Reverse Engineering Success: Insights from Jason Lemkin on Scaling Startups

if you want to reverse engineer things you have to have a model with economies of scale that gets you to $300 to

$400,000 per employee or your model is not real it is not [Music]

scalable what's going on man how are you I'm so excited to be here uh and talk about all my first Millions um talk

about the millions I lost uh few learnings on scaling and whatever you want Sam it's great to be here I love

you for many reasons one of them is like you're so catchy and you're so good at summarizing important things but explain

it in a very simple to way in simple to understand ways but before we get into that I need to like talk about

background because we have to to the OG software guys you are the guy so like if we talk to like the founders of HubSpot

or uh I mean like guys who run multi or tens of billions of dollars companies they say if you want to learn about

software Jason's the guy but we have a bunch of like sometimes 20-year-old uh kids listening to this and I want to

like give a little background and so we don't I don't want to spend too much time on this but basically what I know

about you is you started a few software companies including echoine which you sold for nine figures I don't know the

exact amount but you've said nine figures then you've been investing in in startups as a VC for like since 2013

which you said I think you said you 10ex your fund or something like that is that right that is about that is about right

um and then what else did you do besides Echo sign before that um before that I had a a startup where I made my first

million um uh between when the internet died for a while I actually founded a startup making implantable batteries

from nanomaterials which I knew nothing about which is interesting and we sold it for 50 million after 12 and a half

months it is kind of an MFM story and I learned a lot from it what was that company called it it was called nanogram

devices and we did something that was thought to be impossible um and we got bought by our competitor it was a

classic buyout after 12 and a half months when we took away one of our largest customers

did you raise funding we did and it was hard it was I'm dating myself this was one of the crummiest points we raised 9

million in our seed round and sold 70% of the company in our first round and that was the deal that was the deal that

there was no choice there was no negotiation it was a different time and that meant that meant what what you and

the founder you and your other partners I don't know how many you had had 15 million left over to share after the 50

the $50 million exit I'd say it was more like about10 million or maybe even 8 million to share so it was enough

interesting for the first million it was just enough to not work for the man I have worked harder I worked even harder

on the next startup on echosign which Adobe bought so echosign was that basically like um what DocuSign is now

you guys just sold earlier yeah a lot of learnings Yeah we actually DocuSign believe I mean I'm really dating myself

DocuSign was basically a printer driver company when we started we were the first web solution I wrote it all myself

in PowerPoint and crappy wireframe frames and we built it um and we got to a million dollar a month burning 4

million so we got to 12 million ARR uh growing 100% with 110% Revenue retention and cash flow positive so if we and we

sold it in 2011 and 2011 was a long time ago uh in Internet time and in real time it was just before we understood the

metrics around recurring Revenue businesses and so even my board my investors didn't like they weren't sure

had a good business if I said to you today Sam I've got a business doing a million bucks a month growing 100% with

110% Revenue retention and profitable you would say that's the that's the ticket that's the ticket now DocuSign

was bigger um we had about 36% market share um but we were cash flow positive and growing 100% um so you know we only

raised four million so when you sell your company to make your second Millions sometimes the second one is is

um there's a certain logic in it and the logic actually in its own way can be stressful right it can it can be

stressful it's a comp that that was a very complicated decision because it made sense on paper given the the team

wanted to do it in part of the team wanted to do it and given how little we'd raised right but uh in my gut I

knew it was uh emotionally I knew it was the wrong thing to do Scott Galloway came out a while ago and I didn't get to

talk to him about this but he had this awesome presentation you and Scott are similar and that you're you're just you

have beautiful language that's what I that's what I describe these types of people they pick their words beautifully

Scott has this thing so Scott sold L2 I don't know how much I think one to 200 million I forget the exact amount but

nice nice exit and he was like well I wanted to have a nine figure exit and I wanted to do it in this data business

because that's what I knew and so I worked backwards and I sort to rever reverse engineer it and he said

something like he was like I you I was like I knew I needed to have an international presence I needed to I I

knew I needed to charge at least F uh 50,000 a year for a service and then like he lists all these things and then

he spent eight years along building it and I love that because I love reverse engineering and it's what I tell a lot

of people I'm like they want to create this amazing stuff and I'm like yeah that's cool and sometimes that works but

you can actually kind of reverse engineer a bunch of stuff to figure out what's the rules of the game that I need

to play and then you optimize for the rules and I wanted to have you on to basically like reverse engineer what it

takes to get like either 100 million in revenue or or even 100 million in outcome because I actually think those

rules are actually the same I was like Jason I want to talk about this like reverse engineering thing and you like

banged out this like five or eight point thing you said that a lot of startups right now because they raised money in a

zero interest environment they're it's like a 100 Grand in Revenue per employee and you said no the new minimum needs to

be 300 to 400,000 is that right it is if if you're trying to reverse engineer whether your business model makes sense

like this is one thing to reverse engineer certain business models have economies of scale and some don't and if

you want to go really big you want to business with economies of scale and if you step back in the old days of

software the old Adobes Microsoft ints made a million dollars in Revenue per employee a million dollars okay you'd

have a bunch of Engineers they'd go they'd go off in their offices everyone used to have a private office to code

you'd spend two years building a piece of software a small team you'd put it on a DVD ROM that or CD ROM that cost 50

cents and then you package it up that cost 50 cents for a dollar and then someone would sell it for you between

$50 and $400 this was a really good business there were 9 % margins and the classic Adobe Microsoft into it 50 cents

of every dollar went straight to cash flow 50 cents we don't see this anymore in in companies go public it was so

profitable so that was a million and then things just derer or whatever you want to call it it got crazy and we

reached a low in 2021 of a 100,000 in Revenue per employee for all these unicorns a 100,000 so we got we only

were 10% as efficient as we used to be now the pendulum swung back so we historically we're at a million per

employee the low point was a 100,000 per employee um when employees in the Bay Area probably cost you $250,000 fully

burdened with insurance benefits this and that so you're losing 150,000 per employee now every public company at

least public SAS software company is at 300 to 400,000 hubs spots at 310 which we talked about Cloud flares at 400

that's where you have to be and so but when when do you have to be there so one way to think of if you're lucky enough

or unlucky enough depending on how you look at it to raise Capital Angel Money Venture Capital whatever it it Bridges

the Gap it Bridges the Gap to get you to3 to $400,000 per employee but you're G to have to get there and if your

product isn't profitable enough if your gross margins are too low if it doesn't make sense make some changes right you

have to have a a model if you want to reverse engineer things you have to have a model with economies of scale that

gets you to three to $400,000 per employee or your model is not real it is not

scalable and then you another Point here you say um going multiproduct and you say it's a huge issue of how when and

where to figure out when to go to multiproduct but did you say at like 10 million or in Revenue you want to go

what did you say for going multiproduct by the time you get to 10,000 customers you better have a second product that

and this is this is the nonobvious thing that can be bigger than the first this one took me a while to figure out to be

bigger than the first for HubSpot CRM in two years will be bigger than marketing Automation and HubSpot for years was a

marketing company in two years CRM its sales product will be bigger than its marketing product it has to be you you

want to be there by 10,000 customers this is the same for Ecom businesses too like they sell a handful of SKS and then

they reach like uh some type of critical mass and then like all right we need to create more stuff so like we made

deodorant now we need to make toothpaste or shampoo or something like that um but the second one has to be bigger this is

the one to think this is the mistake Founders make if the second what's easiest Sam is to add a product

extension okay we sell shampoo in e-commerce okay let's sell shampoo and conditioner that's the easiest thing

because our customers already know us if they bought shampoo they'll buy shampoo and conditioner but the problem is if

you if you if if the second product isn't bigger than the first and the first one's still growing you never

catch up It's never enough right if you're selling aund 50 million of shampoo and you're growing 20% a year

you're adding 10 million a year right and you launch shampoo and conditioner and it does a million it's first year

it's great but it'll never get there the second one has to be bigger than the first and this is It's too we all

default to the easy second product and you actually have to do the harder one that's uh interesting so at the hustle

so we had I don't remember a million and a half subscribers I think we were doing a million a month in revenue and like a

media company is basically you build an audience and then you launch multiple businesses to that audience so whether

it's advertising conferences software whatever that's kind of typically how media companies are weird it's usually a

collection of small businesses and or or different businesses and um I think we were at a million a month I forget I

think about that and I wanted to create a a a a subscription service called Trends and it was like we like and dude

I [ __ ] it up so bad because I charged $300 uh a year which is so stupid it should have been $30,000 a year it

should have been way more expensive I think in the first month we did I don't remember exactly but in the first month

we did did almost a million in sales and then it was a pain in the ass to but by the

end I think when we sold I think we were at five like maybe 10 months later we were at five million a year in sales

with it but it only had like four or five people running it which so was profitable but the mistake I made was

the thing of not making it bigger than the first thing and I so like intimately know that mistake and it's really hard

because I'm like well this is like a clear extension just do this then this but it it just because it's also like a

a psychological thing of like why pay attention to this thing just put money back into the main thing this is an

advantage to hiring a VP a sales for example Founders underprice their products

usually they underprice them we're so wor because we know what's more is it more important to get the product off

the ground and get a 100 customers than to optimize pricing as Founders we're always going medium or long right so we

almost always leave money on the table so that we can make people happy and get them going dude I underpriced everything

I've done I've underpriced yeah and and so have I and so have 80% of Founders not all but it's it's a I hate this term

but it's a feature not a bug because as painful as it is you can fix pricing later at least for new customers it's

harder to fix it for grandfathered customers right but for new customers then just double it to 600 and 1,200 and

1,00 like it is it's hard I think it's like rooted in like impostor syndrome of like I don't know if this is good enough

and but then you talk to if you talk to a good salesp person person you're like dude like I could like just put a zero

behind that I'll sell it you know what I mean like if you talk to a good salesperson can can get it done a good

one will not rip people off but a good one will will get the full value for your product in a way as a Founder you

almost never can you you almost never can right that's why a lot of the ear classic saster contents about hiring to

VP a sales because that's why in in the first quarter the first nine days you should see a lift from a good vpa sales

at least because they can run this Playbook with the same leads the same customers the same Dynamics for Trends

or something else someone with the confidence to ask 30,000 for Trends knowing it's cheap compared to Gartner

or forest or whatever uh they'll take that off your plate if they're good and you'll see a 30 to 100% Revenue lift

from someone that's great right yeah someone that's mediocre will rip your customers off and never understand your

product and misspell Trends and never read it and not know what it is a mediocre one will actually see a revenue

decline from founder Le sales but a good one will will solve will will solve that piece right so um I think the other

thing you know you just didn't give it enough time either I sold the company at four and a half years um but that was

like I was okay I don't regret that at all because I wanted to get some Financial Freedom um and I was broke I I

think I paid myself the first two years my salary was 20 grand the third year maybe a hundred and then the fourth year

I think I paid myself a few $100,000 but I was like I was [ __ ] poor and and so I I was impatient and what you talk

about all the time the worst thing is a tired CEO and I was a tired I was I was tired of being poor uh basically and

that was a huge mistake by the way uh pay yourself way more if you can uh is what I've learned as soon as you can

afford it pay yourself Market is the learning is the learning always as soon as you can afford it and you had this

other thing on here you talked about um you want 30% of your Revenue to be outside of North America that's very

intimidating that's probably the most intimidating thing here is going global um at least in my opinion I think it's a

very intimidating thing obviously some businesses this doesn't really work right if you're highly regulated it can

take a long time for example right if you're very specific um but at scale at scale the average public software leader

gets about a third of their revenue outside of the US hubspot's now a majority the majority of hubspot's

customers small businesses are outside of North America the majority um and so if you so let's back in terms of reverse

engineering right if you there's a couple things if you don't lean into them you're going to have less Revenue

than you otherwise would um International and partners are two of them if you try to only sell direct is

an issue too um and so how do you do this how do you learn how to sell in France right Germany and Milan and

London um it's not as complicated as it sounds um what you do is build your business build your brand right um be

find a niche where you are one of the top two or three folks you don't have to be you don't have to beat HubSpot

everywhere but find a little segment where you're better your little area and watch who wants to buy you and if you're

in software what will happen is Australia New Zealand UK some parts of France and others are very used to

buying from us companies they will find you if you are the best vendor they will find you you don't actually have to find

them um now traditional Industries won't find you right it's going to be Tech focused folks it's going to be early

adopters it's going to be cool kids but they will find you and as soon as you cross 5% of your

Revenue in in an area then invest in it just invest in it as soon as you see a cluster in England or New Zealand or

somewhere you didn't expect Chile or Brazil like support it um and then the cheat code this sounds obvious okay the

one one is just support it like make your product open right this the the the one that takes work is also um localize

your product earlier um and most of your engineers don't want to do this they don't want to loiz the product into

Spanish and Portuguese turn turn it into 30 languages not super complicated engineering task but 95% of Engineers

just don't want to do it for a variety of reasons so you know you can you can get going in the English is countries

and even in Europe right but you're not going to penetrate certain areas if you don't actually localize your product but

that that's the second cheat code the first one is just be be welcome to it you don't have to go hunt customers in

Japan if you have zero like you don't have time as Founders going to Japan is like the worst place ever to go because

the culture is so different and there's been so many failures of Japanese companies wanting to come to America and

America to Japanese because the culture is like wildly different because I actually looked at uh a one of the ways

that I researched cool company ideas is I like to look at Japanese publicly traded companies there's this one called

uh usab base have you heard of usab Base so usab base is a it's a media company in Japan they own three products one of

them was sort of like CB insights and it was doing 30 or 50 million in Revenue the second one was a news app called

newsp that was doing another 30 million and then I think they had one more thing and I remember going and trying to

download their app and it was all in Japanese and I couldn't really figure it out but I eventually like translated it

and I was like I'm going to make this app in America and I'm gonna do it at the hustle and so I built out this like

whole thing and I was going to launch it and everything and the culture of what they what they were trying to do it

required users to leave feedback and opinions on news which which is like not so common here and I remember like [ __ ]

why is this Japanese idea not working and then I realized I was just like reading Wikipedia or whatever and

there's this whole term to describe the failure of American companies trying to break into Japan because the culture is

so different and it scared me like hell to like do anything involving uh Asian cultures because our cultures are so

different I'm like I can't never crack that whereas Germany France it's like mostly similar but uh yeah the whole

Japanese thing freaks me out I'll give you two examples but like Salesforce got got had 10% of their revenue in Japan in

the early days 10% now they didn't if you you can you can Google it you can see what Mark benof said they didn't

plan it they got dragged into Japan and some of it was through Partnerships and others but my point is that wasn't on

their day Zero plan okay but it took off there I was just talking with Howard lurman who um he's got a new company

called Rome but he founded yex and took it up to a billion um and they were hug in Japan and we were talking about how

he's going to do Japan the next time but they got dragged into Japan for small businesses they got dragged in so my

point is don't don't show up to Japan with no traction asking asking for a tour in the

city but if you if somehow in your first hundred customers first 500 you've got five in Japan don't don't don't dismiss

them don't be snarky like some folks are don't say it doesn't matter in fact say oh my God we got five customers for

Japan in our products not even in Japanese we've got something good here like let's take a pause and let's figure

out what the heck is going on like Salesforce did and get 10% of our revenue from Japan that's how you do it

is there a sweet spot for how much you charge I think with a lot of people starting out like what I did um like

well my business was uh too prong in that we had users and then we had advertisers our advertisers were

spending six figures a year but I had to acquire [ __ ] 4 million subscribers in order to like make it work and it was

really hard um yeah and and so is there like a price point where you're like you want your average customer to be paying

50,000 a year I think that pricing is overd discussed and I'll tell you why there

are we have all now bought 200 at least most businesses have bought over 200 SAS apps okay it's too many 200 pieces of

business software and we all kind of know what stuff should cost like we know what notion should cost we know what

HubSpot should cost we're on Riverside I don't know what Riverside is what do you guys pay 300 bucks a month okay like

okay let's say you pay 300 bucks for bucks a month now if someone else has a better version of Riverside and they

want 50,000 you're gonna like a month you're going to kind of B right but what if someone had something that was better

than Riverside it was $30 a month it would seem too cheap right it would seem too cheap so my point is there are

organic price points and what you want to do is anchor around them go figure out the couple of products out there

that are most similar to yours and charge the exact same way and either charge the same pricing or if you're

nervous charge a smidge lower 10% lower 20% lower um if you charge too much lower you're telling the market you're

not as valuable as Riverside right or you're not as valuable as HubSpot and you can actually customers will bounce

off you if you're too cheap if you're too cheap they will get confused um so anchor around the comps if you're truly

10 times more valuable than Riverside okay and Riverside's very good we're using it to record the session if you're

10 times more valuable maybe charge twice as much because you're telling the market we're 10 times more valuable than

the leader right we're 10 times more valuable but whatever you do founders that say there's no one like us there's

no comp try harder try harder it doesn't have to be the same as you just it feels the same it feels a similar amount of

value a similar type of utilization do I use it eight hours a day do I use it once a month um do I use it as an API is

it metered is it per seat just there's hundreds of apps like you and if you price similar to similar value apps you

remove friction you remove friction from the sales process and that's what you want to do until you're really big you

and this is why we also underpriced as Founders because you want to remove friction we want every deal to close in

the early days don't we we want every deal to close and so your job as a Founder if you want to scale if you want

to reverse engineer things your job because no one else in your company will do this your job is every day to

relentlessly remove friction from your customer acquisition process remove friction and people add it at scale the

classic one is contact me you know you go to a website you're all excited to buy on your own and I got to talk to a

rep well they yeah there's a couple reasons one reason is they've gotten to hundreds of millions in revenue and they

actually want to add friction to the sales process right but you don't want to do that until you're at tens of

millions of Revenue you want to every day come into work and if you can't do anything else on your company remove

friction how can I make sign up easier how can I add single sign on how can I make it easier to check out from my

e-commerce thing how can I make the bundle Leisure how can I make support better remove friction having support

that happens automatically in seconds rather than waiting five minutes on the dumb bubble that removes friction

doesn't it Whatever It Takes remove friction the last point you have is uh the the most challenging it's uh getting

to net net revenue retention of 100% yes and we've you you're I don't know how you would describe yourself I think of

you as you're a you're a CEO founder type but I think that you have an edge on sales and operations the churn part I

think and this is maybe me be naive I think that's mostly product maybe it's it relates to who you sell to and how

you position it but it's like product and it's the hardest part is like figuring out how do I make something

that integrates in someone's workflow or how do I make something that's so essential to someone's life that they

not only do they not want to get rid of it they're going to tell their co-workers and their co-workers are also

going to have to start using it it's so freaking hard and I think it's part art part science but you said that you have

to have 100% net revenue retention the good news is that a lot of the big boys sucked at first I think Brian hallan I

think he told me that they were turnning out something like at one point like five to 10% or maybe even more per month

and he was like it was horrible and it took us four or five years to figure it out but what do you have to say about

churn and retention how do you how do you make it good if you want to reverse engineer things to your point you need

need to really honestly have a path from at a product level so that you can eventually get to that 100% right and

you can stage it so I don't know if hubspot's if HubSpot really was turning 5% or more in the early days let's say

its Revenue retention was more like 50% in the beginning okay I think he told me there was like a quarter or two where it

was like uh existential crisis bad where it was like you know it was something like that I think they were like year

four where it was like this is not going to work if we don't figure this out yeah well I know from when I talked to him it

was 75% from him at like 30 million Revenue which is kind of late it's they still hadn't totally figured out until

they went multi-product and a bit into the midsize of of SMB but the point is like on the one end yeah their VCS were

critical blah blah blah blah but they did have a plan to get there they had a plan to get there they were going a

little bit up Market a little bit up Market not a lot just a little bit into bigger small businesses and to have more

than one product to add value and in fact it's interesting hubot nominally has raised prices but the pro the

average customer today pays 11,000 the average customer two years ago paid 11,000 the average customer four years

ago paid 10,000 okay so what HubSpot has done which a lot of folks don't do they get it wrong and this is why HubSpot is

one of the reasons it's so suful is they're adding more value for the same dollar they're adding more value each

year for the same doll that's software is supposed to be a service SAS software as a service we forgot about it in 2023

and late 202 became sof SAS became software as a ripoff everyone got massive price increases for no benefit

right some folks will Grumble about HubSpot it has rageed prices but overall the prices haven't gone that much and

now they have five times the amount of software that's 50 times more powerful right it's like 250 times better than

when Brian started and that's what you've got to Aspire to as a Founder The Flip Side is here's the like if you have

a high- turn business and HubSpot started there a lot of folks start in high- turn business be honest build a

spreadsheet I know you and I talked a little bit about this in the hustle in the early days because you had high

churn as a media business it's an inherent to immedia you had high subscriber turn okay you were stressed

about this I actually wrongly wrongly challenged you to be less stressed because I thought you were you were a

great founder and would figure it out but you got to put it in a spreadsheet and say look if you have churn north of

3% a month 3 four five and that is indemic to certain models look what gravity does to you

around when you get to double digit Millions when you get to 10 million 15 million 20 million usually gravity

weighs you down because you're losing so many customers each month it almost becomes impossible to replace

that leaky bucket so we we the hustle was a daily newsletter we sent an email six days a week we were at 1 point I'm

trying to remember we at 1.7 million subscribers we lost uh

50,000 subscrib or no maybe it's was 40,000 subscribers per month and we were adding like 4,000 a day or something

like that it was insane can you imagine that losing 40,000 people and we're like how are we going to fix this and

eventually we did but I know that like companies like I don't know what the hustle is at now I I assume I think

they're close to 3 million subscribers and the turn is really low uh morning Brew is at like four and a half million

subscribers and you want to know what all the newsletters do that people don't talk about so we grew organically to

100,000 subscribers I imagine many do too and once you then you do paid marketing to get to many millions and

then you get a name after four or five years and then you quit advertising or you spend very little and you're just

like we're just going to stay at 3.5 million three million subscribers and we're going to launch more newsletters

that's the name of the the newsletter that's how you get to 100 million in revenue for newsletters it's the exact

same thing as software which is you go multi-product but except unlike subscri software the churn is outrageous and but

thankfully the market size is like 30 million people but it's it's like crazy high the but that that ties to the point

of being very self-aware about this right and that turn so you you turned out you had like you're churning out I

I'm getting that math wrong but I think you were turning out about 30% of your growth each month right in that in that

phase right uh it was uh four so if we sent an email to a million people and uh if we had a million subscribers in one

month and we sent six times a week times four that's 24 times uh a month we would lose roughly four and a half% of the

million so that's that three to 5% churn we talked about right and on the way up it's sort of okay because the hustle is

exploding and there's viral elements and it's great but eventually gravity that's the gra you got to be honest about

gravity and come up with a strategy to address it right for small businesses that that that math just it it's you

know and you I think you would Echo this around 10 million in Revenue you need so much growth to overcome that churn right

you need like epic epic like you can't even it's not even what your gut says as a Founder you need so you need double

digit growth per month here's the Insight you need double digit growth per month to overcome that churn at scale

right you need double well and and you you need to understand which business you're in so you're in the conference

business now I was in the conference business sort of I think my conference business was doing over the handful of

years I think we probably did three million in Revenue you do 30 million in one year so we're not in the same

ballpark but what I learned with the conference business is it sucks it sucks hard uh and for some reason I still love

it and same with media I freaking love it but it's way harder I think and why are you in conference business if you're

supposed to know all of this great stuff about software because software seems like we only we all work the same amount

of hours per per week like it just seems like just start a software company why start a conference business where you're

you're in kind of an uphill battle it's a good question I mean the um do you guys do you guys make a profit on 30

million yeah we do but you have but we've got to so SAS annual is our big Flagship event and so we get 12 12,000

people in the Bay Area now it's every September it costs $10 million to turn the lights on that's a stressor it costs

$10 million to turn the lights on okay before you make a dollar okay so $1,000 dollar an attendee is your cost

yeah about $1,000 dollar per attendee is the full the honest fully burden cost about a thousand we do we do one in

Europe in June for 3500 that's much cheaper um that'll be about $300 to turn the lights well $300 per attende but

it's still like a million and a half to $2 million to turn the lights on okay two Mill million and a half and 10

million what's the so you've got to get over that and then you've got to pay people right and then you've got other

expenses so until you cross if if it's funny I get it is a terrible business we should talk about I literally had a VC

managing 500 million in Revenue making millions and millions a year just in fees with a good track record called me

the other day saying they wanted to build a conference business because investing so hard

n it's like dude you still get you still get paid if there's a natural disaster or like a rainstorm that was like my

whole thing I'm like dude I'm working I'm working so hard for this freaking conference and if it rains attendance is

down like it just sucks like one or two one or two days of like some crazy weather or something can like change

things terrible um the reason we did it was on accident we built this community around content right so we built content

and then it's a community and yeah we got some newsletters and some podcasts are not quite at your scale but they

have some scale um and then we just did meetups and just so many people came to the meetups in the beginning you've done

them and this is a long time ago like this sounds small today but our first Meetup in 2013 we had 800 people come

and these were great cosos great cosos right cosos that now are are have gone public or have nine figure businesses

and they all came and that what I I didn't know it would be a business but I knew we had product Market fit so I

wanted to build then I did another Meetup and the other meet up had a thousand and we had to turn people away

and then then we did a one-day event just to do it I didn't it wasn't a business I outsourced the first two

years I never even looked at a financial statement now the first two years I had a partner he kept all the profit or the

revenue I just drove the engagement right in the content um and so this by the second year we had 3,000

people and there was demand so the real reason I got into the business Sam wasn't because I wanted to because after

the second year he quit my partner quit and didn't want to do it anymore because it was too much

work so I quit I had no ability to do this I had no team I had no blueprint I didn't know how the revenue or the

finances worked and I had to learn for the third year from scratch and so it wasn't

intentional um I felt like the a community wanted this that there was demand organic demand and um but yeah it

is a terrible business once it got once it got now you can do the math in your head right once it got over 15 million

in Revenue it finally generated actual profits right but that's a lot of years not fake 15 not pretending you're at 15

not not claiming Revenue that's not real but you got to really just get over 15 to clear the nut but they um so a lot of

trade show businesses um on the high end can sell for 15 times earnings um but a lot of them can go for eight or 10 if

it's like a B2B uh trade show there's a bunch of companies a hand or more a handful a handful yeah the best ones can

go for 20 times if if it's been around for 40 years and it's an annuity at that point and for some reason it's always

British companies a lot of British companies Buy trade shows there's informa there's Euro money there's a

bunch of them would you ever sell yeah Hive they bought my friend Ryan dice's company I believe the traffic Summit uh

yeah would you uh what could you sell saster for and would you do it we've had two folks that have approached us to buy

saster over the years I wouldn't say we've ever had like a a term sheet to to to be on the table um the learning from

that is it's really been based on comps I know we talk about IAH and blah blah blah but really been based on comps

right and Shop talk was bought for 150 million at about our size probably under uh they got a good deal and money 2020

sold for a good deal it sold for 100 million when it was only doing 10 million Revenue but both were like

iconic dude let's talk about that let's talk about that uh the guy who started those companies in is in Hampton I've

got to know him that guy is amazing um what what off the charts and then he sold he sold another company for 30

million but listen these guys started a Google these guys started a tech company I believe like a payment company they

sold it to Google for $100 million they went and started a conference it kicked ass they sold it for something like 50

or 100 I foret sold money 2020 for 100 million and now it's doing 100 million then they did it again with shop talk

which is like a trade show for d d Toc now I for what's the other Founders name there's a it's a white guy and an Indian

guy the white guy has a new one Nam um it's called Health okay that I don't know that I don't know I I know an Neil

I know a little bit I know Neil a little bit Yeah HL T you got to look at this because here's what these guys do they

it's the website is all the same yeah um it's like the same avatars for and it's like the same graphic design is it looks

just like shop talk or money 2020 it's the same thing again and again they do the same thing and he's and he's done

this like four times I I think this is their fourth time that they've created a new trade show I should have known it I

see it now yeah have you so I think this is significantly larger than shop talk and 2020 and so health is like a it's

they do these trade shows where they get all it's B what a trade show basically is what a lot of people don't realize

it's basically a u Marketplace that lasts for three days and so you get a combination of buyers and sellers and

you hope that you create some type of transaction and what he does is he charges people so you can go for free

but you have to offer up a 30 minutes of your time to be pitched I believe to set up a meeting um or you could pay money

to set up a meeting with a yeah they're they're 800 bucks per per 10-minute meeting now at shop talk so I don't know

what they are at Health they're $800 for a quick meeting and these guys pick a variety of niches where they're like all

right there's a bunch of buyers and sellers in this market and they scale up these trade shows faster than anyone

I've ever seen I think epic and a lot of people don't know this they they run other companies the the guy I'm

referring to I'll find out his name he is he's also on the board of a of a large private Equity Firm like these

guys are killers and for some reason they pick trade shows as their main thing which it boggled everyone's mind

was like why would a bunch of tech guys who can like make their money in significantly easier ways start a

freaking trade show they've knocked it out the park it's it's like a gem of a business this study they are gems I will

say I only know Anil a little bit the other co-founder of these multiple companies mondy 20120 in shop talk but

it is interesting in terms of convergent evolution that he got into it by accident

too how so they built money 2020 to support their fintech they didn't build money 2020 originally to be a standalone

business they built it to support their startup like many of us do events to support our companies right Jonathan

Wier the guy okay I don't know him I know the other one but it took off it took it took off money 2020 took off

then shop talk was a that they did was was a heat seeking missile right they act like it was this was totally

tactical and they even gave up on a lot of things and just did the these um paid meetings right they just did it and

going back to the conversation how do you get into something sometimes you you plan it out on a whiteboard and

sometimes though like these guys for these these event it found them it found them and then they then they leaned into

it and became experts but I know I've I don't know Jonathan but I do know anilo but I remember talking with him the last

time I saw him in person and he's like man this is a hard business so you think and he built he

like us he or like me he'd built a software business um and uh it is it is hard I don't know I would just caution

folks like anything everything's harder than it looks to get into I would just caution folks that there aren't aren't a

lot of shortcuts and you need I'm sure that the hlth is wildly successful but you got to be it's like this is one of

these businesses where if you're not in the top two you're worthless you're worthless you have no

value at all nothing because they are marketplaces why you going to go why you going to go to the fourth tier event in

an industry and in fact most of them died at in 2020 most of the fourth tier stuff died it it sort of stumbled around

uh when we all worked together in in the office and in the Bay Area but most of them never came back only the best ones

really came back after after lockdown let me ask you one last question um you are an investor so you've you've raised

money for your own startups and now your latest one's bootstrapped and you're an investor you've deployed tens or

hundreds of millions of dollars into companies I have a theory I think that if you are if you're if you're if

Building Wealth in a five or 10 period is your number one or number two priority for starting a company company

yes you should basically raise no money or very little money and you should not raise Venture Capital do you agree or

disagree with that if your goal is to get the first points on the board to make your first

Millions yeah I think what you call it you use the word shekels a lot or nickels if you want to get a few nickels

no your first it's a lot if you want to get the money to not work for the man where we started this conversation

listen all the stuff's harder than it looks it's all hard as we know but if you want to have an exit for

10 to $30 million 10 to $50 million which is still harder than it looks statistically right but north of 10 then

yeah you want to raise only a fraction of that don't raise that much so ra if you raise here's a simple way to think

about it if you raise a couple million dollars which is hard like it's not it looks easy on the Internet it's hard but

if you raise a couple million dollars you've lost no optionality the only thing you've suffered is some delution

the only thing you've suffered is some delution after a couple million the game changes after a couple in the game

changes and so yeah I I I think there's something to be said for raising nothing but most people raise nothing because

they can't raise anything I think there's even more to be said if you can of RA being one and done anywhere from

half a million to two million whatever you conclude together and you use it to not to pay yourself that's that's what

losers do you use it to hire a few good people to drisk this investment to accelerate this investment you use it to

hire a few good people and get it off the ground most of us need a little help like some folks just literally they can

do it on their own they're twoo great Engineers they don't need any help they can go do it on their own most of us are

not those people especially if you're a a business person it's harder to do it on your own right unless you build

something on WordPress or or tools it's hard to do on your you need a little bit of money but stop there you you not only

do you maintain control and have less delution but then any exit works then any exit Works once you raise more than

10 million um it can be worth it but if you raise more than 10 million here's and

this goes your point this people don't get this and today's world if you raise more than 10 million you're signing up

for a billion dollar exit and anything less than that is a disappointment it just might not even work out like

there's so many variables you may run out of money you might not get people once you start raising $10 million you

get addicted to burning more money too there's lots of issues that that creep out from that but you got to commit to a

billion if you don't see a billion dollar if you don't feel it in your bones then don't raise double digigit

Millions just don't do it it's not it's not generally not worth it find a way to do it with less and um and everyone will

be chill if you raise single digit millions or less and sell for whatever everyone will be chill everyone will be

chill they're not chill once you get to the Double Digit Millions it ain't it ain't chill for a

long list of reasons people start expecting a lot and too many folks these days think that um venture capital is

free it has no cost um the the social contract between investors and Founders Has Broken Bren down the last three

years it has broken down um I I literally just suffered my worst investing loss ever I'm 10x lifetime I

suffered my worst investing loss ever worst loss ever five million of not all of my Capital some of it's mine five

million out of 200 okay so it's not going to change the pace but I've never lost this much money and you know what

the founder said I hard what you care it's not really your money what do you care it's not really your money what do

you say that care I could honestly Sam I could I had to bring in a friend to deal with him I couldn't talk to him again

I spent years of my life helping him I helped him raise all his money I put him in all of our saster events for free I

promoted him constantly for years and then he says what do you care it's not your money I remember when

I took a little bit of Angel money and I and I remember thinking like I am like a steward a steward of this C I was like I

have to die to get a return that's how I felt though but kids don't feel that way these days I was like it's my life's

Mission now I have just like because to take someone's hard ear money I felt so much stress I felt stress I remember

when I hired someone who had a kid I was like oh I have a kid now and then I remember feeling the stress when I took

someone's money I'm like this person just trusted me with $25,000 I better go hungry or die in

order to get a return from them because if they if someone loses my money I'm gonna want to beat them

up you know what I mean I was like it's like a big deal like this is someone's mortgage that I I just took from them I

better make this get a good return Jason I appreciate you doing this man uh where do you where do people find you

on Twitter you're you're a Twitter guide now instead of kaora even though you got famous on Kora so Kora was great for

five years and now it's non-existent um but uh yeah you can find me on Twitter at Jason LK or honestly uh if you're a

business person find me on LinkedIn dude thanks for doing this you're the man I appreciate you um and that's the

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