--:-- Joel Beasley: The startup founder's journey doesn't ever go neatly from eureka moment to product market fit to growth to exit, because there are many twists and turns along the way. But while every journey is different, some of the lessons remain the same.
--:-- Joel Beasley: This week, we have a special crossover episode from June 2021. Joel Beasley, host of the Modern CTO podcast, interviews a16z general partner, David Ulevitch, about David's journey from working at an ISP and .com company, mp3.com in high school, to starting, running, and selling his own enterprise security company, OpenDNS, to becoming an investor at a16z. They also discussed the value of product marketing for enterprise, David's philosophy around pricing enterprise products, how to survive and lead through hard times, new trends in startup investing, and more.
--:-- Joel Beasley: This is part of our occasional series where we feature relevant episodes from like-minded shows on the a16z podcast to help surface other shows you might be interested in. The Modern CTO podcast is by and for CTOs and other technical leaders with interviews from leaders at places like Microsoft, NASA, Reddit, LaunchDarkly, and more, all sharing how to build strong companies and organizations. It's hosted by Joel Beasley, CTO of LeaderBits and author of the podcast, The Modern CTO. Check out more episodes of the show wherever you get your podcasts. And for more on how to grow from a technical to product to sales CEO, check out David's previous episode on this podcast called "What Time Is It?" on future.com.
--:-- Joel Beasley: So I'm curious, I was looking at your history and you got started, your first job was before, like right when you started high school at an ISP. Can you tell me about that?
--:-- David Ulevitch: Yeah, I realized a while ago that I've had a W-2 or a 1099 every year since, I guess, the summer after eighth grade. I was one of those people who my sister hated me because rather than getting AOL like every other normal kid, I was like, "No, we need the real internet." So we found this local mom and pop ISP. We got them as our internet provider. And then I emailed the owner basically asking for a job. He was very nice enough to give me something between an internship and a job. I guess it paid me something.
--:-- David Ulevitch: It was amazing because that was my real first exposure to Unix. I learned on SunOS and then eventually Solaris. And then they had BSD machines. It was a great experience. I learned about peering and routing and networking. We had a great systems administrator who was a great guy. He taught me a life lesson there that stuck with me. When you're a young kid, you're sort of like a little hacker-ish. He said, "Look, it's easy to be a hacker because you only need to know one way into a system. But if you're a good guy, you need to know all the ways in." I was like, "Oh, that's true." That was a really good point. That probably kept me on the straight and narrow through the rest of my technology career.
--:-- Joel Beasley: So where did you go from there?
--:-- David Ulevitch: I worked at the ISP for a number of years, after school and in the summers. Then in 11th grade, I was really interested in journalism and I really enjoyed writing. In my high school, we only had three classes a day, two hours each. If you did journalism, it was one of the last classes every other day. You didn't really have to go to class; you just had to make the newspaper. So it was a life hack to not have to do very much work, assuming you enjoyed journalism. I really enjoyed journalism. I interviewed the CEO of this new company in San Diego called mp3.com. mp3s were getting really big. I was able to turn that into an internship and eventually a job at mp3.com.
--:-- David Ulevitch: I watched them go from 30 people to over 300 people. This was in the height of the dot com, 1999. I went to an IPO party. They snuck me in because I was a minor and it was supposed to be 21 and over. I saw things that no minor should ever see at an IPO party. You have to remember, mp3.com, this was just pre-Napster, was at the intersection of music and technology. All the cool music people from LA came down to San Diego to hang out with the nerds. I had never really seen drugs in my life before, or way too much drinking and alcohol. I didn't do any of those things, but I saw it all. I was like, "All right, this technology thing, you can have a huge impact just by writing code." Programming is one of those few things where your input is not at all equal to the output. That was something that was always really exciting to me. I was always a decent programmer.
--:-- David Ulevitch: I worked there. I was a good kid, more or less. I finished high school and went to college. Everyone said, "Hey, it's 1999, I graduated right in 2000. The dot-com thing was still amazing. The bubble hadn't burst." I had friends and peers saying, "Why would you go to college? It's a waste. You're already good at computers." But I went to college. I went to Washington University in St. Louis, Missouri. I actually studied anthropology. I deliberately wanted to get out of California. I wanted to have a broader liberal arts education. I knew I was never going to be a computer scientist. I was good at programming, but I was never great at programming. I would describe myself as a duct tape programmer. I did enough to prove it was possible, and then somebody with actual talent would look at it, scoff, and say, "We can do this better." But I always loved writing code and writing software.
--:-- David Ulevitch: Anthropology was the study of people and culture and society. I found it like this whole new world that was so interesting to me. I went to the small liberal arts school, studied anthropology, loved it, and eventually graduated and immediately moved out to the Bay Area. To me, San Francisco was like Mecca for nerds. I knew my whole life I wanted to be in San Francisco. This won't sound weird to your audience, but it sounds weird to other people. I had friends on the internet that I had made in internet chat rooms and programming chat rooms. I wanted to meet them in real life. I wanted to be in that community of engineers and programmers and people that were entrepreneurial.
--:-- David Ulevitch: I moved to San Francisco. I had started a project when I was in college to manage domain names. I was very lucky that by the time I graduated, it provided enough money for me to essentially live. It wasn't an amazing company, but it was enough that I paid my rent, had food, and could sit around and tinker on other things. While my parents were freaking out that I wasn't going to job fairs and applying to work at Microsoft, I was instead moving to San Francisco to try to leverage my technical skills. That started my professional career.
--:-- Joel Beasley: Yeah, I know exactly what you're talking about. It can sound weird to people if you make your friends online. My background is software engineering. When I wasn't engineering software, I was playing Xbox Live. I remember when I was 16, I'd gotten my license. I'm 33 now for context. One of the first things I did was drive up to Tampa, because that's where my dad had lived. There were three people that I had been playing Xbox Live with in their clan for like two or three years. I went and met all of them and hung out with all of them. Some of them were at college up there in Tampa. Some of them owned refrigeration businesses. It was so cool to do it. But my parents saw it as a very strange, weird thing, like "You met a person on the internet?" I was like, "I've spent more time with this person than I spent with my parents in the past three years, just through playing games."
--:-- David Ulevitch: We're like the last generation before the digital natives, right? I equally got locked out of my house and had to drink from the hose. But people three years younger than me, because I have siblings, they just missed that cutoff of fear, "Don't let your kids outside anymore."
--:-- Joel Beasley: That's exactly right. It's funny when you're talking about the Xbox and meeting these clan people. I'm like, "This is the first thing you said when you met them. 'Hey, what did you say you were going to do to my mom?'" We had a positive clan culture. That's important, because you have to remember there's always somebody on the other side of the screen.
--:-- David Ulevitch: I'm still friends to this day with many of the people that I was in these networking and programming and Linux IRC chat rooms. I've actually hired a bunch of them. I've worked with a bunch of them. I've invested in a couple of them. It really ended up being something that at the time, obviously I didn't know, but it taught me a lot and gave me a network. Like you said, these people you spend so much time with, when you meet them in real life, it's awesome. I think it's less weird now, but we were right on that cutoff. I'm a little bit older than you, but not by much. It was unusual for my parents to know that I would go to DEF CON and have a roommate who I hadn't met in real life to split a hotel room. But over time, they got progressively more comfortable that these were responsible people.
--:-- Joel Beasley: I remember one time I was going to DEF CON to share a hotel room with somebody and my mom was totally freaked out. But then I said, "Oh, well, he's a sophomore at Stanford." And then she's like, "Oh, okay, well, then it's okay because maybe he'll be a positive influence on me." And that was the case. I'm still friends with the guy now.
--:-- David Ulevitch: A parent's job is to make sure their kids are hanging out with the right people.
--:-- Joel Beasley: Totally. Absolutely. Not the people at the IPO party.
--:-- David Ulevitch: Right, right, right. That's right. I haven't kept in touch with them.
--:-- Joel Beasley: [Laughs] He winked for the record. No, I'm kidding. I'm joking. He did not. Tell me about the story of OpenDNS.
--:-- David Ulevitch: Sure. OpenDNS is a cybersecurity company. It was cloud-delivered security. That's not how it really started. It started out as a consumer security company. The origin was that I got an email from the founder of CNET, who was now investing and helping to start companies. He had seen that company I mentioned that I started in college, a company called EveryDNS. He sent me an email saying, "Why weren't you doing more with that original company?" I wrote back and said, "When I started that business, managing DNS and domain names was a really complicated, hard thing. You had to go to Network Solutions. It was very expensive. But now we had GoDaddy and Dotster. Basically anybody was registering domain names by the time I graduated college. So the need for that original company went away."
--:-- David Ulevitch: I said, "There's this other thing I would do that's more security focused around the domain name system. If somebody doesn't want to go to a malicious website, we could block it. If someone else doesn't care, we could let it through. If a parent wanted to block inappropriate websites for their kids but let them be online, we could block it for them. We could give somebody a much more customized internet experience just using the DNS, which had never been used in this way before." The DNS is like this control plane for the internet. It's the phone book that connects names to IP addresses. It had never been customized for the recipient where you could say, "I want the DNS in the way that I want it," and someone else can pick a different set of configurations.
--:-- David Ulevitch: He said, "That sounds like a great idea. How are you going to make money?" I said, "If somebody types in a website that doesn't exist, maybe we can show a page of search results and ads." This was back in the era of toolbars, like the Google toolbar and the Yahoo toolbar. Netscape still ruled the day on the browser with Internet Explorer on Windows. He said, "That's a great idea. Let's do that." He put in money and we got the company started.
--:-- David Ulevitch: A bunch of things happened. First, everybody wanted this. It was a faster and safer internet experience. We grew almost instantly to millions of users. Today that's a small number on the internet, but back in 2005 when we launched, millions of users very quickly was a big deal, especially because they had to change their settings on their computer to point to an alternative DNS service away from their internet provider. The bad part was that we made money from search results and ads. Over the years after we launched, we became more and more security focused. We realized that DNS was a fantastic vector for stopping internet threats.
--:-- David Ulevitch: If you think about botnets, they often use DNS to phone home, to connect to a command and control to get instructions. That's how they spread. That's how they exfiltrate information, download updates. You can also imagine phishing sites. If somebody tries to get you to click on "zamazon.com," it was a great control plane to block that and say, "Wait a minute, you really are trying to go to Amazon, not Zamazon." We underestimated when we launched just how novel of an innovation it was and how good and lightweight of a control plane it was.
--:-- David Ulevitch: The timing of our launch in 2005 was fortuitous. 2007 is when the iPhone launched. At the same time, people had Nintendo Wiis and the Xbox was out. You couldn't install endpoint antivirus software because there was nowhere on the Nintendo Wii or the Xbox to install any kind of security controls or parental controls. By making a change on your Netgear or Linksys router, you were able to protect all the devices in your home, even wireless devices and guest devices.
--:-- David Ulevitch: That was all great, and we were growing really fast. What I did appreciate was that we hated the advertising model. We hated that advertising was, and this is unique to our business, not advertising in general. We didn't like the advertising model because online advertising back then was often a vector for infection. You'd get banner ads with click links to malware. We were trying to provide a security service for free, but we were getting paid by advertisers. We didn't get to pick who they were because we were using these networks of ad providers. That relationship became more and more tenuous. While the company was profitable, it was becoming more difficult for us as a business model to continue to innovate on security while making money from a thing that was actually a vector for malicious internet activity.
--:-- David Ulevitch: What we didn't understand was that businesses were going through this same experience of having all these devices show up on their networks that were employee-owned. They were bringing their own devices, their own iPhones, their own smartphones. They had guest Wi-Fi policy issues. Wi-Fi was proliferating. You couldn't do network access control as easily because people weren't plugging into the network; they were just signing on to the Wi-Fi. This whole BYOD model of bringing your own device to the office was exploding. All of a sudden, lots of companies were starting to turn on OpenDNS on their guest Wi-Fi or on their wireless networks or even everything and just using us.
--:-- David Ulevitch: At one point, we realized there was a Fortune 100 company. We looked at the stats and they were sending us millions of DNS requests per day. They would send us customer support tickets. They were asking for Active Directory integration. We were able to track revenue sometimes by customer. We made $1.87 in advertisements from them. At some point, we're like, "Wait a minute, we can be smarter here." They wanted to turn off the ads. I think they were already blocking the ads with some mechanism because they weren't making any money. But then they wanted a support contract. Finally, we said, "For $100,000 a year, we'll give you a phone number you can call for phone support." We got one of those virtual 1-800 numbers that rolls to a cell phone. It rolled to one of my ops guys first, then a woman in support, and eventually would roll to my cell phone if nobody answered. They immediately said yes to the 100 grand. There was no rhyme or logic. That was our first major customer. We were like, "Okay, there's probably a thing here."
--:-- David Ulevitch: In 2009, I've skipped over a part where I wasn't CEO for 11 months. Maybe we'll talk about that or not.
--:-- Joel Beasley: I think we should.
--:-- David Ulevitch: Yeah, sure. You might have to pay for the therapy later if you're going to make me dredge it all up. In 2009, we basically pivoted the business because we were sick of the ad model becoming too tenuous for us to maintain as a security company. We saw this great opportunity in the enterprise. I started down the path of what became the next five years of my life of trying to become a student of enterprise go-to-market, evolving from a very technical CEO—I still had a naval on the routers, I still had commit access to the code base—to a product CEO, to a go-to-market sales CEO, and ultimately to a general manager, at which point we sold the company to Cisco.
--:-- David Ulevitch: The process of building an enterprise cybersecurity company was incredible and a lot of fun. I learned all kinds of lessons on hiring and leadership. The foundation of everything was a great product. We made the consumer service free. We never really got rid of it because all of the data from the free users, which wildly outnumbered the enterprise users, provided us a huge amount of data to do real security research and analysis. We could build baselines and patterns of what good websites look like, what malicious websites look like, and do predictive threat analysis. If a website got registered yesterday pointing to an IP address that had been hosting malicious sites for the last two weeks, maybe you don't want to be the guinea pig and go to that new website. We could do all kinds of analysis based on the massive amount of free users generating traffic for us.
--:-- David Ulevitch: Let me pause there because I covered a lot of ground. I don't know where you want to go from here.
--:-- Joel Beasley: Well, I think the therapy bill would be really expensive, so we'll probably skip over that. How did you meet the team at Andreessen Horowitz?
--:-- David Ulevitch: Oh, this is good.
--:-- Joel Beasley: How did you end up working there now?
--:-- David Ulevitch: In 2009, maybe 2010, I'm not entirely sure. As part of that transition from consumer to enterprise company, that original investor also needed to sell his position in the company. 2008 and the economic crisis had been rough on him. He needed some capital. We were shifting our focus for the business. We went out to meet with investors. I went to meet with Andreessen Horowitz, which was a brand new firm at the time. Mark and Ben are like these big celebrity personalities, super smart guys. Mark is a visionary for the future of the world. Ben is a huge organizational leader and a great investor. They had an amazing portfolio. I went to meet with them. They basically said, "You're great. The idea is great. But your whole company, the corporate structure, your capital history, you're pivoting the business. It's all so messed up. There's no way we're going to touch you with a 10-foot pole. But we think you're great." That was the very nice way they rejected me.
--:-- David Ulevitch: I thought they did it in such a first-class way and such a nice way that every year or so, I would send updates to Ben with, "Hey, here's what's happening with the company. Here's what I'm learning." We ended up raising money from other great investors, but always kept in touch. When I sold the company in 2015, there's a guy at Andreessen Horowitz who runs our executive talent network. That function keeps track of all the best CFOs, CMOs, heads of sales, CTOs, VPs of engineering. He's the world's greatest executive recruiter. Part of his job is to keep track of potential general partners of the firm. He's so smart that when I sold my company, he put a little calendar reminder on the anniversary of my sale to reach out to me every year.
--:-- David Ulevitch: After the first year, Jeff calls me up and says, "Hey, David, Ben and Mark always liked you. Do you want to come in and talk to us about working here?" I said, "No, I'm both contractually stuck at Cisco, but I also like it and I enjoyed the job I was in. Not a good time." Next year, second year, he calls me. "Hey, it's been two years. Do you want to come talk to us?" I said, "I'm no longer contractually required to be at Cisco, but I still like it. I'm going to stay." At that point, I was running Cisco's security business. It's the largest security business in the world. It was a great experience. I was learning a lot, developing new leadership muscles. I said, "Not the right time."
--:-- David Ulevitch: Third year, he calls me. At that point, I had been on airplanes every week for two years straight, traveling to visit customers and partners and other engineering offices. While I loved it, it felt unsustainable. I was thinking about doing something else. His timing was perfect. I came in. I never thought I was going to be a venture capitalist. I loved being an entrepreneur. I had my own weird experience. I did get fired by my original investor as CEO for 11 months and had to be CTO. I had this one impression of VCs that they really are obviously stupid because he did that to me. I never thought I was going to be a VC.
--:-- David Ulevitch: I met the team at Andreessen Horowitz. A lot of the team are former CEOs. I sometimes joke it's like a refugee camp for entrepreneurs. I don't think that's on the marketing party line, but that's what I joke. We have an empathetic investment team because a lot of us, whatever the worst thing that's ever happened to you as an entrepreneur, I've seen worse or personally done worse or been in worse situations. We believe, and people know this about our firm, that we are in service to entrepreneurs. When I was an entrepreneur, I would have to trek myself down to Sand Hill Road, beg for a meeting. Now the tables have turned. Entrepreneurs have way more resources. There's a lot more capital in the system. There's things like Y Combinator that educate and inform entrepreneurs. There's podcasts like yours that take people that are really technical and start to inform them about the broader entrepreneurial world. The entrepreneurial ecosystem is so much more informed that if you want to be a VC, you can't just sit behind a big desk and hope people come to you asking for money. You have to go out there and decide that you want to be in service to entrepreneurs. Our firm believes in that.
--:-- David Ulevitch: What ultimately made me decide to work here is Ben sat me down and said, "Look, if you come here, you can be the kind of investor that you wish you had had when you were an entrepreneur." That sealed the deal for me. I didn't want to do nothing. I really didn't want to start another company. I needed to not put myself through that mental anguish. I wanted to be a cheerleader, supporter, coach, mentor, helper, partner to entrepreneurs. I didn't want to do it on my own. This has been a great home. I've been here now two and a half years. I've written a lot of checks, made a lot of investments. There's general wisdom in the industry that you should come in and not do anything for your first year, just take meetings and not write checks so you don't make mistakes. I ignored that. We'll see if it's at my peril or not. But I like the job of investing. I love working with entrepreneurs. As Mark tells me, writing checks is the job. That's what I do.
--:-- Joel Beasley: Do you guys have a minimum revenue requirement?
--:-- David Ulevitch: We don't. We'll do everything. We're a multi-stage firm. I will meet an entrepreneur and write a check on an idea. Someone who's deeply technical, the best in the world at what they do, they have a vision for the future, but maybe they haven't written a single line of code. I'll write that check. Or I'll come in—there was another company where I came in, the company was quite mature, they were on track to do about $100 million or more in revenue last year, and I wrote a very large check coming in much later into the process. I'm fairly agnostic. I do prefer the earlier stage. I like the messy stage. I don't believe that investors should be the ones helping to design your product or tailor your product. I feel like that's the founder's job. But I'm certainly down to help on hiring. How do you hire those first few key hires that can make a transformative difference in a company? Help you with organizational development, leadership. A lot of founders, especially technical founders, if they're like me, they're more introverted. Thinking about, "When should I have an all-hands? Should I have an all-hands meeting when I only have four employees? Or is that too cheesy and ridiculous?" It's not. You should have an all-hands of four people. It's fine. It can be casual.
--:-- David Ulevitch: I try to help entrepreneurs scale through figuring out product market fit and ultimately bringing their product to market. I focus on enterprise software. Almost everything that I invest in is something that ultimately gets sold to a customer. I'm not going to be the right person to find the next Snapchat or Clubhouse or Facebook. I have other partners that do that. I like the infrastructure, the security, and enterprise software world.
--:-- Joel Beasley: Given your experience with taking products to market inside the enterprise, what's the 10,000-foot overview? How do you do that? Somebody says, "Hey, how do I take a product to market inside enterprise?" How do you respond?
--:-- David Ulevitch: Yeah, so I would say, look, the foundation is you have to have a great product. In fact, having a great product will make everything else easier. I'm not going to say that there's never been enterprise software companies that have been successful with bad products, because obviously, we know that there have been. We've been on the buying side of some of those products, probably. Sometimes they make up for it with services and support and professional services.
--:-- But I think in today's world, we're increasingly in an environment where enterprise buyers are very sophisticated. They often want to try before they buy. You see things like Slack or Zoom, where the company might even have users inside the company before the CIO or the decision maker buys it wall-to-wall. There are already people using it. I think that model is here to stay. Organizations have empowered their employees to have much more buying decision as well as choosing decision. They can choose to use a product for a while, and then eventually the company will decide if they want to go wall-to-wall. So you have to have that foundation of a great product.
--:-- The other thing is that product marketing is something where a lot of founders make a big miss. They often think that if you build it, they will come. That's just not true. Even the best companies that you feel like you just heard about organically or through friends or word of mouth, they've done a lot of work conscientiously to communicate a narrative, to tell a story about why this product exists, why you need to be using it, why it's better, why it's easier.
--:-- It's not just that it's free, but there's something about it that lowers the friction. With Zoom, you can connect through the web. Anybody can create an account. You didn't have to have an enterprise conversation with a sales rep. You could just start using it. So whatever it was, whether through go-to-market or through the product itself, there's a narrative of the best enterprise companies that gets created that they communicate, and that's product marketing.
--:-- Product marketing, for those that don't know, is translating what you have into a value proposition for the customer. You don't want to leave it up to the customer to figure out why your thing is really special or good. You sometimes just need to tell them: this is why it's special and good, these are the real benefits, not just a list of features. Not "this provides SSL encryption" or "this provides high-speed packet processing." What you want to say is "this will enable your employees to connect more reliably, to connect faster." Those are value propositions, not just a list of features.
--:-- I think most early stage companies trying to go to market really neglect this. They get so myopically focused on the product and the capabilities that they neglect the actual translation of that into value proposition. There are great books out there on product marketing. There are great people out there in product marketing. It is one of the hardest things to do in a company, and you have to iterate on it. But that might be the most important thing.
--:-- So if you have a great product, and you need your product marketing which is a component of an overall marketing strategy, then ultimately you want to do sales. The last thing I would say before I pause here is that as a baseline rule, when I meet with a small company that's out in the market selling, whatever their price point is, I already know they should double it. Especially if it's a technical founder. Technical founders almost always underprice their products. Oftentimes it's because they themselves are cheap, like me. They don't want to pay a lot for products, so they underprice the product. They're discounting the value that they're actually providing.
--:-- If they listen to their customers and they spend time talking to their customers, they're going to hear what the value proposition really is. They don't need to price based on what it costs them to serve it. They should be pricing based on the value they're providing. Most enterprise software is some sort of a replacement for an IT function. For instance, if you use Salesforce, you're just not having to run some massive internal CRM system, dedicating headcount to it. Salesforce just does it all for you. While it might only cost Salesforce a few hundred bucks a year to offer an account to a customer, they're saving that customer tens of thousands, if not hundreds of thousands of dollars because that company doesn't have to go stand up infrastructure, hire experts, hire people to set up Salesforce.
--:-- I think pricing is the last piece where companies need to generally have a better sense of what the market will bear and probably increase their pricing. So that was another broad 10,000 foot answer, but hopefully that was on the mark.
--:-- Joel Beasley: Yeah. Well, it's tough, right? Because as a founder, you're sitting there watching your runway and you need to make sales. So you can really play some weird mind games with yourself. For me, I got this one customer, GE Healthcare. Small customer. [laughs] It came in at like the perfect time, right? Because they saw us on a podcast and said, "Oh, we heard the product you're talking about." We were trying to scotch tape and bubble gum something like that together, and then it turned out you made something exactly for that. So they wanted to buy it.
--:-- At the time I was trying to sell to SMBs, people that only had 100 leaders. They bought it. It's been about eight months and we've run multiple countries of their leaders through it and things and they love it. But Peter pulled me aside and said, "Dude, we would usually pay like $750,000 for what you did." I was like, "Are you kidding me?" He told me how to structure the sales presentation. He said, "You need an ROI study done by a third party." I didn't know any of these things even existed. I told my team, "I'm working directly with Peter because I need to learn everything from this guy."
--:-- Such a learning experience about value, because it's the same software. It solves the same problem. If I had gotten $750,000, do you know how much we could have competed? That would have been insane.
--:-- David Ulevitch: Right. Well, that's the other thing about charging more. It enables you to have more resources. You have more margin to go invest in the business, invest in the team, invest in the customer outcome. You get this very virtuous cycle. The experience you went through is the same experience I've gone through and everyone goes through. By the way, it's great because there are plenty of other big customers out there that you haven't talked to yet, that you haven't sold to. There's something to be said about having a lighthouse customer. Now you have a reference there, you have a champion. The next customer you can go charge the $700,000 to. So you don't have to beat yourself up over it.
--:-- It's a great experience to go through to realize that value is something quite different. I often tell entrepreneurs, especially because I like the model that you've gone through, starting with SMB and then moving up a ratchet and moving up a ratchet. Because by the way, there's a customer out there. If you got 10 people paying $700,000, I promise you there's a customer that will pay you $7 million. I've written a blog post about this. Once you have 10 customers paying a consistent price point, there's at least one customer out there that will pay 10 times that. If you then get 10 of them, there's at least one more customer out there that will pay 10 times that.
--:-- It means that you've built a product that's really filling a need at that current price point. But there is someone else out there who's willing to sort of slum it with you. Because you're really preventing them from having to build that duct tape solution, you've really solved that itch that they need to scratch. And you're able to do it. Then the whole company comes along for the ride. The customer support team comes along, professional services comes along, marketing comes along. That's the rising tide that helps companies increase their average deal size and their overall revenue. It's a great journey to be on. It's exciting that you're on that journey.
--:-- Joel Beasley: Yeah, yeah. We got crushed down a little bit when COVID happened. Everyone would think that leadership would skyrocket, but what ended up happening was everyone froze up for about six months. Even current customers we had contracts with just withheld payment because that's just the way it was. I get it because we had to turn around and do the same thing. It was just tough. But we had a strong team. So we said, "What are we going to do?"
--:-- The podcast was doing really well, popular. So we had people that were willing to pay to come on the podcast. We said, "All right, we have to think quick on our feet." The leadership software has an eight-month sales cycle because they plan annually. So we built a PDF, did a quick design, put three sponsorship packages together, and we ended up closing out the year with 325% revenue growth, although it was on a different product. Our first year we did $50,000. Our second year we did $230,000, and that's when we had the issue. The third year we had the issue of COVID, but we ended up growing and closing out at about $760,000. That was just the podcast. It was about $200,000 of recurring revenue from the leadership stuff and $500,000 plus from the podcast.
--:-- We were just like, "Oh my gosh, it's rinse and repeat." We can support $5 million revenue from the podcast. So I said, "Let's just keep hiring salespeople. Once we have enough cash flow, which will be in August or September, we can parse off some of the cash because it's so profitable, the podcast advertising. We can parse off some of that and just build the enterprise sales team. We'll have enough cash flow to not cannibalize the growth of the podcast business, but still grow the other one."
--:-- When I was raising money, I did a couple pitches. People had a really hard time wrapping their mind around that. They said, "You're losing focus. You're doing two things." I was like, "I don't know. I don't really feel like it's that way. I feel like it's a journey. Or surviving. And this is also marketing." These things are virtuous. You get this virtuous cycle where people know about the podcast, they know about you, and then they know about the company.
--:-- David Ulevitch: You mentioned something that's really important, which is that when COVID hit, you talked to the team. Everyone knows that COVID was bad. For a lot of companies, the employees inside these companies know that it's bad. But you talk to the team and say, "What are we going to do?" I think that real leaders are open and transparent about the state of the union with their teams. It's not your job to have every good idea. You may have every good idea, but it's not your job to have every good idea. Other people on the team want to know how they can help fix it. If that means reprioritizing and devoting resources to podcasts or some other idea, you want to solve these things openly and with a team. When you mentioned that, it made me realize that that's a really important part of leadership.
--:-- Joel Beasley: Yeah, you have to do that. Because if you don't get buy-in on the vision, especially when you're in crunch time like that, and if you don't crowdsource, and if you don't use every single available resource, then you're doing a disservice to yourself and your investors.
--:-- David Ulevitch: That's right. And the employees. The worst thing that people do is they just put their head in the sand and say, "Oh no, business is great. It's fine. Maybe things are slow." Then all of a sudden they realize one day they're just out of money when they could have spent that time working with the team, scrambling and hustling and saying, "What are we going to do to get through this tough moment?"
--:-- Joel Beasley: It's hard to be calm when things are going down. I'm the person... This whole journey, I've always, like you, since age 13, been a 1099 contractor. But I've gotten to the point where it's reflexive for me. The plane's going down and I'm just like, "Okay guys, what do we do? Let's figure this out. What resources do we have? How do we not let this plane go down?" That calmness permeates through the entire team. Because if you go crazy, which obviously there were times when I have, you see that it's like chickens with their heads cut off. It does not work. You have to be Cool Hand Luke.
--:-- David Ulevitch: Yeah, that's right. I think you just have to be honest with people. By the way, you hire these people, they know they've joined a small company. They know there's risks. People understand that. I think it actually builds trust. It builds camaraderie in those tough moments. Obviously, it sucks when you're in these tough moments. It's terrible. But when you're on the other side of them, you look back and it's actually one of the best times because you're really galvanized as a team. You stretched your muscles into new areas, you tried new things, and then when the things are working, it feels really, really good.
--:-- Some people call this "Type Two Fun." I don't know if you've heard that term.
--:-- Joel Beasley: I haven't.
--:-- David Ulevitch: Type One Fun is like you're on the carousel at a birthday party. That's fun in the moment. You're at the event and it's fun in the moment. Type Two Fun is like you went on this big backpacking trip. It was actually grueling. You didn't think you were going to make it to the top. Or you're working through this problem with your team and everything's horrible. But when you get to the other side, the level of satisfaction and achievement is so good that you look back and it actually was fun, even though in the moment it felt terrible. That's Type Two Fun. I would describe myself as a Type Two Fun enthusiast. The satisfaction level is so much more fun than just going to a party and seeing your buds.
--:-- Joel Beasley: You're exactly right, because Type Two Fun comes with growth.
--:-- David Ulevitch: That's right.
--:-- Joel Beasley: So I guess we only have 15 minutes and I've gotten through like 1% of my notes.
--:-- David Ulevitch: I know.
--:-- Joel Beasley: Okay, we'll go fast. Do you ever do lightning rounds?
--:-- David Ulevitch: Yeah.
--:-- Joel Beasley: All right, let's do something. I'll just turn it into a lightning round just like that.
--:-- David Ulevitch: All right.
--:-- Joel Beasley: Here's one. I was talking with Ron. He's a board member, entrepreneur type guy at Yieldstreet. They've tried to democratize access to investments, alternative asset classes. After that conversation with him about making Yield more accessible to other people, I was curious. I hear all these great podcast people come on the show and they'll tell me about either their startups or whatever. I want to invest in them so bad, but there doesn't seem to be a vehicle out there that just lets me jump into anyone I see. Do you think that'll ever exist?
--:-- David Ulevitch: Yeah, first of all, it should exist. And there are things already that are opening the pathways and the doors to that. AngelList is probably the best way. There's something on AngelList that people don't know. It's somewhere between a database of startups, a fundraising platform, and a set of services for startups themselves. They do everything from manage their cap table to raising money.
--:-- One of the services they do, and I'm not really an expert on AngelList, but I think I can do it justice to explain it here. They have this thing called Syndicates, where people that are in the flow of good deals are putting together these syndicates. You can contribute like $5,000, which from an investment standpoint is a small amount of money. In life, it's a real amount of money. But as an investor, it's a small amount of money. That $5,000 can get spread across maybe 10 different angel investments. You're sort of just grafting behind the syndicate operator who's making the investment decision.
--:-- If somebody wants to invest in startups, I always tell people it's better to do the basket strategy rather than try to assume you're going to be a great picker. Maybe you are a great picker. I don't know. But if I look at my portfolio, I think the basket was much better when I was an angel investor. The syndicate model at AngelList lets you just contribute. This is not investment advice, blah blah blah. My marketing people are going to be freaking out. This is not investment advice.
--:-- Joel Beasley: Yes. Not investment advice.
--:-- David Ulevitch: I don't know anything I'm talking about. But if somebody is interested, go to AngelList and learn more. You put money into the syndicate, and then the syndicate periodically invests in deals as they come up. A lot of these people, if you look at their backgrounds, maybe they're a senior engineer at Stripe. Maybe they work at Dropbox. So they're in the flow of Bay Area, Silicon Valley startups. Maybe they're a full-time professional angel investor, and they do the syndicate both to create access for other people and to have more of a bankroll to write bigger checks. Maybe they can only write a $25,000 check on their own, but with the syndicate, they can make it a $50,000 check.
--:-- AngelList has a whole bunch of different programs to invest in startups. The nice thing I like about the syndicate is that you can do the basket. You don't have to pick individual companies. I think that's a great way to get started if you're interested in that kind of asset class, which is much riskier and the capital is locked up for a long time, but historically has been a good asset class on the basket approach, at least.
--:-- Joel Beasley: So companies can just go on there? My company, I could just go on there and post some...
--:-- David Ulevitch: Well, first of all, you could have your own syndicate. That's not necessarily a bad idea because you have a following, you have a brand. People are like, "All right, Joel's in the mix of entrepreneurs." Maybe there's an interesting angle of people that are outside the Bay Area, right? There are great companies being started everywhere. You have access to them in a way that maybe the engineer at Dropbox or Stripe doesn't have access. You go out, you start a syndicate, maybe you're able to go raise a couple hundred grand from 20 people or 200 people. Then you're able to make those investments. Just like a venture fund, you get some of the proceeds, but then your listeners that think you're a good picker can invest in you.
--:-- On the entrepreneurial side, if you're a company raising money, yeah, AngelList also has a way to raise money if you're a startup. I don't know exactly how that part works because I haven't done that part of it. I haven't been on the fundraising side on the startup side, but I know that there are some capabilities around that as well.
--:-- Joel Beasley: Awesome. I'll take a look at it. As we start to wrap up here, what are some of the hardest lessons that you've learned as an entrepreneur?
--:-- David Ulevitch: The hardest lessons I think as an entrepreneur are always around leadership and being really intellectually honest with yourself. I sometimes tell people, "What time is it?" Which is a version of, "What inning are you in?" What happens is sometimes people ship a product and they think it's ready to go, so they hire a bunch of salespeople. But then it turns out the product doesn't work or doesn't have product market fit. They get over their skis.
--:-- Being really rigorously intellectually honest, and part of that involves having a team around you that gives you honest feedback. I think that is one of the hardest parts of being an entrepreneur: really knowing what inning we're in in the game and what I should be doing to make sure that I'm winning the game. People get delusionally optimistic or they get delusionally cynical. Neither one of those is good. Having mentors and people that give you that feedback is useful. Managing your own psychology as an entrepreneur is really one of the most important things.
--:-- Also, obviously, not running out of money. It sounds stupid, but the number one reason companies fail is running out of money. So not running out of money is also important.
--:-- Joel Beasley: They said that to me when I was raising. I've only ever raised myself, without business partners, just Joel as the founder. I only ever raised one round from a VC firm here in Florida for $500,000 for 25%. When I was standing up there in the hot seat, they called it, they said that exact same thing. I looked at them and I said, "No. The reason why companies fail is because they gave up. I'd be cleaning toilets at Walmart to continue to fund it. I would never give up." I learned that early on from just personal struggles that I went through. I think that's what clenched the deal with them.
--:-- David Ulevitch: Yeah, that's true. Obviously, you have to have the hustle and the grit. And at some point, some people like paychecks.
--:-- Joel Beasley: Well, I mean, I would let the company boil down to just, "Hey, we're not there." I'm actually having the best time of my life because I've never been at the point where I founded something and it's just going. It's like, "Let's wait for the last two salespeople to ramp because it takes them three months, and we'll take that cash. We'll hire three more salespeople and we're just going to rinse and repeat." We're not dependent on anything or anyone else. We just keep doing our thing. That freedom... The first year, I would say raising venture capital was scary. After the check got written, it was like, "Whoa." It was a really weird moment because now we've got burn and we've got to figure this out. It was hard. But we did it.
--:-- David Ulevitch: There you go. That's it.
--:-- Joel Beasley: Anything else? What's the most important thing you look for in a founder when you're investing?
--:-- David Ulevitch: I want someone who... There are different things. I don't think it's fair to say there's one thing. An incredible product founder is important. Somebody who has a chip on their shoulder where they want to prove that they can do something that maybe someone told them they couldn't do, or they want to overcome something, or they want to demonstrate their ability to make their dent in the universe, as Steve Jobs would say.
--:-- Somebody who is able to translate something that's usually a more broad, world-dominating global vision into something that's articulate and tangible. People that are able to translate a broad vision into something that seems actionable and tangible, that's an important skill for hiring, retaining talent, communicating to your talent what's important.
--:-- I would say those sort of great product CEO, world-dominating, chip-on-the-shoulder kind of personality, but then they have to be somewhat grounded to the earth to be able to translate that broad vision. If you look at the Elon Musks of the world, Elon can talk about going to Mars, but then he can talk you through the A through Z steps he's going to take to get there. It starts with reusable rockets, then in-space refueling. He's mapping out the steps. Now all of a sudden, going to Mars doesn't seem crazy at all. It's just a matter of time. But before that mapping of the steps, it sounds crazy. That's what makes for an iconic founder, I think.
--:-- Joel Beasley: Thank you so much for listening. If you found this episode useful, please share it with a friend or a colleague who you think would get value from it. If you have topics that you'd like to hear discussed on the podcast, either add me on LinkedIn or send me an email,
[email protected]. Every time I get an email or a LinkedIn message, it absolutely makes my day and inspires me to keep going.
