Discussion on Incentives, Startups, and Pitching

Thank you, Matt. Excited to be here and great to meet you.

If I’m gonna be fully transparent.

One of my high school teachers told me I was a cop-out. Because I dropped her class, my math teacher. So I was in all the advanced math classes. The math teacher would say that when I was interested in something and wanted to apply myself that I crushed it.

But there were, I had lots of other interests in high school. So then some teachers would probably would’ve said that I was a leader and things of that nature. So it’s a mixed bag, really honestly between different teachers.

So I grew up on a small farm about 15 miles out away from Purdue to give people an idea where that was.

And so we grew up we were German Baptists, which is what I call Amish people with wills, went to church on Sundays and a horse and buggy and those kinds of fun things. No tv, etc. So we sold Mellons on the roadside for 75 cents, which is somewhat of an entrepreneurial endeavor. And then when I was 15 years old, one of my first I guess was my second job.

My first job was to eat, pass, and corn. My second job was to put trash in a dumpster on a construction site. And the person I worked for, he had an owner of the company had a Bronco and a bag phone, and I knew at that moment, the first day when I saw him in the Bronco in the bag phone that is what I wanted to do.

I wanted to own my own commercial general contracting company someday. And I knew that I was 15 years old and I think largely I wanted to be an entrepreneur because I never was one for authority necessarily. Anyways, and so years later I learned that guy was a developer, that self-performance construction, and then I’m like, oh I wanna be a commercial developer.

And then I started a tech company to go, hopefully, grow a company, make some money, and then go be a commercial developer. And I just kept going through a series of starting companies.

So I’ll go to the first company I had technically a painting company in college, which had 14 employees. I paid my way through school a hundred percent and went to Purdue. But then, we’ll fast forward five years after I graduated so started a broadband company. And the way that idea came about is one of the partners that I had that painting company with, he had gone on to be in a kinda like the millionaire next door, like wealth planner.

He was a CPA and an attorney. And he had tried to start this business brokering cable deals on behalf of manufactured housing communities, and it just wasn’t going very well. And he, of course, had his other business, and so I had moved back from Atlanta to Indianapolis to start a business.

I just didn’t know exactly what yet. He called up, and said, Hey, I heard you’re back in town. I’ve got this idea, but I’m not sure it’s not working. What do you think? So we started talking and long story short he and I and another gentleman started a company called Starcom Broadband, where we built the systems. But that’s how it started.

Yep. A hundred percent. And I think it’s really easy to deal with, especially if you do it on day one. , so here’s what I mean by that. So I’ve probably had, whether it’s investors or partners or operating partners or partners in whatever sort, I don’t know, a hundred maybe throughout all the businesses, plus or minus somewhere. And the vast majority, 97% are awesome, right? There’s been a few percent of wonkiness. Here’s how to, and so here’s what I believe. This is my personal belief, so the listeners may, everybody has different experiences.

So this is just what I, based on experiences, especially today. Especially in tech or tech-enabled businesses, it is extremely difficult to go it alone. And so, I believe that when you’re starting a company, especially if you’re in the tech-enabled world, the two most important skill sets are technical and sales to get started.

And if you outsource the technical and no offense to folks that do outsource technical, I think outsourcing technical is great. I’m not against that. But a non-technical person has no idea really how to properly talk with those people. So personally I don’t think I’ve ever started a company where I was over a third owner on day one. I’m sorry, that’s not true. A couple of times I started at 50 50 but the short story is, I’ve always had partners of one shape or form. It’s super easy to deal with in your operating agreement on day one before you ever start the company. That’s when everybody’s excited and they’re willing to agree to anything.

And so number one, anybody that has an ownership in the business, you must each vest. So you in essence fully are allocated your percentage of ownership on day one, but it vests over four years, let’s call it, and you even have a one-year cliff of your vesting. And if you leave sometimes you even, I’ve even had a deal once where if a partner left, you could buy that person back out for the capital contribution when you started the company. And when you started a company, typically you throw a couple thousand bucks in the bank, right? Just to open the check. So I’ve had companies where, let’s say we both put in 2,500 on day one.

If you left within four years, the other partner could buy you out for $2,500. And that aligns people. So vesting of ownership is just like you do with options. There’s no reason that the founders should not vest. You have a buy-sell agreement right up front, making your operating agreement.

And then we also put into our operating agreement, Hey, I have a final veto over A, B, C, D. And you have a final veto over E, F, G, right? Based on your skillsets. And then that way everybody’s aligned. It’s super clean, you put those three things in place and it will eliminate probably 99% of the issues.

I think it’s really two simple things that are gonna sound non-scientific and maybe in one regard it’s non-scientific and maybe in one regard it’s highly scientific. But two things. The tenor of conversations and gut fill. So tenor of conversations. When you start trying to start a company and you’re talking with somebody about it, if conversations just feel exhausting, and if there’s a lot of buts and what if and it’s not, and if it doesn’t have that overwhelming feeling of just collaboration and we’re going to figure this thing out tenor, walk away. Number two, gut fill. I am a strong believer in gut feel. I think it is a highly scientific thing, but it sounds like it’s not. But it is a real physiological phenomenon and I did a little research on gut feel. And if your gut’s just telling you, ugh, it’s just something doesn’t quite feel right, but, oh my gosh, this person has been super successful at A, B, or C, walk away. If the gut feels not there it’s just like marriage, if it’s not awesome on day one, it’s never gonna get better.

Yep. That’s such a great question and I almost think that’s a flip of a coin, even if you put the parameters in place in an operating agreement, etc., I’ve had multiple businesses with one of my best friends and we’re still best friends today.

Love him. I would run through walls for him any moment of the day. And I’ve been in business with people that were business friends, business acquaintances. And so I would ear towards being cautious if you’ve been 10, 20-year friends, right?

That dynamic’s hard to manage. I, another thing I’ll note real quick is right out the gate, the concept of CEO, so let’s say you put the buy sale in place, the vesting in place, and you’re responsible for this, I’m responsible for that, you can’t be co-CEOs. Somebody has to be in charge.

And you both have to be comfortable with that. And so I think it’s what people try to put masking tape over kind of issues. That’s when it sets itself up for those friendships, for things to fail. But I’m not against people starting businesses with friends.

I think family is a whole different deal. That’s a much more complex scenario there. But I’ve had great success with longtime friends being in business with them and all of those folks I’m still great friends with. And we went through difficult times, right?

Where we would have difficult conversations, but we always knew that we had an operating agreement structure that dictated these twin lanes.

I believe that you can always make whatever your core skill sets are better. But I don’t think, if I’m not a salesperson, I can magically just become a great salesperson. Or if I’m not if I don’t like developing and putting fingertips on keyboards like I can’t force myself to become a great developer cause it’s not my core skillset and I mentally don’t like it.

That’s not my swim line, right? So I think number one is there are all kinds of CEOs. There are inspirational CEOs, there are sales-oriented CEOs, ops-oriented, finance-oriented, and technical-oriented CEOs. So all CEOs are different. So I think it’s being comfortable in your skin with your core skillset.

And then in that situation you just mentioned, if I’m an agency owner and I’m more creative and whatever, and I am incredible in front of people and I can sell deals all day long with my team, etc. Then be comfortable with that and know that you’re going to let go of some, operational excellence or finance fees operations.

And you hire that CFO or the COO or even a president to run the operations, right? And just be comfortable. You’re gonna have to let go of some things. And can’t micromanage.

I think that is a soft skill, that you have to look in front of the mirror and say, I’m going to let go. I’m not going to micromanage you. You write down on a one or two-page piece of paper, here’s that role. And here’s what you’re gonna own. And then you have to step back and let them do it.

And then make sure you let the people person do that job don’t go to their three direct reports and backdoor. I think, Sally or Ralphy or whatever, really should be still doing this old way. You can’t do that. Cause that undermines that leader, you hired me.

That’s right. So on that note, I’m a big believer in any company in the world I believe can be managed from one piece of paper.

And on that one piece of paper, in the upper left-hand corner is the BHAG, the crazy. The audacious goal, right? What would this thing look like someday if we arrived? Would this just be insane? Small box, upper left-hand corner, then your vision and your mission statement. And then a three-year plan on top-line revenue, maybe the number of customers, maybe burn rate, right? So just a few high-level metrics. And at least three years, five gets a little dicey. So it could be three years. And then you have another section that’s your one-year goal.

And then another section is this quarter, and then in the upper right-hand corner, you put a theme for that quarter. And so basically that aligns the entire team, and the entire team should have this on their desk, right? Or on their computer, on their desktop. And you manage the company to that.

And the quarterly goals are broken. When you get down to the quarterly goals, those are broken down by department. And so your leaders know here are the most important three things we’re gonna do this quarter that’s gonna help us meet our annual goals. That’s gonna help us meet our three-year goal.

That’s gonna help us meet our BHAG. It all ties together.

There are people now that believe, I wish I could remember this lady’s name, an awesome podcast I listened to once. I can’t remember the company, but anyways, she was talking about how it used to be a strategy planning as an annual event or every couple, few years, or whatever.

And it’s in their company. It’s literally a monthly event now. I’ve never gotten that good at it. I do think of strategy in quarterly increments. Every quarter if you discovered something, it should be blown up and stuck in the trash can, blow it up, put it in the trash can, and recharge.

Absolutely. Like literally you must be comfortable being uncomfortable and you must be with being wrong.

And when you’re wrong, don’t hide it. Just admit it and say, oh my gosh, I was an idiot yesterday. I thought blah, and I just realized I’m wrong. Just say it. It’s so empowering. That’s that act by itself is so empowering to say, you know what? I was wrong. And if you’re vulnerable like that, especially in front of your team, your leadership team, and your team at large.

Hey, I made a mistake. And that was wrong. I own it and we’re gonna change it, and we’re gonna move this way. It is insane the mountains that you can move and that people want to move with you when you just have that vulnerable-focused outlook. I think people overcomplicate things honestly, Matt, I just think people overcomplicate.

I think it comes Like people’s actions, are typically driven by some basic concepts, right?

So experiences fear, greed, and control. These are some big buckets of words that, that really and there’s probably, somebody’s probably done a study on this and said, oh, human behavior is based on whatever factors. So that’s my, oh. My nonexpert belief. For sure. For sure.

It is, How people act. And if, we can impact that change one at a time if we as a leader have the confidence, the self-confidence to look in the mirror and say, am I part of the problem? And am I empowering people around me? Am I adding value to the people around me?

Am I being positive to people around me to help push people up? And even though we might disagree with one another, that’s to disagree. You can agree to disagree. But it, but it, this all starts with each one of us inside having self-confidence. To, no. He might look silly sometimes.

No. He might make mistakes sometimes and be with that. Fail. Fail fast. There’s fail fast. Oh.

How can you attract talent? Keep them

No. There, there is an existing apparatus in place to protect against that. So when now this is for a C-corp, but you can do the same thing in an LCC there.

So an LLC, they’re called profits, interest units, and a C-Corp. They’re called, ISOs, right? And send them stock options. And you have a vesting schedule. So if. If I wanna join your company as a coo and by the way, how much you give that c e o depends on, the stage of the company and my, my background, how experienced I am, et cetera, et cetera.

But when you give me my options they start vesting, but there’s a one-year cliff. And so if I’m shocked and you have to remove me in six months, those options don’t do anything. They all just go away. They all just disappear. No harm, no foul. So you have a one-year cliff and then thereafter they vest monthly or whatever you decide to do over again over a four-year timeframe.

But you’re protected by that one-year cliff.

So this is, again, this is just based on experience and opinion.

I could be wrong. But I think if it’s not looked at through the lens or the context of the company as a whole. One of the parties could be way off high or low. And because the whole point of options or equity is not really to exchange what you, what your composition compensation should be normally.

It’s an incentive to get that person thinking about that thing 24 7, right? Exactly. Yes. It’s golden handcuffs, right? It’s got golden handcuffs. It’s, it’s not instead of comp, it’s and comp.

I don’t move on. There are things like profit sharing, so some people do profit sharing. That’s not technically, ISOs or qual or, something of that nature. So profit sharing can definitely be done.

Accelerate, accelerated deal, bonuses, but then you’re at risk of when that thing happens and they’re just like, I’m gonna go to the next thing now. So I think it’s more about trying to make sure you’re aligned on trying to accomplish this vision that you’re both excited about.

And then let’s go get after it.

Absolutely. So real quick, high level sure. So the Hoffman Foundation has the tail of two entrepreneurs, right? So there’s this SME and IDE.

The SME is a small and medium enterprise, and then the IDE is an innovation-driven enterprise. And so the SME is more of your hyperlocal type business, right? Trampoline, park beauty salon whatever, some of that nature. Sure. So our mandate at Elevate is tore invest in the other side, then IDE, the innovation-driven enterprise companies.

And so those companies are the ones that can sell to people. On a national and global basis. And they typically have we have a requirement there. There has to be a total addressable market of a minimum of 500 million, preferably a billion but a minimum of 500 million tam. So that’s number one.

Kind of super high level. The companies, that we’re outsourcing and vetting meet that I d e kinda side of the tell of two entrepreneurs that the Kaufman Foundation puts out. So then we’re looking for, so it depends on what stage the company is, right? So we invest in, we do have to touch a little bit of ideation pre-seed with one set of funding, but seed and early stage with series A is part of the continuum that we currently invest in Uhhuh.

So we’re looking for kind of different things at pre-seed versus series A. So really pre-seed we’re looking at the people you’re investing in the jockey, right? So do you think that this person can pull this off? Do they have the background, the relationships, the coachability that’s subjective really?

Some, there’s some good fill in there, etc. And are they grounded? Are they measured? Are they coming in and saying, we’re gonna be doing 10 million at the end of next year, Or are they kind, methodical in their thought process, et cetera?

So that’s one thing. Now when you get to Series A you’re looking for evidence or product market fit, an ideal customer profile. That target market, that focuses narrow, deep have they have, they film product market fit. Or, and if not, man there’s evidence, quantifiable evidence that they’re darn close.

So those are the two spectrums. You’re looking at various things throughout when they do a pitch articulate that they’re specific and that they answer your questions. You know that they walk through the pain and they walk through the solution, and they’re very specific about it.

And here’s my current business model, and here’s my current team, and here’s what I need next. Here are my gaps. I don’t have, if I’ve raised a little bit of money, here’s who I’ve raised money with, and here’s the pre-money and the post-money. Like just checking the boxes, like here’s all the things.

Boom boom. And it, you’re only talking 10, 12, 15 slides, right? It just very clearly and articulate captures the main points you need to try to understand about, an opportunity. So that’s and maybe I’ll add a couple of examples. Sure. I think that to do for example, if you’re pitching an investor in your go-to-market strategy, we’re gonna have this product-led effort and we’re also gonna sell enterprises, and we’re also gonna sell these channel partners over here.

I think some entrepreneurs think that sounds great to the potential investor. Those are all completely different businesses and how they operate, unit metrics, and unit economics, are all completely different. And so the person loses credibility, not meaning to cause they think that they’re exhibiting, whatever, thoughtfulness and go to market. When actually, it deteriorates everything. So it’s totally fine. I always say the facts are good enough. Don’t embellish anything. Whatever the facts are always good enough. I know your vision statement can be more, Out there.

That’s fine. But when it comes to specific things just be specific. I also have seen entrepreneurs when they’re pitching, you ask a question and you’re generally asking the question cause you’re just trying to understand some component of what they’re saying and they’ll come back at you with the question.

It depends. That’s me, it depends. You should know the answer. What you tell me. You paint the picture. You want me to, you’re right. Don’t ask me what scenario, you tell me what the scenario is. Those are things I see folks doing that, that if they didn’t do that, they’d have more success.

Don’t be afraid of being wrong. ? Be curious. Be curious. Always. Listen, be curious. Listen. And don’t be afraid to be wrong. Like just be genuine, right?

Absolutely. Thank you, Matt. Enjoyed it. , thank you.