Today we spoke with serial entrepreneur Dave Parker about his new book, Trajectory Startup. In his book, Dave outlines plans and tips for those looking to start a business or any sort of professional endeavor, with personalized business models and financial templates. Listen in for Dave’s advice on the trials of getting started, developing a business for the right reasons, and the crucial challenge of diversifying the modern workplace.
Dave Parker [00:00:01] And they’d be like, no, like before you before you plan on leaving your day job, there are things you can know about your idea.
Sam Jayanti [00:00:10] Welcome to Ideamix radio, I’m Sam Jayanti and every week I chat with entrepreneurs, solopreneurs, career changers, experts and enthusiasts for insider tips that you can apply to turn your idea into a business. So sit back and enjoy today’s show. As you can imagine, we meet a lot of business books at ideamix. It’s rare to read a book that straddles the balance between practical, essential knowledge while being an enjoyable read. Dave Parker is a five time founder, entrepreneur and professional board member for growing tech companies. Over his 20 plus year career, his skill set is focused on innovating and scaling products and companies in the U.S. and internationally. His first book Trajectory Startup, not a great title by the way Dave, is out, and I can’t recommend it more strongly to any of you who are aspiring or current entrepreneurs, students or anybody engaged in a professional endeavor. Dave, it’s a pleasure to have you on Ideamix radio today.
Dave Parker [00:01:16] Thanks, Sam. Great to join you.
Sam Jayanti [00:01:19] So, Dave, tell us about the book and what made you want to write it?
Dave Parker [00:01:23] Well, I think working with founders over the years and especially with my time with Startup Weekend, people would come out of Startup Weekend. And for those of you who don’t know Startup Weekend, it was an event company that we sold to Techstars in 2015 and the full year the year before we saw the Techstars, we did twelve hundred and sixty five events worldwide in 120 countries and we had 74,000 attendees and people would come out of that event on Sunday, and they’d be so excited. They’re like, Oh my God, Sam and I met each other, we’re going to be co-founders is going to be awesome, we’re leaving their jobs like tomorrow. And I’d be like, No, before you before you plan on leaving your day job, there are things you can know about your idea. Think of it as basic due diligence if you’re an investor, but as a founder, that that enthusiasm was so exciting, right? So you don’t wanna be the one that throws a cold blanket on it, right? Or a cold bucket of water. You want to be the person who says, like, let me encourage you along the way without quelling your dream, right? So, so that was that was the gap in the market that I saw was this big need between these inspire events. Whether it’s Shark Tank on a Friday night that somebody is watching you while they’re at the gym or whether it’s a Startup Weekend where people are like, I’m super stoked about this thing called my startup. And now what I want to do is figure out how do I go make it work? So the goal of the book was to, you know, when you run a startup, as you well know, Sam, there’s a thousand different decisions and mistakes you can make. And I can’t help you with a checklist of all of them, but I can help you think like a serial founder, even though you’re not yet. So that was really the goal of the book was to to put in a time bound set of deliverables that founders can look at and say, OK, if I don’t get traction in the next five to six months, like maybe I should pick a different idea.
Sam Jayanti [00:03:09] OK, so that has raised so many questions for you, so I can’t wait to dive in. So one, you started five companies yourself, some of them worked. Some of them didn’t. You and I both know that startup failure rates are incredibly high at 90 percent. Tell us about your experience as a founder and how you evolved over the course of those five companies.
Dave Parker [00:03:33] Yeah, I mean, my first company, we started a company that was we were a digital distributor of software back when digital downloads were just starting. So in the late 90s, 1997 was when I started the company. We grew the company incredibly fast from zero to 32 million in sales in four years and a few a few co-founders and 150 in the same timeframe. And then we ran into the tech bubble and 9/11, so we sold the company in 2002. So if you remember 2002, it wasn’t a great time to sell a company so much. So it was a little bit like being at the, you know, you get the ball over the line to the goalpost, but you’re battered and bruised and you’re like, I’m never going to play this game again. So that was very much the outcome of that first company. So we sold it, but it wasn’t a great outcome. And knowing what I know today, I would probably never even start that company again. Because we definitely solved a problem, right, we we and most startup founders start with a problem scenario. And it was definitely my idea, and you’re definitely passionate about it. And when you talk with people, your confirmation bias can be wild, right? Because you’re like, absolutely everybody. Like Sam said this was a great idea. I’m so validated, right? But you don’t always ask the hard questions about the business in advance that sets you up for the biggest challenges later on. So the first company I would say was it was OK, right? So I’ve raised $15 million. I’ve exceeded $85 million dollars overall. No unicorns, right? So a good, a reasonable set of returns, but nothing that you’re like, Woo hoo, I’m going to go buy a beach somewhere and hang out on it. So I think for founders recognizing the huge failure success rate, one of the things I love about founders everywhere I go in the world is I’ll show up in a room of 100 people when we get to do rooms again, and everyone knows there’s a 90 percent failure rate and everyone knows the math doesn’t apply to them, right? We’re all just slightly delusional to completely delusional because we look around the room and we feel bad for everybody else because we know we’re going to succeed. And I think the thing I love about working with founders is we all share that common set of delusion. Now the question is is how do you put some practical boundaries on it to make sure that you’re not a statistic?
Sam Jayanti [00:05:51] Yeah. I mean, it’s such a great point because, you know, the same personality traits that cause a founder to do what they do, the creativity, the intent to build something that hasn’t been done before is is incredible. And at the same time, it leads to, as you said, this delusion of, I’m just going to ignore the data and I’m going to ignore the statistics, and I’m going to assume that, of course, just by virtue of being here, I’m going to be in that 10 percent. And I think what’s so interesting about your book is that it is a super intuitive set of frameworks to help founders really frame their thinking and actually put sort of pen to paper on the parameters that they need to think of their idea within and sequence what they do and to really maximize their chances of getting to a good outcome, which is what was, I think, as you said, the gap in the marketplace and sort of lacking between the inspiration piece of podcasts, things like Shark Tank, you know, social media content and sort of here’s how the rubber actually meets the road. And this is what’s going to determine whether you’re successful or not.
Dave Parker [00:07:11] Yeah, it’s a little bit like a diet program, right? Everybody talks about how they lost 100 pounds or whatever they did or and all of it’s true for them, right? But it doesn’t necessarily mean it works for everybody the same way. So there’s no I don’t think there’s a P90X right for for start ups. So what I’ve tried to do is create something where you can you should be asking the questions of yourself like, what milestones am I going to hit this month to prove that I should keep working on this idea? How do I go to customer development interviews? So I start with 11 frameworks for ideas. They’re not all of the frameworks for ideas, but the concept there is. Here’s the way a number of founders think about their idea frameworks. So, for example, Rich Barton, who started both Expedia and Zillow, thinks about it as power to the people. So where you have a opaque dataset originally with the travel industry and then with the multiple listing services, where do you have an opaque data set where you can make it more transparent to the customer? So when you see this in emerging markets, all the time too Sam is that in in the U.S. we have an API for aftermarket auto part, right? So and get prices and availability. But in emerging markets like Brazil, the answer is that doesn’t exist. So you see companies creating marketplaces that take opaque datasets and make them more transparent to the consumer, and the consumer can be to be B2B or B2C. So one of the things I outlined with the 11 frameworks is just like, Hey, if you don’t have an idea, this is a way you can approach thinking about your idea. That was probably the most surprising thing that I came across as we were doing this program. First, we were testing out. This is the MVP for the book as a final product, and somebody came to me after one of the first sessions about how this is creating a super inspiring and you’re kind of funny and and she’s like, but I don’t have an idea, what do I do? And I chuckled, Sam, because I’m like, I need to give that a more thoughtful reply, because that’s never been my challenge, right? My challenge has always been I have too many ideas and it’s a little bit like, you know, the dog chasing the squirrel, right? You just every time you’re like, Oh, that’s a great idea, I should go do that, right? And I think some founders that have lots of ideas are galvanized by the fact they can’t make a decision about which one’s a good one. And then there are some people who have aspirations of being entrepreneurs, but they don’t they don’t really have an idea they want to go pursue. And so the frameworks for the ideas, it was really focused on the folks who were like, oh, I want to be entrepreneurial or I want I want to create a company. How do I think about my idea? But it’s also a good framework for founders around what do you want to be at launch and what do you want to be at scale? Because, yeah, because, yeah, you know. I mean, founders, we see the future as if it exists today. Yeah. And the challenge with that is the business model that gets you to scale is is going to look very different than the business model that you have at scale. And that’s a big difference in how you think about the business. And, you know, even, you know, as you know, you pitch different investors, it varies greatly based on geography. And I run into this all the time in Seattle with my founders going to the valley to pitch. Now, obviously, doing it all virtually. Is in the valley, you have to pitch the Mt. Everest peak climb and you have to tell a story of the peak. But in Seattle, you have to have the story of base camp and how you’re going to get to the peak because the investors in Seattle want to know, can I, can I get to cash flow? Can I get to revenue? Can I get to the milestones? So if you think about it as a base camp and a peak expedition, the base camp analogy is you have to have a plan, you have to be a base camp. You have to show that you’re not going to walk around Everest 18 times, right? You’re going to take are you’re taking the most risky paths? Are you taking the tried and true path, right? So you have to in the valley, if you started with base camp, people would be like, that’s just not a big enough idea. We don’t. We don’t think we want to fund it. Right. So I know that founders feel whipsawed as they get investor feedback for that, but it varies a lot by the geography of the the market.
Sam Jayanti [00:11:12] It absolutely does. And I think, you know, for founders as as you were saying, marrying the different stages of their vision, both for themselves to think through what it is that a company needs and how they’re actually going to build it, but also how to articulate that vision to different investors. Because, as you said, people just think and very different both time frames and ambitions. And in the valley, if you don’t hear the ambition, it’s sort of dead on arrival, in Seattle, if you don’t hear the runway, it’s dead on arrival. Totally, and lots of variance in between, right? So it’s a yeah, it’s a really, really important point for our listeners. Dave, you’re a frequent speaker at university and community events and you also volunteer lead coordinator at Seattle Startup Week. You’re very integral to the whole community in Seattle, and you’ve crafted a career that’s part volunteerism and part pays the bills with upside. So talk about that mix a little bit.
Dave Parker [00:12:12] Yeah. So my 20 percent times I think about Google, they have a 20 percent time where you can spend your your Fridays working on whatever project you want to work on. So my my 20 percent time is really community building around today, the Seattle ecosystem and some other ecosystems as well. But sometimes my 20 percent, it’s more like 60 percent times, you know, because it it kind of ebbs and flows with what’s going on in the in the world at the time. But giving back is a big part of seeing the community improve is super important to me, and I want to leave the community better than I found it. So when when I lost my first company in 1997, it’s not like Bill Gates or Jeff Bezos without giving back to the community and clearly not comparing myself to them from this perspective. But it’s a question of like the valley is unique because the valley reinvests capital in this flywheel effect of, you know, founders reinvesting in founders. It’s the thing that’s so unique about the valley, right? Do we have professional services people here yet? Do we have great marketers here, every other market, right? Our great founders everywhere? Yes. Is capital equally distributed? No, right. So one of the things that makes capital equally distributed is do we reinvest in each other as a startup community and part of the, you know, you look at what’s been successful in the valley is like the PayPal mafia. Right? So you had Reid Hoffman and right that whole team at Peter Thiel. And you know, that group is an amazing group of people who reinvested in each other because they had long relationships. So one of the things we’ve tried to recreate here in Seattle with that is we do a founder cohort program that’s a post accelerator program that is designed around two main points. One is, can I help you navigate the ecosystem in six months instead of 18 months? And the answer is, yeah, absolutely. Like, that’s just a no brainer, because if you knew that market, the way I knew the market and you weren’t a first time founder, there stuff you would do and there stuff you wouldn’t do, but you would just be like, I’m not going to meet with that group and that group super helpful. So our first objective is, can we help do that in six months versus 18? So we literally bring all the lead in back? Enters into this cohort the very first month, in fact, there’s a part of the program is going on jump from this recording to a session with that group later this morning. The second objective is we want to put you in community with each other, with a group of people who are going through a similar experience and are noncompetitive because, you know, Sam, as well as I do like, Wow, I’m trying to go recruit to hire engineers, and so are you. And we’re both competing with Amazon. We’re not competing with each other, right? So can I put you in a group in a community that gives you a relationship that 10 years from now, I can be like, Oh yeah, Sam and I know eachother from this cohort thing we did like 10 years ago, Oh, she’s doing a new company. I want to invest in her. Like, that’s a no brainer because I have that relationship. And as you know, as founders, the challenges is we are also augured in and heads down, focused on our thing that we think nobody else has the same challenges or can relate to the problems that we have. And yet there’s a whole group of founders sitting around you that have the same challenges and feel very isolated. And, you know, the challenge of our industry from a startup perspective, not the vertical industry, but the startup side of the industry is it leads to an awful lot of isolation. And a lot of you know, from a depression perspective, this is super huge because we feel like we had to go out it alone. And that’s my big takeaway for founders is this is this is not a solo sport, right? You can you can have that, but you have to invest in it. And so we’re trying to create that community angle as well.
Sam Jayanti [00:15:56] You know, it’s it’s I think, you know, it’s such an important point because in the same way that founders feel they are alone and it is sort of a lonely path. You know, many founders also feel that their idea is so unique that it sort of can’t be characterized by any set of frameworks. And I think what’s super interesting about both the work that you do on a volunteer basis,but is now encapsulated in the book is the however unique your idea is, it has to fall into the framework of one of several business models. And if it doesn’t, you know, it’s because you’re either not thinking about it correctly or you’re certainly not articulating it correctly. But go in those directions it must for it to be successful in the end.
Dave Parker [00:16:47] Yeah, we had a funny experience, and so I was running a program here in Seattle at the time called Founder Institute, and I ran about five or six cohorts in Seattle and then went to work with Startup Weekend and Techstars. And I’ve been a Techstars mentor forever now, and it feels like forever since I started in Seattle, which is probably eight years ago. Yeah. And one of the things that happened along the way is somebody came to me and said, Hey, can I have your financial model? And I was like, Well, hey, of course you can have it, but yours is a marketplace and mine’s a subscription and those are different, and they share some of the same languages. And I’m clearly from a gap in accounting perspective as a spreadsheet. But the heuristics are different and structures are kind of different. And so it started me down this weird path. It didn’t. I didn’t plan on being a six year longitudinal study of twenty six hundred and fifty companies. It was just it was really just a question of like, how many templates should I build? If I could give a founder a template and say, Oh, well, yours is a years as a subscription? Here’s a template or yours is a marketplace? Oh, here’s the template. So it started off as kind of an innocent question, and I reached out to the CEO of Crunchbase at the time, and they didn’t have an API yet. And I was like, Hey, can you just give me all this seed funded companies over the last 18 months? So it ended up being twenty six hundred and fifty four companies. My then college student age son was working with me. That was his project management, and we hired an offshore team. And we basically categorized all twenty six hundred and fifty plus companies into what the outcome is 14 revenue models, and we didn’t start with that particular number in mind. And one of the one of the models, by the way, is combination model. So you do have variations of like subscription plus services or services plus metered service, but there’s basically 14 revenue models. And the message there to the founder is like, hopefully, hopefully your idea is unique, but how you make money is like, never unique. Like, there’s in the time that we’ve watched that space, there was one new model that was ending. If you think back to six or seven years ago that there was this company called Groupon. Remember that one? Yup. Do you remember how many copycats? They had evidence like, we’re just like Groupon, but better about this particular nuance or niche thing or this geography? Ultimately, revenue models and I break down revenue models as different than business models. Business model has three big components. It’s how you develop or how you create value. That’s your product or service. So if you think about it as the van, the top circle of the van would be creating value, that’s your product or service. The second circle is delivering value and delivering value as a combination of revenue model, which is how do you monetize, pricing, marketing and sales and business development ancillary, but because it’s early for business development? And then the last event is the how do you capture value, which ultimately is your reasonable to exceptional margin? So and what you see there is you don’t really control capturing value, you control a lot about what product you build. But if you build a great product but you don’t know how to take it to market, you’re you’re toast. You’re a statistic. Yeah. So the encouragement to the founder is like, Listen, just pick a primary and secondary model from the list for the revenue models. If you want to be creative, be creative about marketing. Because marketing is wildly creative, you don’t get to be creative about sales because there’s only really four sales methods, right? There’s direct, there’s indirect, there’s channel which and there’s retail. But I don’t know anything about retail, but it is. It is a legit channel, right? So yeah, those are the those are the components of it. And then you have the the 14 revenue models. It starts with the simplest one, which is services, right? So I think fee for service, consulting all of it, they apply for both B2B and B2C. And I’ll make sure to give you a link to there’s a free book episode of the 14 revenue models that I’ve have posted on my blog VKpartner.com. And we basically wrote down the 14 revenue models, and there’s no judgment is which one’s better and which ones are worse. It’s just a question of which one do you want to pick right now? They do have some interesting outcomes as well, which is fascinating, which was a secondary. It came really after the fact and it’s kind of implied and people kind of get it intuitively like a services business. If you and I run a consulting company and do a million dollars a year in revenue, that company of the enterprise value, what it will sell for is roughly a million dollars, it’s .75 to 1.5x revenue.
Sam Jayanti [00:21:19] Multiples matter. Yeah. Yep.
Dave Parker [00:21:21] Now, if I’m running a million dollar subscription business, right, and I’m your CTO and you’re my CEO, the good news is whohoo that company is going to sell between eight and 12 X or more revenue, right? And then we’re both happy about the exit. Now each of the revenue models has a different multiple. And the funny thing is is like as an investor, I look at it and I’m like, there’s models I don’t really like very much, and then there’s models that I love, like metered service is one of the new models that came out during that time frame. So think AWS and Azure and Twilio and Splunk, right? I have a basic subscription, plus a metered service that goes up as the usage goes up. The analogy and B to C and the only one I’ve ever found actually was remember when cell phone plans used to be not unlimited? Yes, that would be the equivalent of a metered service, totally negative customer experience for B2C actually kind of a positive customer experience for B2B because in the B2B world, if my usage is going up, then my revenue is generally going up as well.
Sam Jayanti [00:22:20] Totally makes sense. Let’s take a quick break. Dave, I want to take us to the question lots of us have been grappling with of late: diversity in tech has been sort of the elephant on the table for some time. Google is at the forefront of many things, but even they lag significantly with women only 20 percent of their workforce in tech more broadly. It’s the only STEM field in which women are more underrepresented today than they were in 1990. You launched a Pay It Forward scholarship program, funding more than $600,000 for women, underserved minorities and veterans as part of your personal mission on diversity. We won’t quote you on the answer, and I have my own theories about this from my time at Palantir, but I can’t help but ask: what is the issue?
Dave Parker [00:23:15] Oh, my gosh. So it’s a, it’s a complex one, I think there’s, you know, when last summer when people brought up the idea of systemic racism and and some people pushed back like, No, no, no, it’s not, it’s not systemic. We’re we’re a meritocracy. The fact is, we’re not. The fact is there’s there’s systems and infrastructures in place that allow, and this is just the math on venture, by the way, that that allow, you know, previous to this year, the first, in the last six months. We’ve seen some positive statistics, but I don’t want to, I don’t want to point it and say, Oh, it’s fixed because I don’t think it’s fixed by any means. You know, 2.8 percent of women get or 2.8 percent of all venture capital goes to women. It’s a tragic number,
Sam Jayanti [00:24:01] And that’s a vast improvement from two percent, right?
[00:24:05] And Leslie Finds at Female founder Alliance is a good friend and you know she’s been her hashtag on Twitter is 2.8 percent or 2.8. So, you know, and you know, people of color as founders have less than one percent. And tragically, white dudes named Dave get three point one percent. Right, right. And and we’re not we’re not the bad guys here. The white dudes named Mike get three point four percent. So just so you know. But but systemically, it’s a challenge within venture capital of we have what’s, you know, people say we do pattern matching and venture. And I say we have been a venture capitalist a couple of times that doesn’t seem to stack. I tend to be very founder friendly, so I may do it again and we’ll see. But the the idea there is that, oh, it comes from, do people come from the right schools? Do people come from the right companies? Do people have the right titles? Do people have? And as part of their pattern matching, historically, that really is just lazy. Right. And I mean that from a genuine sense of, I think, coming out of the pandemic, you know, meeting with VCs in the valley, they’re like, Well, we don’t invest in Seattle companies because we don’t, we want to be able to drive to a board meeting. I think great founders are everywhere. And I think capital is isolated within tech hubs. So one of the things I’m really hoping for coming out of this is that place doesn’t matter as much as it used to. But I also think there’s a challenge of people like, Oh, I don’t see color, I think that’s just wrong. I think we all see color and we just have to recognize that in spite of seeing color, we’re going to do things differently. So the last year, all of the programing that I’ve been doing has been focused with a group out of Atlanta called O Hub, which is opportunity happen. Rodney Sampson’s team there. And we’ve really been trying to focus on how do we make entrepreneurship more accessible for people that don’t have it, you know, in their communities? So in Kansas City and in New Orleans and in Atlanta, so we did a recent program with Steve Cases Rise of the Reston Revolution Fund and where we we actually had over nine hundred black and brown founders apply for a program that we narrowed down to 10 based on their investment thesis and pick the top five. And then I had the great fortune to actually work with the top five and coach them and final prep and was so fun to see their story arc change. And you know, I always try to finish these sessions and a lead with it now instead of finishing with it, which is mentor people who don’t look like you. Yeah, right? Because there’s so many great founders and entrepreneurs out there. And if you if you I think one of the career things I look back on that I’m proud of is I’ve always tried to build relationships with people who weren’t the senior title people in the organization. And then funny enough, they grow up right and then you get to help them. And they’re amazing. And and I don’t think I pick talent better than anybody else. I just think I’m engaged with people and try to be in the moment of like, how can I help you in your career? Because I think for a lack of mentor in my own personal career, I over mentor. It’s a quality problem, right? I get to meet amazing founders who don’t look like me, which is a really important.
Sam Jayanti [00:27:23] I think it’s amazing and such kudos to you for what you’re doing. You know, it’s such a foundational idea for us at Ideamix is how do you make entrepreneurship just that much more accessible to everyone because it is the only answer to the economic dislocation that’s come from the way that workplaces have changed and and just a way for people to sort of grab their future in their own hands again. And it doesn’t have to be that everyone’s building the next Facebook. But, you know, as long as they’re building successful businesses that are playing a role in communities, it’s all the more important.
Dave Parker [00:28:03] Yet I think defining your own success is really the important thing is like having having a unicorn company. It doesn’t define what success is for you. Yeah, right. And we were having this discussion on a board call I was on yesterday and we were talking about who who got the invitation to this list or not. And one of the women on the call, who I greatly appreciate it, was like, you know, we need to not set up these fictitious boundaries of, oh, we’re all going to let people in who raised a million dollars. Right? Because that that is systemic. Right? So because it doesn’t change the future, it changes the future because it only looks backwards at the past. And the people who raised a million dollars are are white dudes. Yeah. Right. Which is like, so now you’ve precluded anybody. And it was like, It’s interesting to see it’s, you know, a few years ago, I would say we were talking about it, but it wasn’t changing, and it feels like it’s changing. I feel that way every season. So hopefully when we get together again, you’re like, did it really change? I’ll be like, I still feel like it’s like I always have hope, and I’m not sure I have a reason for it. But it feels like there’s a reason to have more hope now than there’s been in the past.
Sam Jayanti [00:29:08] I think there’s more impetus for that change, and more people feel involved with actually being instruments of that change than ever before. I totally agree with you. You work with a few early stage start ups as an adviser. When you think about the blind spots that founders today, Dave, have relative to when you were younger and starting your own companies, have things changed at all or are you seeing very similar patterns?
Dave Parker [00:29:35] Yeah, I think we see the same pattern and I think, you know, as founders, we we all have pretty, pretty big blind spots. The question is, are we willing to take the feedback and let somebody hold the mirror up for us and point them out? I think when I first, after I sold my first company and I was, you know, I would say I’m a casual angel investor, right? Which in Seattle sadly makes me active. Is it just even occasional checks make you an active angel investor here? So which is true of a lot of markets, by the way. So everybody looks, everybody looks at the next bigger market rather than they look backwards and say, Oh, well, yeah, compared to Portland, we’re super advanced. And I grew up in Portland, by the way, it’s not a versus a Portland bashing thing. So I think the gaps are the are similar. And I think that’s why co-founders are so important because as an advisor or an investor or a board member, I really only see once a quarter and talk to you once a month and maybe have lunch with you once a month when we get back to that. So and you tend to bring me only the good news, right? So it’s one of those catch twenty twos of I could actually help you with the bad news if it traveled faster. But founders tend to want to put on the best face and not be transparent. So getting a chance to be real with founders is really important. I find that I’m less pedantic than I used to be right, instead of telling people that that’s a dumb idea. I will tend to like, Oh, if I was this, I would, I would, these are probably the questions I would want to answer if I were you. I’m not going to give you the answers. Yeah, I’m going to give you the answers, but you should go ask your customers, see what they think. So hopefully that self-awareness and that aha moment, it will get them to the same outcome faster. And again, I’m not the ultimate judge of whether your idea is a good idea or not, right? I think it’s more a question of like, I’m not always the customer profile for sure, but the questions stay similar. Like the questions are pretty much the same, right, which is there’s a customer really care to the customer see value right. It gets back to the the CB insights reasons that the startups fail. They build a product nobody wants. And when you break that down, it’s that there’s no need for it. Or if you’re building a B2C thing, it’s not fun, right? So either doesn’t solve a problem or it’s not fun. And the second component is nobody will pay for it, right? And if they won’t pay for it, you know, I was I always look back and point to, there’s some great Silicon Valley’s examples of people who built product they shouldn’t have built, right? So juicero is a great example, right of the juice, you know, juice package service burnt through $125 million. I also like the one called Belti, which is a app controlled belt. So if you’ve had too much to eat at your, you know, your twenty five percent participation for dinner, you can use the app and loosen your belt. They did pivot, though they became an external battery company. But again, it’s just because you can build something, Sam, as you know, it doesn’t mean you should. Right? So that’s really one of the big questions for founders. I think in the in the that early blind spot is just because you can doesn’t mean you should you should figure out first of whether you should do it.
Sam Jayanti [00:32:41] Totally. We’ll be right back. Dave, one of the elements you talk about in your book is the need for founders to be able to change and adapt based on funding and market realities. Tell us about a personal experience you had when you had to pivot.
Dave Parker [00:33:00] Oh, yeah. How many times I think there’s I think there’s a thousand little pivots, I think there’s a difference between iterations and pivots, by the way, but like a pivot as we were in the airplane business and now we’re in the tire business, that’s a pivot. It’s a wholesale change. Yeah. Slack is a great example, right? Slack today, everybody knows as a workforce communications tool, it was really a gaming platform that built a great communications underlying tool that allowed the gamers to communicate. So they went from B to C gaming company to a B2B enterprise solution. Audio is obviously the other super huge one which went from an early, early podcasting. What we’re doing today to Twitter, right? And they totally switched up and and what went back around that whole process of like we went from a communications platform to a different, completely different type of communications platform. So I think there’s there’s a thousand little pivots as a CEO that you’re going have to make along the way that are just iterations on is this the right go to market? Is this to right, we are reserving the right customer, but with the wrong product? Do we have the right product in Slack’s case, but the wrong customer? Right? And I think those are the pivot choices you’re going to make along the way. And then the iterations are all around, go to market and pricing. And one of the things I see consistently there, Sam, is that somebody will come in like, we’re going to have a free for life product and I’m like, OK, if you’re if you have customers and you have revenue, you can do that. But if you don’t have customers and you don’t have revenue being augured in on a promotion like so a promotion is like one tenth of things that you have to think about, right? Right. So to be like, we’re going to have free for life, is just like what? You’re asking the wrong questions, right? You need to figure out what problem you’re solving and if you’re going to do a time based trial or a free, you know, a different type of promotion, that’s just a promotion. So, you know, for me, one of the companies that we sold was a company that helped nonprofits raise money for events. So I was I was running an auction for Boy Scout Little League, you name it, right? Some kid event. And I’m like, Oh my gosh, we’re recreating this this list every year with a whole different set of volunteers. Can we just build a software platform that allows us to track the companies, are donated to the events, and then we send out an email from the organization or the team because the team changes all the time. And sure enough, it is definitely a problem. The small business owners definitely loved it. The problem was was nobody was looking for donation automation software on the internet. Hmm. And then you combine that with the fact that in order to sell a product nobody knows about. You have to do outbound sales because nobody’s looking for inbound sales. So to do that, you have to hire a sales team. So this is kind of like if you’re a parent, you know, the book, if you give a mouse a cookie. Yeah, right. So this is totally if you give a mouse a cookie, you’re right. You’re like, Well, then he’s going to want a glass of milk. And then, right, so in the parallel universe of startups, it’s like, Well, we built this product, this the small businesses loved it because like one cupcake location bakery here in town and Seattle has six locations, and she had one person who just responded to donation requests all month long. Because if you didn’t respond that people were like, Oh, they are so snooty, we can’t, we’re not going to buy from them anymore. Right? But the idea of like this is a role of full time role of somebody who’s getting paid just to respond to donation requests. So but the businesses, if you look at that, Jody’s company for cupcakes, right? No one was out in their organization Googling for donation automation software. Right. So inbound is not now an option, so we have to do outbound, so now to do outbound, you have to hire Salesforce. Hey, would you like to buy the software that allows you to be like it’s like LinkedIn for your donation requests, like the software, what’s the price? Can you charge more than 25 or 50 dollars a month? I mean, not for a small business, but the cost of scaling the sales organization requires that you have at least a twenty five hundred dollar price point on your first transaction to pay for the sales organization. So we ended up actually selling that company to somebody who did donation in event software tools. So it ended up being it was not it was not a return. It was like it was just a way to not close it down and be like the humiliation of having a failure. But it was still a failure right? so and the big lesson learned was like, again, back to you, you can build this, but should you build it? And that’s where the economics and the revenue model matters so much. Because if you knew like, Oh, I have to sell this for at least twenty five hundred dollars for lifetime value or first year value, right then you would look at it going, Oh, that’s a silly application. Why would you build it? Right?
Sam Jayanti [00:37:46] Yeah, totally, totally. So one of the most common causes of startup failure you and I know is founder problems. Tell us about an experience you’ve had, either with one of your own co-founders or with founders at a company that you’ve advised.
Dave Parker [00:38:04] Yeah, I’ll be generic. Some of the co-founders will read into it anyway, so don’t read into what I’m going to say next. So I would say that there’s a written, a blog post around awkward co-founder discussions and it covers in the book as well. But I think 50 50 is the only wrong split, right? During the startup, I think forty nine point nine and fifty point zero one is a totally OK split, right? I think ultimately, I want to know as an investor or as a board member who’s going to make the decision. And there’s a few partnerships I’ve seen over the years that have done amazingly well on the board of one that I’ve been on for a very long time. And the two co-founders are amazing. They still get along well together. And but that’s rare. Like, super rare. Very rare. So I think one of the biggest stress points is, you know, especially when we the 50:50 example was somebody needed to take money out of the company, but in order for them to take money out of the company, somebody had to put money into the company, which was me, right? So then the question was, is OK, well, if I put money in so you can get a paycheck and I’m working for free? How does that affect our our equity? Yeah. In their particular case, they’re like, Well, it shouldn’t. We’ve already we’ve already parked and determined equity. And like, yeah, but the situation has changed. Yes, right? And I think that’s one of the big things. You know, for me, when I started my first company about a month into, I just left my job. I worked for a great great boss was the last boss I really had and my wife was diagnosed with cancer and she had Hodgkin’s disease and we had to make the decision. Are we going to keep doing the startup or not? And my my boss carver at the time was like, Hey, we’d love to have you back. We didn’t want you to go. And by the way, my wife’s fine today because otherwise I was, sometimes I forget to say that that was twenty five years ago. She’s great today. Yeah. But I mean, the the meta point here is that life happens. Yeah, right. And you’re going to have to make tough decisions about what you do with your founders and co-founders in the company and the money and and everybody has expectations, whether they voice them or not. So you have to come to that conclusion early and in the conversations, as you know, Sam, never get easier. No, the sooner you take them on, the better off you’ll be. And even though it’ll be pain for an awkward which is exactly why I titled it awkward co-founder discussions is for that reason. It’s never going to be easy. But you need you need to address them head on. And it’s just like H.R. problems. You exist with your company later on if you wake up in the middle of the night for me. Maybe this isn’t you. But for me, if I wake up in the middle all night grinding my teeth about an employee, they typically don’t stay around very long. Now, is it self fulfilling prophecy or is it kind of a trust your gut? I don’t know. I just know that waking up in the middle of night grinding my teeth about anybody isn’t great use of my time, for sure.
Sam Jayanti [00:41:02] Absolutely. Or good for your teeth, for sure. Last question, Dave, where do you see yourself in your work three years from now?
Dave Parker [00:41:11] That’s a great question. You know, I think there’s a lot of founders. There’s there’s good optionality, right? I enjoy my, I have a lot of choices and a lot of things I get to do, and one of the things we’re looking at is, do we do we launch an emerging market growth fund that has a very focus on diversity and inclusion from the start, right? And that starts with the partners, by the way. So that’s one of the things we’re kicking around right now with the partnerships we’re getting. We’re getting a feel for each other like are we, would we be a good partnership or not? Venture capital for those of you don’t know, is a very long game. So a fund life is 10, one in one, so 10 years, plus two automatic one year extensions. And when you invest in somebody at an early stage in venture, I’m going to be with you a long time. So the average investment is going to be eight years. So if you don’t, if you don’t like the personality of the investor, I would encourage you to find a different investor. And the same is true for the VC. If you don’t like the founder and the drive you crazy, I would encourage you to think about finding a different investment. There’s a couple more books coming out. One is focused on the services sector. One of the revenue models is around productized service. So if you think of the services businesses, how do you get a chance to work with a group in New Orleans? There were traditional businesses owned by African-American founders that were more in the million to $12 million range. And you know, how do you automate customer acquisition process and track things like LTV to crack ratios and stuff we do traditionally in tech that services businesses generally don’t do? So when they when they asked me to come do that seminar, I’m like, You know, my lane is like this narrow like I know startups. And so I had a great time with those, those founders and having a chance to to help them think about the best practices from tech applied to their services businesses. So I think that’s that’s one. And I think the second one is where I spend the bulk of my vocational time today, which is helping founders prep for exit. So, you know, my 80 percent time is generally spent on helping founders sell their companies and close those deals. That’s super satisfying, right? Because we get to help actually land what they started. Yeah, but I do miss I do miss managing a team right and investing in people. So I think that’s that’s a great question when I figure out what I want to be when I grow up. I’ll definitely reach out and let you know.
Sam Jayanti [00:43:39] Wonderful. But but I love that idea of a of a diversity focused, much more inclusive Emerging Markets Growth Fund because there’s there’s such a clear need, I mean, beyond the sort of borders of the U.S. for sure.
Dave Parker [00:43:53] And and there’s and there’s this interesting asymmetry of pricing, by the way that we we dug into. That was a fascinating opportunity, I think, as it looks to the investment community, as you know, if you if you benchmark the Pitchbook data, which we did. So I won’t do if we benchmark the Pitchbook data around what was the pre money post money and average size check based on regional data. So if you if you take that and say, let’s call Seattle one hundred percent, then if Seattle had two percent New York in your markets, 125 130 percent, the valley is one hundred and fifty five percent, but Mina and Cairo is like twenty five percent. So you can effectively invest in a company in emerging market or Kansas City’s at 70 percent right? And it has nothing to do with the quality of the entrepreneur or the traction of the company. It has to do with access to capital. Yeah. So it’s yeah, and the prices normalize. By the way, the brands are funding. So when you see the unicorn valuations, all the prices normalize with the big investors like SoftBank and Tiger. But early on, there’s there’s a big pricing asymmetry, and that’s to me that’s that’s a fascinating opportunity. But it’s a it’s a global view versus a how far can I drive my Tesla to a board meeting view of the world?
Sam Jayanti [00:45:05] Right, right? Absolutely. Well, I don’t buy Tesla, by the way. If there’s one thing, I’m glad you don’t own a Tesla. I’m happy to hear that, and I’m so tired of hearing how everyone in tech must own a Tesla. Exactly.
Dave Parker [00:45:18] Is the accord of Silicon Valley?
Sam Jayanti [00:45:20] Totally, totally. If there’s one thing the pandemic’s proven is that, you know, this sort of proximity is is just a poor argument for for investing in companies that are farther afield now. So it’s a really good time for this. Five years ago, Apple, Google, Microsoft and Facebook released diversity reports for the first time with a total lack of diversity. There were lots of promises to address it, and since then, despite multiple business successes, the progress on diversity has been minimal. And Amazon continues pointedly to not release any diversity numbers at all. Thanks to wired and recruiting innovation for the data used in today’s episode. Dave, we love your narrative because you’ve taken your learnings from each stage of your career and both set yourself new challenges to learn from, but used your talents to help others. Thanks so much for joining us on the show today.
Dave Parker [00:46:19] Thanks for having me, Sam. I appreciate it.
Sam Jayanti [00:46:21] Thanks for listening today. You can subscribe wherever you get your podcasts. And while you’re there, please do review the show. We love hearing from you, so e-mail us at info@theidea mix.com or Instagram DM us. Our episode this week was produced by the incomparable Martin Malesky, with music by the awesome Nashville based singer songwriter Doug Allen. You can learn more about Doug at DougAllenMusic.com.
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