Speaker
Thank you.
00:21:01
Speaker
And Gavin, you were nodding a lot.
00:21:02
Speaker
Would you like to add anything?
00:21:04
Speaker
I guess I'm always nodding in these podcasts, but I would, what I would add, because I think Dave makes a really great point.
00:21:09
Speaker
And by the way, I'm excited for this book because Dave is an incredible CEO.
00:21:13
Speaker
He's been awesome to work with him.
00:21:14
Speaker
He's been very thoughtful about it, developing himself as a leader.
00:21:17
Speaker
And I just think this is one of those things that people don't realize, which is probably the single biggest limiter on any given business is
00:21:26
Speaker
of its ability to succeed in scale is the limitations on the leader.
00:21:31
Speaker
There's incredible businesses that are led by very limited leaders all the time, but it just means that the underlying machine is so good it can overcome the leader.
00:21:40
Speaker
So much of that is overcoming our insecurities and being willing to partner and hire people that are better than us at those things to get there.
00:21:50
Speaker
Amazing.
00:21:51
Speaker
Dave, thank you so much for being on this podcast.
00:21:53
Speaker
And I just have one last question for you.
00:21:55
Speaker
And that is, what's an effective practice you've implemented in your work or personal life that you think has had a great impact on your success?
00:22:04
Speaker
One of the things I did was to set up a personal board of directors, not people who are connected to my businesses at all, but just people who knew me and that would represent that ideal sounding board for some of the decisions I had to make.
00:22:18
Speaker
That's incredibly important.
00:22:19
Speaker
I think we all need tribe.
00:22:23
Speaker
It is incredibly lonely to be the CEO.
00:22:27
Speaker
We have more groups now.
00:22:28
Speaker
We have more of a talk about mental health.
00:22:30
Speaker
We have more of a discourse around what's really going on for leaders, but it's still really lonely at the end of the day.
00:22:37
Speaker
So one of the things that helped me the most was having that personal board of directors, people that I knew I could rely on to be there for me and to help me through some of those difficult situations.
00:22:47
Speaker
And Gavin, how have you seen that practice influence Dave's success?
00:22:53
Speaker
I think Dave stands out to me in how thought, like I said earlier, how thoughtful he is about his own development as a leader and his ability to really approach his role as CEO and founder in whatever instance as a stewardship and to really facilitate tough conversations in a way that's just super productive and actually quite easy given the circumstances.
00:23:18
Speaker
So I think that comes from
00:23:20
Speaker
a lot of practice.
00:23:22
Speaker
I feel like I learned a lot from it.
00:23:24
Speaker
Thank you.
00:23:24
Speaker
Again, thank you both so much.
00:23:26
Speaker
I've had so many aha moments throughout the conversation.
Key Takeaways and Closing Reflections
00:23:29
Speaker
Definitely unchecking your blind spots.
00:23:30
Speaker
And also just a reminder with focus on... Remember, you're a startup.
00:23:33
Speaker
You don't start out with the answers.
00:23:35
Speaker
You're working toward them.
00:23:36
Speaker
And that requires focus.
00:23:37
Speaker
So thank you so much for bringing your insights and your wisdom to this discussion.
00:23:42
Speaker
It's been a pleasure.
00:23:43
Speaker
Really appreciate it, Dave and Gavin.
00:23:44
Speaker
Thank you.
00:23:46
Speaker
Thanks so much for having me.
00:23:47
Speaker
Thank you.
00:23:48
Speaker
And of course, thank you for listening as we dive deep into what it takes to create a perfect pitch.
00:23:54
Speaker
If you want to learn more about our investor, Gavin Christensen from Kickstart or our founder, Dave Hersh at Mobilize, we'll have a link to the company and a longer bio in our show notes at kickstartfund.com.
00:24:05
Speaker
You can listen to more episodes of Perfect Pitch wherever you listen to your podcasts.
00:24:08
Speaker
And if you like what you're learning, leave us a reviewer rating.
00:24:11
Speaker
We'll be back next time with more insights from entrepreneurs and the investors who fund them.
00:24:16
Speaker
So be sure to subscribe so you don't miss a thing.