Flirting With Models

My father was supposed to have a business meeting at an airport; I think it was with an investor.  The opportunity to meet was short: only the length of the layover, so there wasn’t much time to spare.

While this was pre 9/11, airport security was still tight enough to prevent my dad from just walking into a terminal.  The person he was trying to meet with also wasn’t going to leave the terminal, because then they would have to go through security again.

So what did my father do?  He bought the cheapest possible ticket he could that would get him access to the terminal, went through security, and had his meeting.

Do whatever it takes.

After selling MicroAmerica, my father took a year off before being approached to become the CEO of a fast growing company, Edsun Labs.  Edsun was a fabless semi conductor and was producing cutting-edge chips.

There were three fundamental problems however, the my father only learned after talking to manufacturing, sales, and clients:

1. The chip couldn’t actually be produced
2. The chip would not be compatible with Windows
3. Customers would be willing to buy it at $1/chip.  The estimated cost to Edsun was $7/chip

Within mere weeks, he approached the board of directors and told them that the company would never succeed and they should cut their losses, dissolve the company, and walk away with any assets before they burn through the rest of their capital.

The board was not very happy with him.

I can’t imagine the amount of emotional stress he was under in his position.  He knew that in saying this it would be his lone voice against the entire board; you don’t sit on the board of a company you think is destined to fail.

Two of the board members were furious with him.  The three who really took the time to listen and re-evaluate were won over and became strong advocates of his.  Of these three, two actually helped him fund his next venture.

What happened to Edsun Labs?  My father stayed as CEO and successfully sold the business to Analog Devices.

The point of this story is two fold.

1. You have to have the confidence in yourself and your own gut to stand strong in pressure situations — especially those where you know what you are saying will be received with negativity.  How many people would have chosen, in the same situation, to continue charging blindly ahead only because admitting “defeat” would be accepted so negatively?  Especially if it were your first real opportunity to prove yourself.  But my father knew it was the right decision and in the long run was the way to save his board and the shareholders the most value in the business.  Being a good businessman means knowing when to trust your gut to do the right thing, even if it means saying what nobody wants to hear.
2. Information tends to change color every time someone touches it to reflect their biases, desires, and politics.  It is like a game of telephone: the further you get from the source, the less accurate the information.  The best thing you can do as CEO is get close to the mission critical information.  And, as always, analytics over anecdotes.

Although I do not suppose that either of us knows anything really beautiful and good, I am better off than he is, for he knows nothing, and thinks that he knows; I neither know nor think that I know.

Socrates

My father was a very successful CEO in his day, and while he will never shy away from telling me about how smart he is, in serious father-son teaching moments, he has always enforced the importance surrounding yourself with people smart in areas you are not.  Being smart doesn’t mean knowing everything, it means recognizing that you may not know.

The corollary to this lesson is that people on your team / advisory board / outside council should think differently than you.  If you have two people who think the same way, you have a redundant person.

This weekend, I had the pleasure of sitting down with a close friend of mine to talk about a start-up idea he has.  He has already gone out and gotten feedback on the idea from tons of different people, from potential clients to potential investors, who are now saying, “okay, build us a MVP [minimum viable product] and let’s schedule another meeting.” His problem is that he does not have the technical skills required to build the product himself, so he is faced with either finding a technical co-founder or hiring someone to build the product.  For the latter he has estimated a cost of about $10,000.  Besides this enormous upfront cost, the issue with out-sourcing your tech from the get-go means you have less chances to iterate, so he pretty much has the nail the MVP on the first go-round to make that sort of cash worth spending.

While my friend is incredibly, incredibly intelligent and business savvy, because he was so far deep in his own product, he couldn’t see any possibilities in between having nothing and having the full-fledged product.

To give a bit of detail, his product is very heavily based around generating reports for three specific target markets.  The underlying engine for the reporting system is identical (so the three markets are no extra work), but how the data is reported is different.

What I recommended doing was identify the metrics he wanted in the different reports, read “The Visual Display of Quantitative Information,” and work with a graphic designer to mock-up three different paper reports.  Estimated cost?  Maybe $1000?

From there, he can approach his target markets with an example product and get feedback — long before the website itself has even gotten close to the development stage.  He can even start asking people how much they would pay for the reports and how often they would want them delivered.  You never know what you will find in the field.  He may end up finding out that one of the markets he is targeting would actually prefer to have the reports physically mailed, rather than e-mailed, because of their age demographic.

While for me this was a pretty natural next step, because my friend was so deeply involved in his own product, he couldn’t see it.

I’m not saying I am particularly smart (or the advice I gave particularly good), but simply using this as an example of the benefits of being humble and asking for help or advice.  The smartest people know that they do not know and that is why they are successful.

After pinging the InterMatch.com guys a couple times to figure out what was going on in the “Shadow Dave McClure” competition (I am trying to plan the rest of my summer…), I finally heard back with less than stellar news: I was not selected to be Dave’s shadow.

I received the news last night while I was in the middle of putting together some furniture with my girlfriend.  I think she expected me to be more upset than I was (or am).  In fact, I think I surprised her with how little it seemed to affect my mood.

What she potentially perceived as a lack of caring wasn’t that at all.  In fact, I was extremely excited about the opportunity to learn from Dave and his team and  am very disappointed that I wasn’t selected, especially after the time and effort I put into the competition.

But I also believe that there is no point in wallowing in self-pity.  Letting the news affect my mood doesn’t bring anything positive to my life.  Rather, it is better for me to reflect on a lesson my father always tried to teach me: when one door closes, often another one opens.

If you are too busy focusing on the closed door, you won’t see the one that opened.

For example, while I may not have been selected to shadow Dave, I had the opportunity to meet him and several members of his team.  Recently, Dave Dave tweeted about a post I wrote.  From this tweet, the post got picked up on Barry Ritholtz’s The Big Picture, which gave my blog more visibility in a day than it normally does in 6 months.  From that, I got several new Twitter followers and a couple direct e-mails about start-ups.

Those are all open doors.  Open doors that would never have been there if I had never made it onto Dave’s radar.  So while I am very disappointed that I will not have the opportunity to shadow Dave, I know that the whole experience opened a whole lot of doors.

tl;dr: Don’t focus on the doors that close in your life or you will never see the ones that have opened.

One of the many lessons my father has taught me is that opportunity is merely the intersection of preparedness and luck.

Preparedness is many things.  It can be putting yourself in a new situations, going new places, and meeting new people.  It could be having expert knowledge in a domain.  Maybe it is something as simple as staying in contact with old friends.  Preparedness is the state of being constantly ready for luck to arise.

Luck is a necessary ingredient though.  However, you can “make your own luck.”  Often, the most prepared people are the ones who seem to get the luckiest.  By putting yourself in new situations and meeting new people, you open yourself up for new interactions and new possibilities.  You create more channels for “luck” to get to you.

These are the ingredients of opportunity.  It comes from a spark of luck and being prepared enough to take advantage of it.

On Sunday night, I flew out to San Francisco for a meeting with Dave McClure of 500Startups notoriety.  How did this “opportunity” come about?  A little preparedness and a lot of luck.

Lately, I have become more and more interested in private and angel investing.  I have spent the last several months reading everything I can about the tech start-up scene both from the entrepreneur’s perspective and the investor’s perspective.  Call this “preparing.”  A month or so ago, I stumbled upon a contest hosted by InternMatch to actually spend 2 weeks shadowing Dave McClure.  Call this “luck.”

Luck, meet preparedness.  Together, I shall call you “opportunity.”

After submitting a “traditional” resume + cover letter application (I think my cover letter was actually anything but “traditional”), I was selected as on of 16 semi-finalists from a total of 300 applicants.  From there, we were tasked with using social media to create a second application that explained why we wanted to shadow Dave (see my application here, and Dave’s extremely verbose follow-up comment here).  During this second round, I took the initiative to start an e-mail list with the other competitors.  I figure that even if I don’t get any further, these could be some great contacts.  Call this “preparedness.”  Fortunately, from this round, I was selected as one of 6 finalists who would get to interview with Dave.

I was given the opportunity to either interview in person with Dave, or Skype.  Fact: I live in Boston.  Fact:  The interview would be in Mountain View.  Fact: There is a considerable distance between those two places.  However, if we’ve learned anything so far, it is that we have to prepare so that we can accept luck.  So of course I am going to fly out from an in-person interview.  What good does staying in my house do me?  Who knows who I could meet just walking around the 500Startups offices?

So I arrived in Mountain View, CA with about two hours to spare and shoot out an e-mail to the contestants asking if anyone is in town early and would like to grab a bite to eat (call this “preparedness”).  While nobody responded, the extremely intelligent and passionate Jennifer Turliuk, another one of the final 6, was sitting at the same restaurant as me and came over and introduced herself.  We spent some time getting to know each other before heading over to a bagel shop next to the 500Startups offices where we met Andrew Maguire from InternMatch.

Andrew took us around the 500Startups offices, introducing us to partners, mentors, and other startups.  The energy was electric, as a whole new batch of startups were starting their first days.  Jennifer was off, having come prepared with a startup pitch.  She pitched and showed her slides to anyone who would listen.  The presentation was polished and the idea simple and powerful.  I’d be very, very surprised if a great opportunity didn’t come out of this for her, even if she didn’t get the shadow internship.  I’ll be watching for her to be in the next 500Startups class.  Preparedness (the pitch + slides) + Luck (being at 500Startups) = Opportunity.  She knows the formula.

Finally, it was time to meet and speak with Dave.  Dave is poisonously passionate and energetic.  You can feel it from the first second you walk in the offices.  Sitting with him 1-on-1, it is almost overwhelming (in a great way).  He is also incredibly forward thinking.  My “interview” was anything but a traditional interview.  After one or two questions about myself, the conversation spiralled off into all topics about investing, finally settling on a discussion on human capital investing and whether a fully open, capitalistic market, where everything is securitized, would actually promote greater good and happiness for the world.  I certainly wasn’t expecting the conversation to go there, but I couldn’t have been happier about it.  I love talking all things investing.

I don’t necessarily know if I was really what Dave was expecting for a potential shadow; most competitors are current or future tech entrepreneurs hoping to learn business lessons from Dave (and potentially even get into 500Startups).  I, on the other hand, am more interested in learning how to run an incubator fund like 500Startups, angel investing lessons, and how to manage a portfolio of private investments.

As my interview ended, Dave introduced me to Paul Singh, one of the newest partners at 500Startups, and told us we should talk.  Paul is working on some very cool stuff to help the fund scientifically measure its performance and ways in which they can improve their portfolio performance.  As someone who makes their living managing portfolio risk using quantitative methods, I am incredibly interested in what they were doing, especially since I don’t have a tremendous amount of experience with managing private investments.  Dave thought that there could be some interesting brainstorming that could come out of the discussion.  I don’t know if Paul necessarily got a lot from me, but I certainly learned a tremendous amount from him!

Even if I don’t win the competition, getting to talk to Dave was phenomenal.  The opportunity to pick Paul’s mind for half-an-hour was icing on the cake — an opportunity that I only ever got because of my preparedness and a lot of luck.

I can’t thank the team from InternMatch enough.  Without them, this opportunity never would have been possible.  They have put a lot of time and effort into this competition and have been incredibly accessible throughout the whole thing.  I sincerely wish them the best of luck in the endeavors and I hope they crack the internship code.

TL; DR: Preparedness + Luck = Opportunity

You won’t find a place with many more “rags to riches” stories than hip hop and rap.  But many artists have surpassed mere stardom and have begun to create empires.  I decided to take a look at a few popular artists and see what business lessons I could glean from their lives.

Jay-Z

Jay-Z is worth a reported $450m.  He was a co-founder of Rocaware which he sold for $207m in 2007.  Every album (and that is over 15) he has released has gone platinum.  He has endorsement deals with Chevy, Budweiser, Armadale Vodka, and Hewlett Packard.  He has ownership in the New Jersey Nets, Arsenal Football Club, 40/40 nightclubs and Def Jam Records.  He was co-interviewed with Warren Buffett.  Jay-Z has his fingers just about everywhere and has become the definition of a mogul.

On Marketing: “We gave brands a narrative, which is one of the reasons anyone buys anything: to own not just a product, but to become part of a story.” (Jay-Z’s DECODED)

On Discipline: “It’s the discipline not to get caught up in the moment. You know, music is like stocks, too. There’s the hot thing of the moment. There’s this hot, electro sound, or the hot auto-tune voice, or the hot whatever’s new and exciting. People tend to make emotional decisions based on that. They don’t stick with what they know, you know, this is who I am. This is what I do. They jump on this next hot thing. And it’s not for you.” (Forbes Interview)

On the Evolution of Business: “At Def Jam I wanted to bring the entire culture into it. I wanted a fund so I could do other things aside from signing artists, like buying a television station or a club where we can develop these artists, or putting out some headphones, all these different things. I don’t think at that time they could really get their mind around that. It’s not something they were willing to do. I just felt like I would be a waste there. So I started my own thing, Roc Nation, and that’s what we do. We pretty much have everything: music publishing, songwriters, recording, touring.” (Forbes Interview)

On Starting a Business (in regard to Rocawear): “In the beginning it was laughable, since we had no idea what we were doing.  We had sewing machines up in our office, but not professional ones that can do twelve kinds of stitches; we had the big black ones that old ladies use.  We had people sewing shirts that took three weeks each.  We actually thought we were going to make the clothes ourselves in our own little sewing shop.  Eventually, we got some advice from Russell and did the necessary research, got some partners, and launched Rocawear properly.  Once we were committed to the fashion industry, we were committed to doing it right.” (Jay-Z’s DECODED)

50 Cent

50 Cent has an estimated net worth of about $250m.  He founded G-Unit records, G-Unit clothing, has acted in several movies, and negotiated a minority stake in Vitamin Water.  But perhaps most impressive is his sheer hustle.

After the December 29th, 2010 blizzard, where was 50 Cent?  In the streets.  Shoveling snow.  For cold, hard cash.

On Sheer Hustle (from his twitter account the same day):

“I’m going out to shovel snow and see if I can make me a few extra dollars today. I’m charging more if they want to take pictures.”

“I want a hundred dollars per house. I bet anybody ill make a grand moving snow today. Lol”

“I got 4 people on one street to agree to my fee after they saw the first job I did. Now I’m looking for employees.”

“I’m paying 30 dollars and hour I only want 3 workers that 90 dollars and hour but I think we can do all 4 in a hour in a half. Lol”

“One is a cute kid he has on a snow suit. So I’m sending him to ring the door bell to ask if we can shovel there snow. Lol”

So there you have it: a multi-million dollar artist capitalizing on a small opportunity to make a few extra dollars with a bit of sweat equity.  More impressive: you see him begin to use his brand and social presence to expand his small business!  That’s hustle.

Sean Combs (a.k.a. Diddy, P. Diddy, Puff Daddy)

Sean Combs has an estimated net worth of $475m.  Besides a successful rap career and several television and movie appearances, his main business venture is Bad Boy Entertainment Worldwide company, which includes a movie production company, two restaurants, Bad Boy Records, and the clothing lines “Sean John” and “Sean by Sean Combs.”

On Leveraging Your Brand: Have you ever heard of Cîroc?  If so, did you know about it before 2007?  It was, after all, introduced in 2003.  Most likely, however, you didn’t know about it.  That’s because Mr. Combs had yet to sign a deal with manufacturer Diageo.  The deal gave Mr. Combs a 50-50 split of the profit and gave him rights to the marketing, including the branding and positioning, product placement and public relations.  After signing the deal, Mr. Combs went to work using his already existing media presence and artists to promote the liquor.  In the 6 months before the deal was signed, only 60,000 units of the liquor had been moved.  In the year after signing, over 150,000 units were sold, with over 400,000 units being sold the year after.  How did he do it?  Mr. Combs leveraged his already existing industry connections and personal image to place the product in multiple music videos and venues, even penning his own song “Cîroc Star” to promote the brand.

He even recently utilized his Twitter following and jumped on the Charlie Sheen bandwagon, tweeting:

Dont drink the peepee! Drink TIGERBLOOD!! Redberry Ciroc+Cranberry Juice = #instawinner-> http://twitpic.com/47naub

(http://twitter.com/iamdiddy/status/45309826456240128)

Lil Wayne

I include Lil Wayne here not because he tops hip hops richest — he is, after all, only worth a paltry $85m — but because of his sheer work ethic and passion for what he does.

On Work Ethic:  Lil Wayne is known to travel with a mobile recording studio.  He is credited on Lyrics.com with having 1377 songs — though it’s been said that in recent years he has recorded over 300+ songs a year, and if you include his early career (starting at age 15), he has recorded somewhere near 3000 songs.  That’s all in between performing concerts, traveling, promoting, and media appearances.

This sort of incredible productivity can only come from a mix of two factors: an unbelievable work ethic and an unbelievable passion for what he does.  Is every song a hit?  Unlikely.  But as they say, “practice makes perfect,” and nobody has shot to startdom as fast as Lil Wayne.  I have no doubt that the constant practice of his art that gave him this ability.

Summary

These artists all represent the successful transition from artist to business mogul, and they all share several common traits.  They leverage their own talents, network, and brand to increase the value of the ventures they involve themselves in.  They have incredible work ethics and hustle.  They diversify their investments, but have the capacity to add value to all of them.

There are a lot of lessons to be learned here.

My father sent me an e-mail earlier today that said,

As I was thinking of you, it occurred to me that I wanted to tell you: It is much harder to run with a full bucket than an empty one……

Dad’s love giving advice.  They can’t help it.  And they always have their own way of sharing it.  I call them “dad-isms.”

My father’s lessons always had an entrepreneurial or business lesson spin.  He was a successful entrepreneur in his own day: he launched distributor Microamerica in 1979 (merged with Softsel in 1990) and computer reseller PCs Compleat in 1992 (acquired by CompUSA in 1996).  His final business, the internet marketing firm BeFree, he took public and eventually merged with ValueClick.  So when he speaks, I listen.  Or at least pretend to — he is my father, after all.

One of his most important lessons is about leverage.  Archimedes is attributed with the first known writings about leverage in the 3rd century BC, saying “Give me a place to stand, and I shall move the earth with a lever”. The powerful notion being that with leverage, a little effort can create a tremendous amount of force.

Leverage creeps into the business world in many different ways.  It can be an incredible tool or an incredible force of destruction.

When you don’t have leverage, it can be dangerous.  In the early days, BeFree had a single client — let’s call them BN — that represented nearly 70% of revenues.  While it was a great business relationship, it ultimately meant that BeFree was basically a single-client business.  This also meant that BN ultimately controlled the short-term performance of BeFree, giving them incredible leverage in negotiations and business requests.  My father recognized this and worked as hard as he could to simultaneously please them as a client and shrink them to less than 25% of his book of business.  By doing this, he reduced their leverage dramatically and put it back in BeFree’s hands: while it may be a blow to business if BN walked, the company would still be able to survive.

Leverage in your own hands, however, can be a powerful force.  A close friend of mine, “M,” recently started a media consulting firm and we were discussing his business plan.  I told him that while I thought he would be very successful, he would never really make a tremendous amount of money.  Ultimately, it came down to leverage.  As a fixed-charge service business, his profit is limited by the number of hours in the day.  If he charges X and hour, he can never make more than 8760X a year.  Let’s say a reasonable person works 40 hours a week, 50 weeks a year — you’re really looking at 2000X.  This also assumes, however, he has a project to work on 100% of the time.  Let’s say he is extremely good at what he does and has work 75% of the time (and spends the other 25% chasing leads).  Now he makes 1500X a year.  So how much can you realistically charge?  $50/hr?  $100/hr?  Some lawyers get away with $500+/hr.  Can you do that in the media consulting space?  Either way, you’re talking about an income that probably maxes out at $1m/yr — which is nothing to sneeze at, but you won’t get dirty, filthy wealthy with that model.  Ultimately with this business model you’re constrained by time.

This is why tech start-ups are so popular: they naturally employ leverage.  If you build a web-app, it doesn’t really matter if you have 10 clients or 10,000 (ignoring “scaling pains”) — you spent the same amount of time developing the product.  That’s leverage — and an incredible amount of it, considering how little capital a web-app business can cost to start.  For the same reason, the finance world loves to charge on assets under management: the process for the portfolio manager doesn’t change if they manage $10M or $2.5B (again, ignoring operational costs and investment constraints), but they certainly get paid more.  That’s leverage.  Same effort, more $$$.

With the service industry, there isn’t much wiggle room.  Creating leverage can be hard.  ”M” can’t just suddenly spin up servers on Amazon to do his work.  He can’t somehow make himself instantly more efficient: creativity takes time.  So my advice to “M” was to take a bit more risk and create leverage in how he charges his clients.  I recommended lowering his fixed fee and charging a variable recurring fee that based on the success of his campaign.  This aligns his interest with his clients perfectly.  If his campaign succeeds (by whatever metric he and the client agree on), he participates on the upside.  However, if it fails, the client doesn’t feel like they paid for nothing.  While this model requires more confidence by “M” that his work will be successful, it employs leverage in a fashion that allows him to get recurring payments on projects that he stopped actively working on months ago, or even participate in explosive sales growth he was directly responsible for.

Is it the only way?  Definitely not.  I’d be very interested to hear about how people employ leverage in the service industry.

The take away?  Leverage can be a very powerful tool; just make sure it is in your hands.

It’s strange, but some of the best life advice I have ever received came from none other than Matthew McConaughey.

Wait, what?

Yep.  And it was in a fitness magazine, too.  And it wasn’t even an article about his life philosophy.  It was an article about his workout routine.

I don’t think he even realized he was giving such great life advice.  But he was.  And it is simple.

McConaughey has already invoked his motivation mantra, the one phrase that gets his butt out the door for both work and a workout: “Tie your shoes,” he says. “It’s that simple. You tie your shoes, man, you know you’re gonna do it.”

And he is right.  Unbelievably right.  In everything we do, we all have a tipping point — the point where we finally stop procrastinating and just get down to work.  The sooner we can recognize what that point is, the sooner we can be more productive.  So find your tipping point.  Whether it is opening the word document, excel sheet, IDE, legal document, putting your hand on the doorknob, putting your foot out the door, or just tying your shoes — find your tipping point.

A ceramics professor has two pottery classes in a semester. He takes it upon himself to run a little experiment:

In one class, the students are told that they must make one pot each week. On Monday they are given fresh materials and on Friday they hand in whatever they have created.

In the other class, the students are given the task of making a single pot; and are given the whole semester to plan, design, make and perfect it.

Come the end of semester, the professor collects and marks the final set of pots. It becomes immediately apparent that his first class has vastly outdone the second – their pots are superior in every way.

Courtesy of Andrew Russell Studios.