Start-Up Tips (special guest: Philippe von Borries)
We're gonna jump into a conversation with a friend of mine who's extremely impressive and has built something extremely huge that many people haven't heard of. They will certainly be hearing of it. And his name is Philippe von Borries. It's like the best name ever, like is he royalty is he Dr. Evil? No, he's the founder of Refinery29. Philippe, please come on out. (audience applause) Cool.
I was just having too much fun back stage. Really taking advantage of the facilities.
Yeah, what a facility right, this is great. So I'm really excited. We've obviously spent some time together and I love your company, I think more people should know about it. So let's start with, let's start at the beginning which is Refinery29, what's the origin story? How did it come to be?
Well, just today, just to frame what we really are we're a daily destination for millions of women, some guys who come to be inspired and get the latest and best in fashion and shopping and wellness and beauty. And essent...
ially, we've created a next generation digital media company in and around fashion and really for business model sort of reinventing what a media company from the ground up should be by essentially getting rid of the traditional barriers of advertising and content and commerce and how those all interrelate. And we launched seven years ago actually.
How many uniques would you say?
So today we're at about five million uniques but 10 million visitors every month, about 1.5 million people that receive a newsletter from us every day. We're larger than Vogue, Lucky, Glamour, Cosmo, Elle, any title online.
And we've gotten to that growth entirely organically actually without ever having invested a single dollar really in customer acquisition. And the story of that is really sort of authentic, engaging, incredible content. That has been sort of the holy grail of all business. But to do origin.
Yeah, the idea, how did it?
Yeah no, so the idea was that, so I come from a family of entrepreneurs so I always knew I wanted to start my own thing. I'm from Germany originally. I had a good friend. The story of the cofounder is so important of having the guy that you can go to and commiserate with when things are not going that well. But we came up with an idea to really essentially create this platform for discovery and filtering the best, most incredible independent businesses, artisans, people that really had a story to tell, people that were creating something really special and really engaging. The type of product that you'd come home about and be like, oh, I just went to that city and I found a store and it was so incredible. I wish I could go there again. And so we built this destination that's essentially this sort of mall of your dreams for independent brands, for independent designers, actually not just in fashion. Today, we're sort of very much frameworked in around fashion but it was other categories. It was music, it was food. But really focused on that independent spirit.
Was it called Refinery29 at that point?
It was called Refinery29. The name came about because it was all about filtering and refining and distilling the best of the best out there into one platform. And so for these brands and these vendors it actually became a highly effective marketing platform to be like a little store down on the street in Nolita and in New York that otherwise had besides foot traffic, there was really no way for them to market themselves effectively.
What's the 29?
Refinery30 was taken? Just kidding.
It was supposed to represent a limited number of things but really Refinery29 came about because refinery.com was taken.
I love it, these are the stories though, you have to improvise. And when the idea first came about, were you experiencing something and were you actually sitting down with the cofounder brainstorming what to do together, we should really do something together? What was the moment when you're like, huh, this is what we should do?
Well, it was like after having eight beers at a local bar--
All the best ideas and worst ideas.
Exactly. And literally an idea on a napkin. But it came about because we were really sort of attracted to this notion of hey there's all these incredible small businesses, right and mind you, this is six, seven years ago. So the digital landscape was completely different back then. And how can we build a destination? Like you go into a mall and you see the same stores over and over again but there isn't really a sense of discovery when you do that right? And so how can we mirror essentially that same experience that you would have walking into a mall being inspired by something but obviously in a digital setting and highlighting people that were producing, manufacturing, creating, really, really awesome product. So that was the origin. And fashion was just one of those things that really stuck. So we built this destination, this discovery platform for users and a marketing platform for brands and obviously we needed content around it. So we brought on some incredibly talented essentially cofounders who built out the voice and authority. And fashion was the thing that really stuck.
This was when you were bootstrapping?
Literally it was like $5,000 that we had to work with and we didn't raise money for a long time, by the way.
We'll talk about this but part of the reason I was decided to have Philippe on because we'll be talking to Noah about a lot of his analytics and testing and whatnot but I get questions a lot about raising money, should I raise money, should I not raise money? And so you guys have done both. You bootstrapped for a long period of time and then raised money. When you were bootstrapping in the very beginning, how did you make that $5,000? How did you stretch it? Are there any examples of what you guys did to make the most out of the least with that kind of capital? How did you reach out to brands? Did you have people making cold calls?
It's phenomenal. There's so much in your question but when you're forced to really go with very little, all you have is you're betting at the time I was like 25, I was betting my savings, whatever I had, on this one thing. You raise a little bit of money maybe from your family which is a horrible thing, it makes you feel shitty about yourself that you're like okay, I'm committing to this, this is a really big idea, right? But as you're building something that you really believe in and that really, that other people start to recognize as something great I think it really becomes, it's one of those things where you do call in a lot of favors. All of a sudden like yes you go to people and you're like I have no money to help you with this one thing or have you help me with that. But you make it work. And people really feel passion about that. I think people really feel at the end of the day really passionate about helping others when they see something come to life that feels special, that has a point of view that feels unique. And that's where your own passion as an entrepreneur comes in. You mentioned that at the beginning about creating things, getting things done and I think people really respect that. So you can get so far, our own story, we had that $5,000 to start with very early on and literally somehow that lasted us, we got something off the ground, that was enough. And as things progressed, we were really forced to think about how were we making money, we raised a little bit of money but so little in the comparative space of what VC money is today, it's crazy.
When did you decide to raise money and why did you decide to raise money?
Right. So eventually I think what happened is there's a point at which you build up enough audience and momentum. And I think one of the most critical things to anyone whose starting business to me has always been that first 1,000 people. That first 1,000 people that you go after and you say those people, and 1,000 people is like comparatively very little but it's also not that little.
It's not trivial.
It's not trivial, right. And focusing on that group of people and say hey I want those people to tune in and to start spreading the word.
I'm just gonna pause you for one second 'cause this, this was not planned at all but when people ask me what should I read on marketing or when I'm talking to startups that I work with, Uber, whomever. I mean Uber doesn't need my help anymore but the first 1,000, the 1,000 true fans which is actually the name of an article by Kevin Kelly whose one of the founding editors of Wired is such a critical concept because if you don't know who those 1, true, early evangelists are it's also really hard to decide what kind of content are we gonna put up, what kind of product are we gonna create in the first place? So anyway not to interrupt but that is--
Well I actually want to tell a quick story on that 'cause that's such an important concept to what happened in our own evolution and building that early credibility that allowed us to call in favors and build the brand so that we could eventually raise money. But early on the people that would tune in to Refinery were the people that were buying merchandise for the Neiman Marcus's and Barney's and Bergdorf Goodman's in the world. And all of a sudden there was this really incredible powerful woman in New York at a brand that I will not mention but she accidentally forwarded an email that she meant to send to her staff to Refinery29 and said, "You've got to tune into this place every day "to find out what we should be paying attention to." And so that was an incredibly telling moment.
How did you identify that these buyers were coming and kind of scouting on your site? Were you looking at people who registered and Googling names? That's what restaurants do. The top restaurants, they get their guest list, first thing they do, they Google every single name.
Totally. We started, to us, our business has been built, I want to go back to the fundraising question but our business has been built around building really effective distribution channels to really, really focus on the satellite audiences around you 'cause it's incredibly hard to build a consumer destination that's just that big. You have to focus on like just the way people consume content in different places. But so email actually back then was a critical driver for us. So at every step of the way we would be like become a member, become a member, become a member. Every person that came and watched we'd research them and we'd find out who they are and that was incredibly important. But to that question about fundraising just very quickly so we built a brand, we were really focused on building a community and in our space, media, we're in a space where traditionally you have the Hearst and Conde Nast and Time Inc.'s of the world. And it's a very dictatorial approach like we tell you what to do. And we built this community and we really built this dialogue and conversation and we got momentum. And we had a brand that started to resonate out in the marketplace which we started making money. And so we raised a seed round--
Sorry, sorry, just because I'm as interested in this as anybody else is, when you say started to make money, was that predominantly from sales to consumers, was it from advertising? How did that break down just percentage wise?
It was very much focused on branded advertising at that point. And we've essentially reinvented what advertising can be by focusing on native advertising--
That's when you guys were predominantly content at that point?
Exactly and experiences for brands that really connect to consumers. And so we were forced to go out there and build a sales organization ourselves. And so we raised $500,000 in a seed round from a few New York-based angels that had recognition and saw something in a business model that usually people are a little afraid about--
Was it easy to raise money? Was it like one meeting, done great?
No, it's the worst thing in the world. There's no crappier process to raise money. Anyone who tells you that it's like, oh it was a breeze, it doesn't exist. There's maybe like two businesses for whom it's a breeze. And it's an emotional roller coaster, right, there's so many things to consider in all of it. But we raised a small seed round and that money was just, there is that point where it's really important to look yourself in the eye and say okay, really do we need to prove this concept and see if we can raise money? Because it just has potential to light things on fire. So at that point, our business started growing like crazy with that little bit of cash, right? People raise 10, 20 million dollars today and it was nothing comparatively, it was $500, but at that moment it was exactly what we needed.
Why did you end up at 500K? How did you either decide, was that the most you could raise or was that a deliberate choice?
No, so this is what's called a seed round. It was actually a convertible note. Yeah so people invest very early on before your series A on the promise of hey can these guys deliver? We're putting money in because we see and we have faith in this idea but it's still very early on so we're gonna put in $100,000 or $50,000, you raise from 10 people or so, you raise 500,000 total. And eventually, there's no valuation at that point, eventually when the business actually does prove its concept it goes out to raise an institutional round of financing from institutional investors that note, this convertible note then converts into that round at that valuation.
Yeah so to explain to the audience, and you may already know this but and the reason we're talking about fundraising and stuff, not everyone needs to be a business owner. You can do a lot of amazing things as an employee, as an intrepreneur inside your own business, you can be somewhere in between where you have your own side business but also have full time employment. In this particular case, we're talking about fundraising. If you want to understand the start up game. So in this particular case, like Philippe was saying, you're getting money from investors, that is debt, right? So let's say it's whatever, six percent interest rate per year, it's debt. Realistically they're like, phew, it's either gonna work or it's not so whatever. But that's a way to accelerate fundraising also because you don't have to agree on a valuation. You don't have to have that haggling. It's like look, you're gonna put money into my business and then when I raise more money later because ostensibly it's growing and succeeding, when we get more money later, let's say that round determines the value of the company as $10 million before financing. And then we get two million dollars in financing, it's worth 12 million afterwards. That 10 million valuation or 12 million, you'll get a discount on that. So you will get shares as if the company's worth eight which rewards you for taking that early risk. What did people respond well to--
Such a good teacher.
I try. I just talk a lot, I'm very professorial. What sold, did you have a lead, someone considered a lead investor? Lead investor's sort of the biggest investor in a round and a lot of the other people, it's like anything else, nobody wants to be first, it's the worst. So you're like well we have so and so's soft circle and they might, and it's like this big game that you have to play. But how did you get the lead investor to commit? What did they respond to? Break some knee caps Tonya Harding style, what'd you have to do?
It's funny you say that. There is such a, there's a little bit of smoke and mirrors associated with it where you're like, oh yeah, two people committed, come on, jump in. And it takes a little bit of practice 'cause you're like, people needing to feel that that first person is in, whose that person who has committed. But sometimes, we just found one guy who's just an incredible entrepreneur who just walked in and was like, you know what, I trust these guys. They've done something--
Can you mention him?
His name is Thomas Lehrman and he's an incredible entrepreneur and he backs a lot of businesses in New York and I couldn't tell better things about this guy because he just walked in and he was like, you know what, I invest in a lot of companies, $100,000 isn't that much money for me and it's a bet I like taking because I love supporting entrepreneurs who feel passionate about something. And that's just what you need. When people start wasting your time and it's like, at the end of the day the people that you're dealing with these are small sums of money when you're talking about 50,000, $100, but to you as an entrepreneur at that time that's huge amount of money.
Life or death.
So if somebody wastes your time just say, are you in or are you not?
The VCs who are like well maybe, we won't say now but, it's the slow no that kills you if you're fundraising. Also I should just point out from the investor's standpoint 'cause I get asked a lot, how do I start angel investing? First of all I'd say, don't be in a rush. It's a great way to lose all your money unless you have an informational advantage of some type. Living in Silicon Valley, maybe living in New York, you need to have an advantage over everyone else who also wants to play in that game. But some of the best entrepreneurs and investors, 'cause they usually go together, at least the guys I know, invest in founders more than the business. They may invest in a founder even though they have doubts about the business because they're like you know what, this isn't a ton of money I'm putting in and I want to make an impression on this founder so that if this doesn't work and they start something else that I'm the first person they call.
What are the things people should--
And by the way, just as a continuation of that as you build your business, it's all about people. The only reason why you're in the end raising money is because you're trying to find the best people out there. So it's really just that element is so critical.
What are the things people really need to watch out for if they're raising money?
Or things that can go wrong, anything that comes to mind?
There's so many variables. But ultimately you want to make sure that you have, the very first thing is just that you have a great lawyer. That's the most important thing, you just need to have somebody on your side. You're often entering an area that a lot of people haven't dealt with, institutional in terms of investment.
By institutional we just mean a fund or a larger entity as opposed to an individual angel investor.
It's a question of like obviously how much control does someone take, the dilution that you take on, when you walk into--
So percentage of the company they buy, how your percentage then shrinks, dilution, simply speaking but sorry.
You're dubbing my, it's really great.
I'm your subtitle. (laughing) Close caption provided by Tim Ferriss.
It reminds me of the hurricane last week when there was that silent language instructor.
Sorry, not to interrupt.
So I mentioned dilution obviously, control. The amount of people, all of a sudden you have other people sitting at the table with you at your board meeting and decisions that you were previously making all of a sudden somebody can chime in on those. And so it's really important to obviously think about voting rights, for example. What are the important decisions, it's probably one of the most important things when you raise money right, the important decisions that somebody else gets to weigh in on with you. If somebody gets to weigh in on hiring people, that's a really bad thing. Obviously it's gonna be really hard for you to not get someone included in decisions around the sale of a company, the sale of your company because you want to make sure that if somebody invested in your company at $20 million, you don't go around the next day and sell the company for 15. So that's really important, voting rights are incredibly important. The board set up is incredibly important. Can't emphasize enough how critical it is to get a good lawyer.
If you're comfortable saying, which law firm do you use?
So there's a firm that we use in New York called Gunderson that is sort of--
One of the standard, go-to startup law firms.
It's sort of the heavyweight law firm in this space.
So you have Gunderson, Cooley, Wilson Sonsini, probably missing a bunch, Fenwick and West, I'm not sure if it's Fenwick and West, Fenwick, these are all law firms that are sort of go-to startup law firms. Now do you go to the lawyer, how do you pay the retainer or the hourly before you get the funding or how do you arrange it?
So first of all, one more thing that I want to say, it's incredibly important to do your own diligence and learn these things before you go out. There's so many interesting blocks like Fred Wilson.
So Fred Wilson, Union Square Ventures, he's the godfather of New York City venture capital in a lot of ways, AVC, I think it's just avc.com, great. A few of the resources, Brad Feld, so had a foundry group in Boulder. He's one of the guys who really believed in the people behind Harmonics and bled money, bled money, bled money until Guitar Hero did pretty well. He also has a great blog, Brad Feld. He also has a book that he wrote with a friend of his whose a lawyer and also his partner in his VC firm called Venture Deals which is one of the few books out there on actual deal making, the terms and all of that related to financing. It is worth looking at even if you never plan on taking money because it teaches you how to think about structuring deals. So whether you want to be, when I teach in the high tech entrepreneurship class at Princeton, which I still try to do twice a year, it's just a day long class. But in the very beginning I'm like, alright, and keep in mind, these are Princeton students right, like no offense Princeton but they're like investment banks, management consulting, they want high paying jobs right out of school. So I'm like how many people here want to be sales people and they're like (mimics vomiting). Alright, how many people here want to be boiler room banging on the phones? Ehh, maybe one or two. And then I'm like alright, well the good news is you don't have to call yourself a sales person. The bad news is you're gonna be a sales person whether you want to be or not. And what I should better say is a deal maker, like you have to learn, whether it's pitching your ideas internally, pitching creative solutions when everyone says no, you have to learn that kind of stuff. There's also a really good book called Getting Past No which is a lot more realistic than getting to yes.
You really have got to know the one on one yourself. You're gonna be in a room with someone who's gonna want an answer from you in that moment on specific terms. And your future is at stake, the future of the people that you started a company with. And so getting the one on one and teaching yourself those lessons, and the great thing is there's so many resources but there's also a lot of people that are just so, the network is just so strong of people that are like out there that say okay, give me 20 minutes. Even those law firms that you mentioned, talking about a retainer, how do you pay for that? Most of those companies understand that the nature of this actually revolves around when you first walk into a room you don't have anything. They go out there on the promise of committing themselves to you also in saying okay, we're gonna get behind this, we're gonna work with you and represent you well.
So a couple of resources also in addition to what we just talked about, venturehacks.com, really good. That's authored by, among other people, Naval Ravikant and Nivi who are also behind something called Angel List, angel.co which is how a lot of people are raising money from angels. And you don't have to do that. So let's talk for a second, I have two questions. One just came to mind which is so you have cofounder, who did you start the company with originally?
My cofounder Justin. We know each other all the way back--
Which is great 'cause you're marrying a cofounder, make no mistake about it. You may end up seeing them more than your real spouse for a long time.
Now when you got your first content creators, what were they doing at the time and how did you sell the dream? How did you get them to stop doing whatever they were doing to focus on this? Just that little shine in your eye.
Your goal as anyone starting a business, I think anyone starting a business feels passion and inspiration about what they're doing. And so your number one job every day is convincing other people that what you're doing is great and coming onboard.
What did you say to them? Like Steve Jobs when he got, I'm blanking, Skully I guess it was who was then CEO of Pepsi and he's like, at the end of the day he's like, do you want to sell sugar water for the rest of your life and he was like ah. And then of course he proceeded to screw Apple up horribly. When did they commit?
I think you sell a dream at that specific point. You have very little to show for yourself but you say look, we are creating, in our specific instance, obviously every one here is creating different businesses.
No, no but I want to hear what you said.
We're creating a next generation digital media type. We're all dominated by publishing companies, media companies that have been around for a long time, huge companies, billion dollar companies but we're creating something that has the opportunity to get up against that because of the power of the brand that we're creating together, the community that we're building, the way they're engaging with us and the fact that we're nimble. And the fact that you, in our specific case, again, we're looking at a business model that's been very entrenched where sales people aren't talking to content creators aren't talking to technology and product people and hey that's crazy. So come on board and commit to this journey with us. And you know what, one thing for any entrepreneur everyone thinks that this is like oh it's an overnight success, man it's always a long journey. It's always the longest journey 'cause you sell a dream. We had that conversation with these specific people like five years ago. And at this point, their careers are changed, their lives are changed, they're recognized in the industry as spokespeople for what new media can really mean in our niche. And so that dream is coming together.
You saw that right? I just want everybody to realize you have to get good, number one, you have to be so excited about what you're doing that you can face all the road blocks you're gonna hit. That's true whether you're doing a lifestyle business, venture backed business, tackling something like let's say saving money and trying to allocate time, for let's say trip to Toledo versus trip to the Greek Islands to get on a catamaran and sail around for two weeks. You think of the latter as harder but in many cases, aiming for the "realistic" is harder because you're gonna give up as soon as you hit one or two roadblocks.
I love that. That's a really great lesson.
Do you know what I mean? And you know this, when you go intoa meeting with VCs, if you actually give them a realistic picture where you're like we're 80% that we can do this in two years you will never get money, ever.
The single worst thing ever when you walk into a VC meeting is when you're actually already making money 'cause all of a sudden people are looking at you like--
They have something to measure you by, yeah right.
It's like wait, you're making money? What's wrong with you?
Oh dot-coms. So let's look at the dark side. So what are the, not every company should necessarily raise money.
By all means, by the way. And there's so many different types of businesses. It's great to start a lifestyle business and you don't need to go down that path. People forgot about the fact that you can actually lend money, you can get a loan to start a business. So there's different avenues but--
Why did you chose then venture capital money as opposed to getting a loan? 500K, you want to get a $20 million loan? Forget it. You got to go to the venture capitalists sometimes nicknamed vulture capitalists by the way. Not always fair but often fair. Why did you choose for that amount of money to go to angels as opposed to going to a bank?
Because the problem with actually getting a loan, particularly, and this is right around the 2008 time frame but this is just today, you think today in the business we are creating and we have a very, very healthy revenue stream, I think I could go to any of the big banks and they would tell me I could get $25,000 loan. The system hasn't caught up with that. So there's a few venture banks actually. There's Silicon Valley Bank, Square One Bank that are actually like that have essentially built facilities to back, not VC money, actually like debt money--
Silicon Valley Bank, what was the other one?
Square One Bank.
Oh Square One.
Yeah, mmhmm. Again, not VC money but essentially debt to say hey, in our case, we have accounts receivable, we have three, four months out where we collect money, a lot of money. But often times you don't see that money for five months so they finance that. The traditional banks often aren't equipped to that.
So are they doing basically like factoring?
So this is kind of a cool concept. There's actually a book, I think that it's out of print and a lot of it is questionable but called Guerilla Financing actually, not gorilla like gorilla, G-U-E, guerrilla and one of the approaches they talk about is factoring, so invoice factoring meaning if you have people who are gonna pay you, people think it'd be a dream come true to sell on QVC or sell to Walmart. Guess what? You're not getting paid for nine to 12 months. So I hope you have a lot of money to pay for inventory. And I hope you have a good return policy.
That's exactly right.
So now you're like wow, I have no money, I can't even pay myself let alone these employees but I have Walmart who's made this promise and they will make good on it but it's nine months later. So then you can go to a bank and they'll basically give you an advance on that payment in exchange for obviously a cut of the action.
That's right. So we should address your question about the dark side, if you want to call it that.
Cue Darth Vader voice.
Yeah right. But you know it's funny because there's been such an environment created of sort of celebrating raising financing and venture capital. But really in effect you're like, all of a sudden you have debt on your balance sheet. So the stakes rise tremendously, you have other people that chime in in your decisions. And I think the biggest thing is just the dark side can really be if you're just solely focused on raising money for the sake of raising money and you don't think about the person that's sitting at the table with you for maybe the next 10 years. You must feel comfortable to go away with that person for three days and say, hey, things are not going well, what are we doing together? And having somebody, I think the biggest risk, having somebody who, in particular when you're a first time entrepreneur it takes you down a path where all of a sudden they suggest things or directions for the company or pivots that really might not be right but you feel sort of pressured into them because all of a sudden here's somebody new sitting at the table with you. That's probably one of the biggest dangers, right, because at the end of the day you know best what you've created and what you're creating for the future. It's great to get strong, good advice but it can really derail you at times. So I think that's really probably the biggest dark side. And so thinking about the fit of who you're working with and not just having a single minded pursuit of just we need to raise cash to make this happen is really important. Take that extra three, four months to find someone.
Speaking of this board situation, so the board is like the tribe of elders who decide the future of the village that is this company. It's a big deal. And so if you end up let's say outnumbered, right, you have more investors than founders, you're SOL, you're in bad times. Can you give an example? I happen to know a number of your investors and you have some great investors but can you think of, they're also dealing with let's say 10, 20 companies at a time often times, right?
So they're not gonna know your business necessarily as well as you do. Can you think of, without naming names, a suggestion, let's say that was made, that you didn't want to take and how you responded to that?
Sure. And I should really clarify that after the $500,000, we did eventually go out and raise proper institutional round from first round capital, very prominent fund in New York, Floodgate, Great out in Silicon Valley and another fund in New York called Eastern Advisors. So we went through that formal process.
Three very good investors.
Yeah, so about those decisions, to us I'll give a very specific example. We're out there essentially trying to create a new distributed media model where you don't just create a business that rests on just one revenue stream that's sales and advertising, right? We're looking out there and we're trying to build just as strong a business through commerce. In fact, what could eventually be a stronger business, and even bigger business for us. But you also really need to get people who understand, in our case, there is technicalities of both of those businesses that are very, very different. So if somebody just comes on board and say, hey, I just want you to just make this commerce model happen. To us in this case it's like how do we take entertainment and inspiration and create purchasing desire with that. But at the same time, we have a very technical sales business and we need somebody who knows that that needs a lot of attention and love and it's incredibly important. So it's really just critical that you vet those questions early on and you think through all the different facets of hey, when we sit with that, do they understand our core business? That's the most important thing. Are they gonna add serious insights to that? Particularly in this frothy market of seed investing--
Frothy meaning it's like a feeding frenzy where people get really excited and they start biting with their eyes closed which is--
And all of a sudden, everyone's an investor.
Every B-list celebrity and their grandma, B-list celebrity, not my grandma is an investor.
The reason why you eventually want, why it's great to raise money from great, knowledgeable VCs, they actually do offer great perspective that you might not have. They see a lot of deals, they see a lot of different business models and as an entrepreneur, you're like focus, focus, focus, focus, focus and getting that perspective on the wider landscape, hey how can I tweak a business model a little bit to get more users out of it, get more cash out of it? That's the perspective that you really want out of a VC.
And a couple of things that I've heard over the last few years, so I've been investing and advising start ups since and as you know, the person who introduced me to that was Mike Maples Jr. Who is one of the founders of Floodgate.
And Mike is a great VC for a lot of reasons but he was an operator, he built companies. So Mode of Communications, Tivoli, and he's also not, he's not, I'm not saying this is the only way, he's not much of a showman. He's pretty reserved, focuses on picking his shots. But here are a few things you can apply to let's say partnering with people, long term relationships with other companies. It doesn't have to just be a venture capitalist. One of them was, I've heard two rules that very successful investors use and entrepreneurs. So one is the mall test, come to that in a second. The other is the phone test. So the mall test is if you're walking down the street or through a mall or something and you see this person, whether it's an employee that you've just hired, a VC, are you like hey, what's up man, oh, we should totally grab beer, are you like hey ah, or are you just like ugh? You should only choose to partner if it's up to you with people in the first category, no matter how attractive the deal seems or the terms. Okay, the other one is phone test, very similar, when you see that person's name pop up on your caller id, your like ugh, go to voicemail, please don't leave a voicemail or is it like whatever your doing, right, like I'm talking to Philippe and somebody calls I'm like, sorry, dude what's up? You want to be in the excited category and if you don't start there, man are you in trouble. Any books that really hugely influenced you or inspired you early on as it related to the business and just choosing this path. And the second is when you are in the pit of despair, on those days, and most start up folks I talk to have those days when they just don't want to get out of bad, man, oh my God, I just do not want to deal with any of this right now. What do you do in that, the early inspiration, books, resources, anything that people can actually find on their own and then things that you do when you're in that pit of despair.
Right. Two books, one big picture, one very process oriented. The Lean Startup was just, people probably know it here too but just on that first product that you go to market with and how to prove that.
That's right, Eric Ries, The Lean Startup, it's probably one of the most inspiring books when it comes to actually how to get it done and how to get it done right in the minimal best fashion. Probably one of the most inspiring books particularly for entrepreneurs who might not be innate product or technology people. So great book. Another book that I, I wish you'd asked me this question before 'cause now I will actually tell you later on but it was a book about the power of, the essence of meetings actually. 'Cause as your company grows and you start having more and more meetings and more and more people in your company, it's like all of a sudden you have meetings and it's like crazy because like, you need to really be able as an operator and as a CEO contain a meeting and leave people empowered, inspired, and get them in and out as quickly as possible. So that was a really inspiring book to me because--
What was the name of the book?
That's the thing, I'm sitting here tell me this book--
Okay no worries, that will be coming. We'll get that to you guys.
Later on in this show I will come back on--
Run on stage, I remember.
I'll tweet it, I'll tweet it. Was there another question there?
The pit of despair.
Oh the pit of despair, how do you get yourself out of bed in the morning? Oh my God when it's like, when the world's just like--
Do you have any rituals or routines or things you go to, anything?
Oh my God. For myself, I just constantly need to motivate myself and get out in the world and be active.
So like physical, like go to the gym?
Yeah, physical. Absolutely.
What do you do, run mornings, what do you do?
I run in the mornings. I look at this track in Brooklyn where I go running in the mornings and that to me is just critically important because it's like you need to blow off steam.
Do you think when you do that or is it to get out of your head? Do you have an internal dialogue? This is really important. Is there any self talk that you have when you're doing that? Or is it just to get yourself out of your head?
So it's actually really funny. Besides running, I actually have been working out with a trainer for the last two years who actually comes to my house in the mornings. And he's basically he's like my psychologist. It's really funny, I talk about life with him and he has the best advice about things. And it's really interesting because I don't just think about work but I get perspective. And to me that's actually I really wasn't expecting to tell this story. To me it's a critical thing 'cause you need to blow off steam. Things can get so intense.
Get out of the business.
You have people constantly there's a lot of things going on, a lot of responsibility that you have to deal with. And then just like, I think just like getting out and taking time for yourself every once in awhile it's just really important to think big picture 'cause you can get super--
Down in the winds. Yeah. This is my pit of despair, one of my pit of despair things. I'll talk about it later. Let's take some questions.
I'm curious. Talk about it later.
Working on my news at 11 thing.
Good. So Karaoke and six other people at least have all asked the same question. Philippe, how did you get your initial evangelist? Those first 1,000 people in your tribe, how did you get those first 1,000?
Great, great question because when you start, you look at like, in our case, we started a consumer business so you look at your traffic charts and you're like 20 people, you're like yes, it's huge.
We killed it today.
It's huge. But to us it was really about building relationships to people that you thought were the first best entry point to start spreading the word about your business. What's the business that's the blog that you love or the person on Pinterest or some person that you can get to, the closest person that you can get to that can spread news about you? And to us I think we very aggressively went out there and said who are those 20 people? From bloggers to designers to people that just have communities and get a meeting with them and tell them about the business.
How did you get the meetings? What's the process? What did the email look like or the phone call?
As short as possible, two sentences 'cause people hate getting a deep paragraph in their inbox that's like hey, I just launched this business. Let me tell you about it in email.
Let me give you my life story.
'Cause people are like, I see an email like that and it's terrible now 'cause I'm like I can't read that, I have to delete it. I'm sorry, just send me two sentences.
So what's in the two sentences?
So in the two sentences, similar to the story that I was telling about convincing the first couple people to come on board, we're building something really exciting that we think has the potential to really shift the future in a given business model and we care passionately about you and the following, the brand that you have and we'd love to just tell you about it. It's not like hey, will you write about us or will you feature us, let us just, come to us. And it's about nurturing those relationships. As you grow your company and you start thinking about getting that big feature in that magazine or newspaper that you think is lifechanging, that doesn't come around because you go to someone and say, hey, will you write a story about me or I have a great idea for a story. No, it's like, you probably will have had 20 meetings beforehand over breakfast and over a glass of wine.
They have to trust the messenger before they trust the message. So was the close, I hate this, not to obsess on this but this is what I do, so with the email, was the close like can we tell you more, we'd love to tell you more about it? Or was there a question or coffee meeting?
Will you give us 15 minutes to get a coffee and tell you about the business? And I think the success rate is literally four times out of five somebody is like yes. Because people want to be helpful, everyone wants to be helpful and I think for the most part that's the leverage of success. So to us, those early evangelists were people that picked up that message, they saw that we had created something that looked cool, it was functional, there was actually driving results to vendors, it was great for consumers and word started to spread.
How did you choose those people to target, like the Pinterest people or whatever? Was it all in fashion at that point or were they in different verticals, different industries?
No. You certainly go after people that you think these are people that you want them to write about you or you want them to feature you somehow. You also go to those people that are like, it's like the conversation we're having now, we're great business people, we're great entrepreneurs who already proved the model. And I can't emphasize enough to me this lesson has been so important. Probably when I did a list of my top lessons for any entrepreneur it's like seek advice. To me at those moments where you have a difficult decision to make, you don't want to go to your board because often times, there is a different type of relationship there, you just want to go to a trusted advisor, somebody who's done it before you, you want to build a small circle of people and that takes a lot of convincing because you want those people to be there when you grab the phone at two AM and you say, shit, I really, really, really need you to help me with this. And so seeking advice from the right people, hands down for me most important lesson.
And one of the approaches that I found really helpful for that is if you send someone, let's say you don't know, but you're asking for advice, an email, number one, short. Number two, no hard sell on my part at least. And it sounds like you guys had a very soft approach as well. If it's not a fit and you make it a hard sell they're just gonna hate you more. So what I would do often times is I would send somebody an email, try to establish some common ground, read your piece on this, loved it. I know you don't know me, it's out of left field, I would love if you could help me just answer this one question. And then question. At the end, this is how I tend to close it, just really specifically I would say I totally understand if you don't have any time to respond but even a sentence would mean the world to me--
And one more thing if you don't get a response do write back three days later because people are busy, stuff falls through the cracks, it's probably not because they didn't want to respond to you, they didn't see it and the success rate the second time will be better.
Yeah, so definitely, and when you follow up if you do that, so the close for me would be something like totally understand if you don't have time to respond but even a sentence would really mean the world to me. Sincerely such and such. You could use nudge mail, I'll just give a tip, in the BCC, three days, just type it out @nudgemail.com, you can put any amount of time before that and it will ping back to you and remind you in three days that you sent that email. So you don't have to worry about remembering follow-up. If you send a follow-up, don't do like I didn't hear back from you so just making sure did you receive this? Like the stern dad follow-up. Don't do that, it's so lame, don't do that. So just be like hey, I realize everyone's busy, I'm not sure if it was an email, email is sometimes wonky, just resending this in case you didn't see it. Soft, soft, soft. Remember, you're going to them for a favor. They don't owe you anything.
Cool, other questions?
We do. We have so many questions but we have a couple of questions from our audience members here in the studio. So I think Tracy is gonna start.
Yeah, hey Philippe. I was wondering how with the seed round and also the venture round, how did you deploy those funds? And then particularly with the venture round have you gotten results you expected from that?
Yeah totally. So any time you raise money the first question is like use of proceeds. That's the big question is how are you actually going out there? You want us to put in X amount of money, how are you actually going to spend that money? To us in our seed round, it was actually very much targeted around building a sales staff. We were at that point where we had a brand, we had an audience, we had recognition in the marketplace and we need to build a great sales group. And essentially spent three quarters of that money on building a sales group 'cause it takes time. The first year, you need to get traction. It's not like you hire someone and three months later you're closing business after business after business. So that specifically in that seed round that was focused for us on building a great sales staff. And I think it was probably our biggest success was hiring really great people. In general, we've probably taken too much time or have waited to long to close a hire or find that person but we always go that extra length to make sure that person fits culturally, that person really makes sense. I think sometimes maybe we wait too long but most of the time, hey that person's gonna work with you for awhile, they need to fit, particularly for us important people. And then for our series A, which is obviously a much larger round, right, different things are at stake. Nobody wants to tell you, no VC wants to give you money and for you to put that money in the bank and be like okay I'm gonna just put it here. It's like bad times, I'm gonna save it over here. They're actually like let me tell you as an entrepreneur that actually is pretty good thinking because clearly it comes down a little bit to do you have a business that makes money. So in our case, we're actually a profitable business, we actually generate a fair amount of revenue. And so to us, yes, that actually like the notion of raising money and being very diligent with how we spend it is really important. I'm such a firm believer of not overspending. Particularly with first time entrepreneurs such a tendency to just like that easy money, like hey let's go spend a lot of money in customer acquisition, hey, if you need to spend that much money on customer acquisition, maybe you should look at your business and see if it's actually a great business.
Yeah if it's costing you $20 to get a customer and then you're earning five dollars from them, maybe there's another problem.
Exactly, exactly. So I hope that answers your question.
Yeah, just to add to that, to your last point, it's always good to have a little cushion. And so you see businesses right now, so two things real fast, companies that raise at really high valuations because they view that as winning when it's just the starting point, can cause a lot of problems if the market for raising funds cools down really dramatically, meaning people are spending less money or they get scared off because a stock does really poorly or something and then you go out to raise another round and people are like, nope, we're not gonna give you a higher price, we're not gonna give you a higher valuation.
That's the worst thing that can happen to an entrepreneur.
That's called a down round and that is basically like stake in he heart because then everybody backs off and you're pretty much dead in the water. So if you spend all your money on let's say, for instance, I'm involved with a number of different companies, Evernote is one that I was a diehard user of, great business. They have millions of paying customers. They still have a war chest of financing they have raised because as the answer that Phil Libin has given is we don't want to have, somebody asked him, well what do you think the macroeconomic climate's at? What about Facebook and this, this and this? And he's like, honestly I don't care. I have raised enough money and I have a strong enough business that if there's a nuclear winter when it comes to financing, I'm gonna survive.
Totally. And you know what actually it's so interesting that you say that because there's already less momentum in the marketplace spending wise or investing wise than maybe there was six months ago. But people always will invest in great businesses. There's no question about that.
The good investors will.
You don't want fair weather investors. You don't want fair weather partners either. And just to make another point, this is true about hires, true about business development, sales, whatever but certainly true of investors, is that adversity doesn't really build character, it reveals character. Every VC is great when things are going great, oh, good job. You get to see what they're really made of when things are not going well and if they don't have the experience of having been in the pit of despair, they're gonna freak out and it's gonna get ugly.
It's like that with anything in life though.
No, of course.
That's why I'm excited to hear the story about despair.
I'll tell his one real fast and then we have to move on in a second. So this, things have been really tough for me the last few months, very fun and exciting but the new book which I put two years into, I put more effort, spent more thought on this than just about anything I've ever done and it's being banned by almost every bookstore in the country. And this right here and there's a brief story behind it, Winston Churchill, so I have a lot of respect for Winston Churchill, fascinating character, despite all his flaws was able to be this incredible leader and war hero, despite his flaws, this is important, and he was hired at one point or recruited to do a commencement speech and I think two hours allocated for his amazing speech. And so they gave him this incredible laudatory 20 minute intro and then he got up and waddled over and he said, never, never, never give up and then he sat down, that was the end of his speech. And so that's what it says on this dog tag.
And when I get up in the morning, it's sitting there right on top of my laptop, I have to look at it before I put it on. When I go to bed, take it off, look at it, put it back on top of the laptop.
I love that.
But definitely the exercise also.
What a better reminder. Despair can be really, it can beat any entrepreneur. There is no entrepreneur that doesn't have that feeling. That's a really, that's awesome.
And this is maybe getting too esoteric, I know we have to move on but so Buddhism right, and we're not gonna get into, okay, so let's talk about religion, we're not gonna do that. But life is suffering, right? Sounds very depressing, like what, life is, that sucks, why would I want to have that as my ideology? But it's very important, whether you're planning a lifestyle or planning a business, planning a family, to not look at let's say retirement as this solution to all your problems. The deferred life plan, and then when I get to retirement, I will solve all of these things and everything will be great. Not true. Ask anyone who's tried to retire or who has retired, it's not true. Similarly, I will build this business, I will have money and then I will solve all of my problems. No you won't. You trade up. You just get a different set of problems. And if you expect that and view those challenges as opportunities that have been placed before you to grow, I know this sounds very motivational speakery, you will ultimately be more effective at reaching your goals. That practical pessimism of being prepared for those worst case scenarios is really important. I think we have--
I think we're gonna take one final question for Philippe and that's gonna be from Angele.
Hey guys. So I think Tim stole a lot of my questions but you guys touched on this and maybe you actually answered it but do you find that when companies take VC money they become less resourceful? Just going back to Steve Blank and Lean Startup method and all that. I think there was a movie in 2001, it was like the startup movie, it was like the dot-com bubble and these two douchebags just going around Silicon Valley like we got more money and then they would move into some fancy New York office. But yeah I just want to know I guess what your perspective is on that.
And this has been such an insane market over the last year where literally you were like I've got an idea, do you gave some money? And somebody's most likely like yeah, here, take two million dollars. But that's the virtue of bootstrapping early on. Because to me it's like unless you've actually done that, unless you actually know what a dollar is worth, unless you know how to negotiate something and get something for free from someone, because you have passion because you've built something great, if you don't have that as your backbone, I think it's very easy to raise millions of dollars and just really don't have a sense for what that means, for what that means on a daily basis for how you spend it. And I think that is to me the most important. So it's like it's not bootstrapping versus VC money. At some point, you're raising a big business, you're gonna need cash, there's no question. But you really need to know what's necessary to make money, what it's like to not have any money. All those things are incredibly important. So that balance to me is just critical, any entrepreneur needs to know that.
Yeah so just to also address that, a few things, so Jake Ma, Alibaba Group, huge, huge. Sort of a later investor but prior to the Yahoo stuff with Alibaba and Jack Ma said we had a few advantages when we started. We had no money, no experience and no plan. And so it forced us to make our decisions very, very carefully. The other thing I would say is that the characteristics that make a world class venture backed entrepreneur are the same characteristics that make a world class bootstrap entrepreneur. They're the same, same principles apply.
You are such a guru.
In terms of also just one book that really helped me in the early stages Losing My Virginity by Richard Branson.
Most inspiring entrepreneur.
In terms of scrapping really hard and just hustling so hard. They almost went out of business so many times. The stories are great, the stories are really, really inspiring. So I read that over and over and over again.