Transcribe your podcast

This episode is brought to you by Venta, Does your startup media soke to report to close big deals, or do you already have a stock to report and want to make it easier to maintain? Venta has built software that makes it easier to both get and renew your SOC two with DANTAS continuous monitoring solution. You avoid hosting auditors on site and taking screenshots to prove that you're compliant so you can focus on building your business. Phantom partners with audit firms who file your SOC to report directly inside Eventa at a fraction of the normal cost.


Hundreds of companies, including more than one hundred Y Combinator businesses, are leveraging van't us today to streamline compliance and focus on building their businesses. Founders' Field Guide listeners can redeem a one thousand dollar off coupon. Advanta dot com forward slash Patrick. That's Venta Dotcom Forward Slash.


Patrick, this episode is brought to you by LinkedIn Jobs twenty twenty one. These new opportunities to grow your business. If part of your strategy is adding new members to your team, LinkedIn Jobs finds the right person quickly to make things better. Your first job post is free. With LinkedIn, you get access to an active community of professionals with more than seven hundred and twenty two million members worldwide. LinkedIn is the easiest place in the world to post a job and message.


Qualified candidates getting started. It's easier than ever. And now you can do all this from your mobile device. That's how LinkedIn jobs can help you hire the right person faster. When your business is ready to make that next hire, find the right person with LinkedIn jobs and now you can post a job for free. Just visit LinkedIn dotcom slash field guide again. That's LinkedIn Dotcom Field Guide to post a job for free terms and conditions apply. Oh, hello and welcome everyone.


I'm Patrick O'Shaughnessy and this is Founders' Field Guide. Founders Field Guide is a series of conversations with founders, CEOs and operators building great businesses. I believe we are all builders in our own way and this series is dedicated to stories and lessons from builders of all types. Founders' Field Guide is part of the Colossus family of podcasts, and you can access all of our podcasts, including edited transcripts, show notes and resources to keep learning at join Colossus Dotcom.


Patrick O'Shaughnessy is the CEO of O'Shannassy Asset Management, all opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shannassy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shannassy Asset Management may maintain positions in the securities discussed in this podcast.


My guest today is Jesse Puji, the founder and CEO of Gateway X, a holding company that builds, buys and invest in companies that are driving the direct to consumer landscape. Prior to Gateway X, Jesse was the CEO and co-founder of Ambush, a performance marketing business helping power customer acquisition across some of the world's biggest brands. Use my go to person for all things performance, marketing and customer acquisition. So we decided to record this episode to bring his incredible lessons to a wider audience.


It also dovetails nicely into the series of episodes we are making called Primus, where we take our audience from a zero to seven on just about any topic in this primary. With Jesse, we dive into how revenue mechanics affect ad campaigns, why long sales funnels often offer the greatest opportunities for differentiation and the various channels and strategies available for performance marketing. I hope you enjoy my conversation with Jesse Puji. Our mission with these episodes is to provide access to the best ideas and people in business and investing, we will soon be significantly expanding the scope of this effort to make it possible.


At Colossus, we're expanding the team and hiring to critical early roles.


The first position will be our lead mobile software developer. This person will lead the development of our mobile applications, which will change how people learn together. The second position will be our lead designer. Because the existing team lacks U.S. UI design experience, this person will have a blank slate to creatively design new applications from the ground up. To learn more about both roles, visit join Colossus dot com forward slash careers now onto the show.


So, Jesse, the first part of this conversation is going to be what I'll call the definitive conversation on performance marketing and I guess really just marketing, generally speaking, to set the stage as to why you were the right person to be having this conversation with. Just tell us the short history thumbnail version of ambush, how it got started and what you've been doing since its founding.


Yeah, sure. I was not born a performance marketer. Frankly, I wouldn't have expected myself to end up here 10 years ago. Ish. I was working at Goldman Sachs and I went to Wharton. And if you go to Wharton, Goldman Sachs is the goal of every Wharton kid. I got that ring and my dad as an entrepreneur came from India. I grew up around that entrepreneurship was what I thought I was going to do, but kind of said, man, I want to see what it's like to be an investor and learn about that.


And, you know, I liked it, but I didn't love it. And I said, I want to love what I do. And so pretty much on a whim, moved out west and said, hey, I'm going to start a business. And was as in love with the idea of starting a business as I was about. And I specifically wanted to build something, build an organization and culture. And so I said, you know what, let's bootstrap this thing.


We don't want to raise an angel round and then have a gun on our head and burn money. We want to get something that can make money from early on. And we went around and talked to a lot of mentors and friends and they said, oh, you're good with numbers and data.


Go look at performance marketing that you'll figure something out there. And we started calling it sandbox entrepreneurship, which was we're not going to come up with an idea sitting on our desk at Goldman Sachs. We get in the sandbox of something, we'll figure something out. And so we kind of did it like nerdy finance people would pick a business idea.


So we said, OK, we got it numbers. We have the online marketing that works well. We don't have any relationships with anyone.


We're twenty five years. This this is late 2009. Early 2010, OK. I don't know anyone don't have any relationships. So how do we get into digital marketing? Well, there's this thing called performance marketing. Netflix invented it and they'll just pay you kind of like a bounty. They'll pay you fifty dollars or one hundred dollars. Every time you get them a customer, you take all the risk and you make the margin. And we go over arbitrage.


That sounds familiar. Like let's go do that right. And let's go figure that out. We started to poke around and we said, well, and they'll always give you a shot. You don't need to have a relationship because it's just they just say, hey, if you can get me customers, great, I'll pay you. And so we went around and did that. And then the last funny part was we said, well, what's a good sector to do this?


And we don't know at that time.


If you remember online for profit universities where the big thing because Phoenix Kaplan, they were the largest digital marketing spenders at that time because of financial crisis, all these things are happening that that the government is basically paying for it. So they said, oh, those guys will buy leads from you for fifty dollars for prospective graduate student. And we do not realize how that industry was until we got into it at the time. We just said, OK, cool, we're going to finally do it.


And we went to our first conference is you have to go get these applications from people of Leeds for tests. And we find this guy named al-Hamad, who was the head of marketing at Kaplan University. And we give him this crazy pitch. We're like, we're Wall Street guys. We're using algorithms are doing all this fancy stuff and marketing. And he's like, OK, you're brown, I'm brown. Like, here's here's a here's a fifty thousand dollar contract.


Get me a thousand leads next month.


That's kind of how the business started. And we started doing that on search marketing. We had built all these fancy keyword structures and using natural language processing and we thought we were super smart. We work at Goldman Sachs and we launch our first Google campaign and buy 200 keywords.


We thought we'd found all these unique keywords. I want to figure it out. And we spend ten grand and remember, we're getting fifty dollars per lead and we get ten leads. So fifty dollar revenue per lead and thousand dollar cost per lead and the floor just dropped out from underneath us. I mean we were shit scared. And the funny thing was my dad is an entrepreneurial life. But when he heard about the kind of money people make at Goldman Sachs, my boss was in her early thirties making millions of dollars he couldn't understand.


Why on earth would you ever believe that? It makes no sense to him. And he's a he's a triathlete, incidentally, and he runs an eight minute mile. I'm living at his house, by the way. We're bootstrapping. I'm living at his house. He takes me on a jog and I run a ten minute mile and I'm probably like that. Young twenties, a little overweight phase. And we're running at a nine minute pace. He's like just yelling at me.


He's like, how did you not think of this? Like, what made you think you could just get into this industry and do whatever you wanted? And he just couldn't believe it. And I can't breathe, so I can't even respond is like trying to run and keep up. We went through a ton of iteration and honestly, the way we ultimately figured it out was it was the week of my birthday. Twenty ten. We literally got one key word we copy to competitors landing page and we just said, OK, we're going to do exactly what that person is doing and see if the economics can work.


And they did. And it took us that was like three months in between that thousand leads and that of trying different landing things. We tried really fancy landing pages that we thought were things. And it turns out this demographic didn't want fancy. They wanted yeah. We just learned very first hand. You don't know anything. You just have to keep testing. I was like one of our first big lessons and the business was OK at that point. It was all positive, not really cash flow positive.


And we had bootstrap everything. This was like three Wall Street kids to thirty three k each of their bonuses and put it into a thing and add one hundred K to start with a bunch of credit cards. That was how the business started.


And then right around that summer, Facebook launched their self-service platform.


And we were sort of the generation of Facebook, we said, let's give this Facebook thing a try, and I made the first ads and literally I could tell you this minute what they were those four masters in teaching for USC. And the headline was sick of being a sub question mark. And I put a little clip, Art, of like a mean woman with like a stick like this looking I mean, teacher. And it said, go back to us and get your masters in teaching.


Click here. And I kid you not.


I mean, this was maybe a few weeks into trying on Facebook. I came up with that idea. We were making five percent margins on Google. So fifty dollars as we were passing was forty five dollars. We started getting ten dollars leads on Facebook and is like one of those moments where you pinch yourself.


You look at this real and then next week we get a call us person.


We thought we were in trouble or something, which goes, these are like the best leads we've ever worked in our life, like, can you get us more? And we're like, how many do you want? And literally like that euphoric entrepreneurial. We went on a six month phase of five guys in India. We're sending them spreadsheets. There's no automation, there's no bulk up, there's no epis. You have to put every add one on one into Facebook.


So these guys uploading the ads and we're just going crazy realizing that we're so early to this Facebook thing generating massive margins. And as we looked at the end of 2010, we're run reading in the millions of EBITA like 15 months in and we get a call from Facebook and actually is even more specific than that. We had gotten a woman who is our account manager. She had worked in performance marketing and Facebook. It hired her and she literally got her assignment changed at Facebook from account manager for random companies like Ambush to one of the first two or three people on the Partnerships API team.


So she calls, she goes, guys, why are you doing this Legian stuff?


Facebook is going to be big. I can help you guys get one of the first companies to get the access to our API, take all this manuals off. You're done and build a software and go build software and help people run Facebook ads anywhere. And so we had to go through this whole application process and pitched our product and how we would automated and audiences and all this stuff and then ultimately got that approval in early 2011, went to work building that software.


And just to fast forward the story a little bit, we built software, we tried to sell the software, and everyone was like, what do you want me to do with this software? Like, I don't know how to run Facebook marketing.


And so they said, can you get services? And we said, Oh, yeah, sure, service. And then keep in mind, we had no intention of being an ad agency or getting that world.


But our customers wanted services. We're bootstrapped. Right. Our customers, our investors, to assure you want service will get service. And then we look at each other. How do we build services? And we go, well, we Goldman Sachs, those services like let's do what they do. Like remember how you do recruiting. We went and just recruited from the top schools wherever we could get top talent. It's funny because our talent has been a kind of a secret weapon for us, but we've recruited an amazing talent.


We'll train them on how to do this from the ground up we taught ourselves. So we don't need an expertise in this.


And that kind of set the wheels in motion to you going from whatever that scale was to by twenty fifteen, having probably three or four hundred million in ad spend. And a lot of it was like a lot of right place, right time. But our clients ended up being in 2011, our vintage was like Uber Dollar Shave Club supercell, which makes Clash of Clans one of the most downloaded apps. Peloton, Blue Apron. I mean just a who's who, because all of those guys at that same time, we're looking for customer acquisition help and Facebook became the first thing they did.


So we just scale this kind of massive thing. And then in twenty fifteen, we sold a minority investment to this awesome company called Red Ventures, who really taught us to expand our thinking. And if we were really great at this performance marketing thing, maybe we should be getting equity shares in the businesses. Rev share is like, how do we use this platform to start to build and scale businesses and stuff? From there we've done some M&A. We continue to have a big marketing services business and also invest in buying different things.


Well, it's a perfect setup because you've been doing this for ten years now. And not only have you been doing it a long time, but it happens to be the period of time that this has become an enormous thing. A couple of years ago, I think it was tomate that said some X percentage of venture dollars are just going to be spent on customer acquisition through Facebook and Google. And this is just a key place to win and get customers these days.


And I've never had a conversation on the podcast about performance marketing. So if we put ourselves in today's lesson and then we'll probably want to talk about some of the history, because it's important to know how we got to here. I'm going to pretend that I'm a new company coming to you, let's say a prospective client. I've got something to sell and really have you walk us through how you would approach a new client, educate them on whether or not this kind of advertising marketing is for them.


So when you and I first met you, talk me through this really interesting framing that before we get to any of that, the channels, the spend, the paybacks, the LTVs, all this kind of stuff, you really have to start at a far more basic level with the who, what, where, when, why of the business, the revenue event itself. So maybe you could begin there. When you're talking to a new company, how should they be thinking about this as a way to grow their business at the most basic level?


Yeah, absolutely.


And I think there's probably three or four categories to start with and that you can dive into each of them. But there's this concept, we call it the revenue event or the economics of the marketing that I always say you've got to start there. And part of that is because most of the biggest mistake I see most companies make a start talking about. Money on Facebook or marketing before they understood the economics of their business itself. I come back to that.


The second one is kind of the strategy point, which is the who, what, when, where, how.


The third one is thinking about actual call it channel strategy channels is who are you trying to reach? What are you saying to them via creative testing, all those things they tie together. And then the last one is people, the actual organizational discipline, which as you mentioned, is a relatively new discipline in the world. But backing up, we say start with the revenue event. And what you find is that every business theoretically has a revenue event. They have a time when the cash register rings.


As we like to say, that is a point when you go backwards, you start to think about marketing strategy. And when you go forward, you think about retention and upselling all these other things. And so let's think about a couple of examples, right. If you're a supercell clash of clans, the revenue event is the first time someone gets the point where they're like, I want some gold coins because I want to go faster in the game.


Right. If you're a University of Phoenix, the revenue event is when someone writes their first tuition check and then a typical e-commerce or subscription transaction, someone comes to the website, they put their credit card in and then they start paying you every month for that. So those are three different examples with different revenue events, but they all have different velocities and connection to the marketing cycle of it. Right. So in the case of Clash of Clans, you look at a Facebook ad, you click install.


I mean, the funnel is very short, right? And then a lot of it as you get into the game. And then how do the mechanics work to get you to pay something? If you don't let them play enough, they won't buy it. But if you get them, play just enough. But the mechanics of tying that impression then to that monetization event, for example, something we found would be when you actually talked about the level or you prepped the customer for how they're going to get to the gold coin opportunity that actually improved the entirety of that entire economics, shifted up in that funnel versus traditional, which is like play now, play free gets you a lot of people in the front, but then maybe not doesn't monetize so much on the back.


That's a very short funnel and you can do a lot of testing throughout it and very fast Contrastive and University of Phoenix or mortgage businesses or any other means. Someone sees an ad and it's usually a very soft ad like you want to have a higher income or do you want to think about buying new housing, about refinancing? OK, click here, you click, then you go to a website where you maybe read and do some stuff, then you fill out a lead form and that lead form gets around to a call center.


Then somebody calls you from anywhere from a week to 90 days.


I mean, typically a maturation of leads is like 90 day process and then you enroll. And then, by the way, there's even a funnel event between enrollment and start because they lose 20 percent of the people who enroll. They don't ever start. So the revenue event there is a totally different animal, that one that has to be optimized considerably throughout different phases. And then e-commerce, it's slightly different. It's in between those two. And that, to me, is the starting point, because if you don't understand the economics and oftentimes a good example of, hey, I want to figure out my Facebook strategy, I'll go, oh.


So tell me about how does your funnel convert? What now? I just had Facebook strategy. I said, yeah, but Facebook will happily spend your money. And if you go back maybe originally back to my story I just told we didn't understand the funnel was an issue. We just said, let's buy some AdWords. Everyone says arbitrage keywords. And then we started spending money and realized it had nothing to do with the keywords we were buying at everything to do with that landing page or sending people to.


And so that's a small example, but generally understanding that. And then, of course, the next step of any of these things is retention and understanding the economics of when someone does pay you the revenue event, how often do they pay you? And I oftentimes will tell early startups, be highly conservative with your payback periods. And the real the best protip I give is like try to actually get a negative working capital model. So try to actually charge enough money on the acquisition that you'll make a profit, because as other place we see people who blow themselves up all the time.


We've seen it legitimately a billion dollar gaming company go out of business because they're projecting their lifetime value. And then it actually came to roost. And the income statement and they didn't have money like they ran out of money. And so we say be very conservative, focus more on payback than lifetime. But life of value has a place. But generally, when you're doing this early on, it's all about payback period.


Just to clarify a couple of things on the revenue event before we go to the next level down. So you've introduced one variable, which is really interesting, the sort of time between original impression and the revenue event itself. So my first question is, what does that cause you to do differently in your job, whether that's creative or number of times you touch somebody, you're like, what does that variable do downstream for the strategy of marketing? And then once we answer that, I also am curious, are there other variables other than time between impression and revenue event that you think are especially important?


Yes, to the second one.


The first one, there's really a bunch of variety of different ways it impacts the business. I mean, one thing is just knowing it. That's a funny one, right?


Like some people go, no, I hey, I just ran Facebook and I don't have any customers. And you're like, well, you know, buying a mattress is we work with the mattress company. It's very different.


Someone takes their time to figure that out versus downloading a mobile app that the cycles are just important to understand and run your business on a cadence as it relates to that. The second thing is most important is and relates is data feedback loop. Realistically, you can't optimize a campaign in a 90 day velocity period. In a week or two, so the timing matters a lot. The other variables that are related to that, there's a bunch of them. So number of steps, right?


Again, in the example, this is less about time and more about how many things have to happen, how much friction occurs before I make money and the fewer number of steps, the easier it is to connect and optimize them. You think about the long funnel of an online education or mortgage.


I mean, we've seen situations where, gosh, the leads are good, they're coming in, but the sales team takes a week to call them. And guess what? It's too late. Those people have already made that spontaneous decision. They decide and they enrolled with another school that called them faster.


And if you ever want experiences, go to mortgage or go to an online education, fill out your information. And we joke that by the time your hand moves from the time you've hit center, your phone will be ringing. And because the most optimized companies know that that matters a lot because in that moment you have that intention.


So the more steps you have in the funnel, the more points of failure, the more points of optimization.


It goes both ways.


By the way, just to be clear, like a gaming company can only be so much better than another gaming company, a long funnel can get significantly better and they can build massive advantage. And when you think about differentiation, building unfair differentiation, we tell people like ambushers one of the best Facebook marketing firms in the world, and we're probably 10 to 15 percent better. Right. And at times, as we've been 40, 50 percent better and over time it's gotten less because Facebook has gotten easier.


But if you get really good at the funnel and the economics and everything that happens after that, you can become one hundred percent better.


Two hundred percent better length allows for that.


Let me try to summarize this back to you is really interesting. So on the one hand, the value of performance marketing, especially where you can attribute success or not, is highest when you can iterate a lot, which means low pay back or negative working capital. So instant payback, short time between impression and revenue event and relatively few steps. So that's that's all great. But the cost of that is that it's more competitive and less room for optimization.


So there's pros and cons to both. It's not like a spectrum from good to bad.


The last variable, by the way, related to this. Can we talk about time? We talk about a number of events. Optimize is, I would say, the economics of the revenue event.


So remember, when someone pays for an online education, us teaching, that's like a sixty or seventy thousand dollar purchase. When someone buys gold and clash of clans, it's like a ten dollar purchase. Although one funny story aside is this is a little inside baseball. There was a guy in the UAE who was spending a million dollars a month on Clash of Clans.


True story. So that guy aside, like generally speaking, these are smaller dollar amounts. And so the economics are what then allow you in the marketing front? I'll talk to companies and say I sell ten dollar make of it. My average order value is fifteen bucks. I'm going to start rebuying on Facebook and I cringe and I go, I don't know, because Facebook especially is a marketplace. And this is an interesting split between Facebook and Google. Facebook as a marketplace is ultimately a cost per impression game that you're competing with everyone.


And so lower aof lower economics, unless they make up for it with volume and velocity, they end up having a tough time competing in that marketplace against people selling mattresses or leads or universities or anything else. Google, on the other hand, every single marketplace of Google with keywords is elegant. You could plotted on a chart right where you say, well, what's the cost of the product? What's the cost of the click? And it's pretty linear.


So an auto keyword or the one everyone else talks about is that form of cancer. Mesothelioma is one hundred or two hundred dollar cost per click because one good customer there is worth millions of dollars, whereas again, mascaras probably twenty five cents a click and you're only competing with other people selling mascara. But the idea there is understand the economics of within that revenue event tells you how much you can obviously put into it and how much waste you can cover and take.


And so to add to your model, if I could find something fast, let's short funnel iterations, but very expensive or high value to the customer. That's where things become really, really interesting.


Businesses and like the reason clash of clans is clash of clans is their games are so compelling and dictate or whatever, and they monetize so well that when we worked with them, we had other gaming companies and we would just go, man, their economics are just this is the easiest company to do marketing for. Right? And they make so much more money for every install that we generate that just easy to do marketing for them.


I think it's a good bridge. Into the second stage of this. We've got the defined revenue event, those really interesting variables to understand exactly what's going on around that revenue event and how that might impact how you think about marketing. What then is the importance of the understanding the dimensions will call it, of the business and the offering, the who, what, where, when, why? And as you walk new companies that you're meeting through this framework, what are you trying to accomplish?


Yeah, you know, what I like about it is that it's super simple and super intuitive. Who are you selling to? What are you selling and where do you want to reach them? When do you want to reach them?


How do you want and but then it can actually like a fractal. It can actually get very, very nuanced and it can literally be the way you do, like a detailed Facebook ad campaign. So. Layers all the way to who I'm going to target moms between the ages of 30 and 30 to, oh wow. Or I'm going to who? The people who search this keyword so you can bring it all the way down to this highly granular level.


What can effectively be a conversation around creative strategy? What are you saying to these people? Are you telling me this will save you money? Are you telling them it will be make their life better? Are you going to show them a video of jumping cats? Like, what exactly are you doing? What are you showing? What message are you showing to them? Where is like a channel strategy or what channels you want to use? When could be some businesses?


When weather is bad, they pick up or weekends. There's always these jokes like dating customer acquisition campaign to do terrible on Fridays and Saturdays because you think you're going to get lucky and then they crush on Sundays and Mondays. By the way, the other category that falls into that is jobs, right? And Friday, Saturday or like I'm not talking about my job. And Sunday, Monday, you have to go to job. And that's when the customer acquisition campaigns, there's all kinds of different little when nuances of understanding your business and how a customer buys in your business.


Biggest mistake people make is they try to do everything at once. And so the other reason it's important to do this is because you say, OK, yes, we can identify all the keywords you could ever buy. But we got to start with one thing. We got to make one thing work made one thing works economically sound. And it's almost like any investment strategy anyone wanted to write, which is like I got to put some capital in and some capital has to come out.


And if I can get that producing regularly without a lot of energy and effort, then I can go on to another channel or another set of strategies or another thing. I'll see a lot of companies. I'll come in and they're going, Well, I've got this much going. I've got a little bit of surge, I've got some Facebook. The whole thing is really small and none of it's really working all that well. And that's a very common thing that we'll run into in the market.


If that's a mistake of action, what are the most common mistakes of understanding? Meaning when you visit with new companies, what do they tend to understand the least well about themselves?


As you walk them through this list of questions, you'll meet a lot of businesspeople, entrepreneurs who they spent a year developing their product. I've developed the fanciest mattress it has I built into it. I can do all of these various things.


Hey, can you give me an agency? And I'm just going to hand them this thing to do the marketing with it. And I kind of go, hold on a second. You spent a year plus developing this product and you're going to hand it to some seven person company where you're going to be their smallest client, a star. They're going to give it to the interns intern. And you think they're going to crack your marketing for you? It's like an incentives problem.


And what I tell them, as I say, I want you to spend at least half as much time as you spent developing your product on developing your unique marketing strategy. And to me, in the beginning, it's a founder level thing. It doesn't mean the founder has to execute every little campaign. And my my little rule of thumb is somebody taught me this, too, is 90 days with more than 50 percent of your time and focus for the founder to crack any Channel one Channel one channel.


So if you want to get Facebook working 90 days, 50 percent of your time and that energy until again, just like any business you can dial up to spend every week if you want and you continue to get the returns that you expect you'll get and consistently get that. And then typically I tell people again, then someone spends fifty one hundred a month on Facebook and they go, Jesse, I got to diversify. And I'm like, no, you don't need to diversify.


I tell people until you're spending a million dollars a month on Facebook, then talk about diversification. There are ceilings like anything like there are various ceilings and plateaus you run into in the path from spending one hundred grand a month on Facebook to a million dollars a month. And oftentimes people will unknowingly plateau themselves because, again, they get frayed in their focus.


We've mentioned Facebook and Google a lot and obviously and push itself in many ways was like at the right time to be learning from and riding the rise of these to add platforms which now dominate performance marketing. I don't know what their combined market share is, but it's crazy. High tech, 80 percent, 80 percent.


And so before we come back to the president again, I just want to understand a couple chapters of the twenty ten to twenty twenty period, maybe by asking what have been the major changes to this ecosystem, maybe it could be defined as like and push starts doing things differently in a new chapter. Help us understand that evolution. What are the major changes that have happened. Walk us through this. Yeah, sure.


Let me actually I'll back up a little bit even further. I think most people don't understand the history of marketing and advertising, and I didn't either, by the way, many, many years and before I actually asked myself that question and tried to understand it, there's a some famous quote, I don't know who said it.


Words like, the only way to make money is to sell something or help somebody else sell something in the marketing and advertising business is one where you're helping people sell something. And it's an interesting trade where the platforms you think about even back to newspapers, that maybe that's a start there, then radio, then television. They had attention and they were trying to sell attention and units of attention. They're the sellers of attention and their buyers are trying to buy revenue effectively.


They're trying to buy they're trying to buy sales in some capacity.


And so, you know, you had newspapers which classifieds were pretty direct response people to open them up and look at things. I'm going to call in. And even White Pages was a form of advertising that was pretty direct, response oriented and television. You know, early on, there's actually a funny story about Punji where they would launch television in cities and they would just see their local stores have massive sales. And so even television started more. Radio, but over time, they say, when D-R gets big enough, it just becomes brand marketing, you're selling to enough people.


And so over time we saw these things really develop as two separate disciplines. For the most part, brand marketing was tell your story, do it big. It has to be millions of dollars. And up until the Internet, essentially most of marketing was either huge dollars, massive brand, or even if you wanted to do direct response, it was like infomercials or it was like call centers. It was still stuff that cost you a lot of money to do something.


Do you have a very simple definition for direct response versus brand is as simple as like direct responses. They go buy it right then and brand is just like they learn about the company or become aware of it.


Typically, if you think about the marketing funnel, right, there's an awareness, interest, desire, action. There's like ten different versions of that. Right. Theoretically, you can't sell something until someone is aware of it. You can't sell something until someone has interest. And so typically brand marketing is thought of as top of the funnel. I'm going to drive broad awareness and believe that if enough people know Coca-Cola exists or have a high affinity for it, they go to the grocery store and they'll they'll go buy it when they buy it.


Direct response.


Typically, you could either think of it as cutting through the funnel. So in one moment you become aware and desire like you see this little contraption that goes into your orange juice so you don't have to open it and rip open the thing like that classic friend's example or some random thing on an infomercial. Or you could think of it as they just circumvent the top parts of the funnel and immediately drive to action. So the marketing is built and I think of it as revenue based marketing, which is the way I measure success in it, is does it generate revenue for me?


Whereas I think of it is, at least in the short term that do I get more awareness and I get the disciplines are quite different. Brand marketing tends to be it's bigger. They measure I would call it softer metrics. They might say something different about that. But like software things, they're not. There's less accountability in that world. It's a little bit more like Mad Men and direct marketing. Is this like more hardcore thing. But direct marketing used to be pretty hard before the Internet came along and the first step of online marketing was display marketing.


So it was like banners and someone went along and they sold all the brand markers. If I can get your thing in front of tons of eyeballs and that's kind of started iterating and there's a little bit of direct response pre Google, but not much. Right. And then Google launches the idea that I'm going to search a keyword and then you're going to show me a relevant ad. And that was the first sort of game changer in direct marketing. And the biggest game changer was I could put a credit card up similar to like us now and all these other things.


I can put a small credit card up. I don't have to talk to a person and I can start getting highly relevant customers to my product. And that was from two thousand and whatever, three or four till we even we started in 2010. I mean, Google, there was no Facebook, there was nothing else. Right. And it was incredibly dominant and it affected almost every vertical. And it was just this amazing kind of form of marketing.


But it's very different than anything that existed before it. And then Facebook came along and honestly, Facebook in the early days, with the exception of people like us, were really kind of gaming their systems by targeting things very specifically like substitute teachers and showing the ad to forty thousand substitute teachers. The early days of Facebook were kind of challenging and people thought, hey, this may or may or may not work. The ads are on that, right?


Rayle they weren't in the news feed. And what really changed the game for Facebook was, not surprisingly, a bunch of who, what, when, where, how stuff. Right. So the what first of all, one of the most important things was they started putting ads in the news feed the double what was they started putting ads on mobile in the news feed because remember, they didn't launch their mobile app until I think right around the time they went public.


And then the WHO became less about their targeting tools and more about their news feed algorithm, figuring out what a person wants and serving it up to them. To go back to your original question, like, what's the last ten years look like? It started with Facebook being kind of this little offshoot of Google. It could get you some D-R for certain categories, daily deals, stuff like the education stuff we were doing. Gaming worked for a few categories, news feed ads, got into the news feed mobile launched, and then you started having, like sometimes people call them custom audiences.


But really it's the Facebook algorithm starting to use the data they had about a person to serve them a much more relevant experience.


And that just led to this dynamic where almost any marketer could make it work on Facebook and make it work at scale. And then the most crazy thing about Facebook is it somehow has become a brand and a vehicle. So you can still spend the fifty bucks to get going. But in order to make it work, that's what Google does not do. Google doesn't get you a lot of impressions. You search mascara, you're going to see if you ads are going to buy it.


It's very cuts that funnel you just go to the bottom of it.


Facebook, a good campaign on Facebook, let's just say, is ten million ad impressions of which one percent of the people click. So that's one hundred thousand people, of which two percent of those people buy. So you sell twenty subscriptions or whatever you're selling.


That's a great campaign. But what you get is the benefit of the customers and the ten million impressions. And that, I think, is one of the many factors that has led to this rise of dissy and all of these other things. Now, other channels have come about and they've kind of drifted off of Facebook. You've got Snapchat, you've got Pinterest. Amazon is an interesting. One for e commerce in particular, Amazon will probably be the third biggest because of scale and the big reason for that and the other ones, the reason Pinterest and Snapchat aren't quite there yet is we call it the holy triangle of performance marketing.


The holy triangle is scale. So volume of customers. Right. Cost and quality or revenue.


And the reason that's important, and this was a really important nuance we learned early on, is in most industries you have a volume discount. I buy a thousand desks.


You're going to give me a cheaper desk each time in media because there's space and there's less space as more people buy. That's one reason for it. There's a volume premium. The other reason for it is because people aren't optimizing to unit margin. They're optimizing the total profit. So in other words, if I came to you and I said I can get you a thousand customers, a 50 percent margin, or I can get you 20 at a 40 percent margin, which will you take?


You'll take the second one because your total profit goes up. So everyone is optimizing for those three variables.


And the scale of Facebook and Google and certain other channels like television are so much larger than these other ones that oftentimes we will do it with partners where we say it's better to figure out a new way of fishing inside of Facebook than to spend any time on Pinterest as an example.


Zooming back forward to today, it's really interesting history lesson and progression, what you think is the most important way for a new advertiser, someone that's doing this for the first time to think about the message itself. So we really haven't talked about that. We've talked about lots of other aspects of this. But just around the actual message, the substitute teacher example is the one that you gave of what you're serving up. What have you learned about that? And I loved your quote that you don't get outspent, you just get out tested in in this field.


So talk us through the role of data and creative and iteration and experimentation when it comes to what you're actually telling prospective customers, there's definitely room for what is your brand stand for is an irreverent brand.


Is it a serious brand?


It makes sense to think about who you want to be at a high level. And then as you go into direct response marketing again, because it's cheap, because it's fast, because of all those things, you often also say, I don't really know. And again, it's another form of customer centricity, like I don't know what's going to resonate with people. And that matters.


Examples like do they care that it's cheap? Do they care that it's fancy? And so the role of testing experimentation is everything.


The actual answer to continually compounding better economics and any marketing campaign is continued form of iteration. It's like the volume of tests you can actually run meaningfully at any given time period.


And then obviously it's not just running a bunch of tests. It's learning every time you run a test. And so you start to learn very quickly what effects what the most. So you'll see stuff like does ad copy have a major effect? Not as Major does the creative and the format like video versus non video has a major impact on Facebook in particular, the headlines matter a lot more. So you first you learn these different pieces of it and then they each become individual variables that you're constantly testing and iterating against.


A lot of this that goes back to human psychology. There's urgency. There's that famous book Influence. And I kid you not. We have people read it. We have when you get to a certain level of ambushers, I read this book. Do you have urgency, scarcity? Is there some kind of a deal you're getting from someone? And how does that flow into the ad copy that you're writing and the messaging that you're sending to a customer and then will be different strategies people have against those specific influence variables or other types of variables what competitors are doing?


And then it becomes kind of like a product management thing. You just have like a backlog of things you want to test. How big do you think they're going to be? And you just run through them and start testing them on a frequent basis?


This may be too specific a question, but I'm just interested in what you've learned about conversion in general. First of all, I don't even know what the expected conversion would be on serving someone a Facebook ad or maybe even going all the way back to the closer to the revenue event on a good website. Like, let's say you get someone to the website on a good website, like what is really good conversion mean what is really bad conversion mean, and then ditto for serving them some piece of performance marketing and one of these channels, what's really good, what's really bad, give us some guardrails there.


I think the first thing I have to think about is what is the person, what action are they taking? Right. So let me give you a huge range. Really bad is probably sub one percent. Really good is like above 10 percent. Now, it depends on what you're asking them to do.


If you're asking me to fill out a form that I'm going to get paid on because I'm selling a lead to a university or mortgage business or something, then like those conversion rates tend to be in the like five to six percent range. But the ultimate conversion rate, which is the revenue event, is far lower than that, because on the other side, I'm selling that and somebody else looks at that as media. They're buying. They look at those.


I'm going to buy a thousand leads from all these lead people and then two percent of them are going to become students for me. And a typical e-commerce business, we would say, depending on the average order value and all that stuff, it's like one and a half to three percent. So if you're better than three percent, that's pretty good in conversion. The other thing relating back to the revenue event in the funnel, I think was like this metric that we talk about called APM, which is acquisitions or sales per thousand impressions.


You're serving on various channels. And what that does is the. Collapses the clicks and the conversions into one metric, and in some ways you want to manage it that way, right?


Because I'll tell you another funny ad I ran when I was twenty five building the business was go to class naked and online universities.


Right. And I was a woman holding herself. There was no nudity, but she was naked clearly. And she was like protecting and dude, best clickthrough rate in the history of Facebook, 40 percent click through rate zero conversions. Right. And Facebook banned it after. After like I spent a fifty five hundred dollars on it. They banned it. This doesn't fit within our content guidelines or whatever it was like the early days of click bait. I didn't even know what I was doing.


But that's why you want to manage click through and conversion together, because part of your question of what makes good conversion is, is it a consistent experience? Do I get what I expect when I click on the ad? Is there something driving me to actually purchase? This is unclear as to what I'm buying. And so you can be really you can sell really hard up front with the ad. And if someone lands on a conversion page and read the products five hundred dollars to buy, you're going to lose everyone, right?


So you have to mix those things together, then measure them together. And that ultimately, again, this is kind of a little bit of our playbook and secrets. But if you think about Facebook is a competitive auction of CPMs when the price goes up of CPM, that's not Facebook.


That's the market saying that the impressions are more valuable. And what that means is they're getting more ROIC for every impression they're serving because they're willing to pay more for them.


So if you're not able to consistently out beat that market, your cash is going to go up because the baseline cost is going to go up. And so a common thing we'll see with companies that are a little bit further along is they'll go, my kayak was twenty five bucks for the last six months and now it's forty bucks and it's all CPMs that Facebook's getting more expensive. And we go show us the creative distribution between now and then. You're spending 40 percent of your money on the same creative for the last six months ago.


Yeah, but that's our winner. That's the thing that led us to the Promised Land. And you go, yeah, well, of course, like if you're not getting better, yield out of that real estate. Another analogy. I'll give us the farmland analogy. It's like it's a piece. It's an acre of land. And if you don't get better at farming it to get more crop out of it consistently, eventually your yield, your margins are going to get the exact same thing on Facebook.


It's fascinating that there's sort of an interplay between arbitrage back to your Goldman days, what I'll call Alpha and Beta. I'd love you to walk us through that idea. So the way I would think about Alpha here is like being early to Facebook and you're getting those that moment where you, you know, there was ten dollars, you couldn't even believe it. And that sort of is like an alpha. So one is there's Alpha still exist. I guess it probably always does to some extent.


Is it worth looking for is another interesting question. And what is beta mean? Because obviously people wouldn't keep spending in these channels and it wasn't working like, you know, in aggregate it has to produce results.


Yeah, I think of it as a little different. We love doing all these finance analogies to this stuff. Like, I actually think what we did in the early days of Facebook was arbitrage. I think we were early to an asset class that was like illiquid. People didn't realize the value of it. We did earlier. And gosh, dude, we made tons of money doing it right. And then the beat of the market is like, oh, well, everyone does a certain things in a certain way.


They all target in a certain way. And if you just look at the beta margin, I can spend twenty dollars on an impression. I can get this many clicks as many conversions. I can tell you the averages EBITA is like zero point seven percent on average across all of our stuff. And let's say a percent and a half conversion rate, you could probably build a business. It's probably going to be pretty commodity's, low margin. You'll still make money, right?


I mean, just people doing that, the average.


And then we think of Alpha. Anything you can do to beat those two numbers because it means that your tractor on the same plot of land is able to pull out way more crop than anybody else's. And you've got to keep tuning that thing to make it better and better over time. And it kind of goes back to again just to tie up some loose ends. Like if you're if you're a funnel is massive and long and has tons of endpoints, dude, you can develop you can get a lot of alpha out of that thing.


The story of Quicken Loans and Dan Gilbert is all hearsay. But what I've heard is the guy practically invented digital direct marketing, but as a mortgage business. And he was going to the point where he would figure out where you were calling from. You were from Kentucky, and he would route your call to a broker who was a guy from Kentucky. Right. To talk about Alpha. And now you're going to go you're going to get your mortgage from that guy.


It's like your guy down the street, even though he's sitting in Detroit in the call center. So you just think about the size of those funnels. They're significantly more alpha creation abilities. We're essentially outperforming the market in the same function. In the case of Quicken Loans, I mean, legitimately probably built into one of the largest. It's a crazy business, right? Super profitable to come on. It's fundamentally a commodity business. And yet they're just so much better at this.


And it's all that point from serving ad impressions to the time someone signs of the revenue event.


You've set me up perfectly for the third category, which is the people, people, plus the way that organizations manage this function. Pure outsourcing is the example you gave earlier, a build a mattress for a year than just hire someone else to solve this problem. I think your observation is, and correct me if I'm wrong, that the best companies don't do that. They use firms like Kampusch as fuel, not as the source of the fire. And so I'd love to hear what you've learned about the best marketing organizations.


What does the leadership look like? When is it installed in the. Company's life cycle. What are the best groups look like, like what are the best performing teams and people inside of the companies that you've worked with?


Yeah, that's a great question. You know, there's stages that we see that different things tend to happen at that I think makes sense. And kind of our point of view, I think there's this is zero to five million in revenue businesses. And typically one of the founders has to own this and they have to get intimate enough to understand the economics of it and why it's working, why it's not.


And we tend to recommend that either you find a former Goldman person or someone from finance, teach them how to do this or find a consultant. But like, you have to ingest that DNA early on in the organization to understand and build out. And you kind of mentioned, as we say, third parties, they're good at pouring kerosene on the fire. They're not very good at rubbing sticks together. Right. And the entrepreneur has to rub those sticks together.


And then once you're at a place where you're kind of consistently spending, say, one hundred two hundred thousand dollars a month, maybe you're five, 10 million in revenue and you're looking to scale that. And what you're running into is issues with I don't have enough creative production. I don't. And you know what those issues are. It's not like I don't know how to scale from here. It's like if I just had more creative testing, if I just had more people fingers to keys building more ads, I could do this.


That's when oftentimes we'll say, hey, that's a good time to take a third party. And then you'll typically see people go from spending a million dollars a year to like five to ten million a year in the second phase. And it's still typically pretty hosley, you know, that's when they'll have 40 percent still going to one asset. And they're just they're trying to get growing and scaling. And then they go into the like ten millions a year or twenty five thirty million dollar business.


And that's typically when an ambush will come in and we'll say, hey, you can take your 10 to 30 to 40 or 50. Right. And but you can't do it the way you're doing it. You have to be rigorous about your testing. You have to analyze every single ad all the way to the end, even think about retention as it relates to specific ads out that entire kind of data loop. You want to be very methodical about your testing and experimenting.


You want to have a roadmap. You want to build all these things. You need full time, creative, full time this whole time that and then scale the business to thirty, forty million in performance marketing and maybe one hundred million dollar business.


And then I think oftentimes what we'll see and I'll circle back and talk about the team and stuff in a second, but we'll say, oh now you're like a real brand. Now actually you need scale and now you get go find yourself the CMO of blah blah blah. And yeah, maybe you should have a feel good billboard and you should do these things that are going to really get you on the map in a more serious way. And your marketing budget is going to head to one hundred in your toplines, going head to three hundred or more, and you want to be thinking about stuff like attribution and messaging and really going to the next level with a strong performance marketing engine at the core of it and a strong funnel and analytics and all the things we've talked about already today at the most core around what you're doing.


So that's progression that we would say, you know, I think around that thirty or forty million if you're serious about building your own performance marketing organization, I think throughout that entire journey, having a really strong kind of head of growth type or something, even with third parties or not. I think if you're serious about building a performance marketing organization, I think you start building it sort of at the end of an ambush lifecycle of twenty or thirty million and spend.


I say serious because we there's a little bit of our own biases, but we see a lot of organizations that do it because their investors want them to do it or because they want to tell a story. And then literally in two years they'll call us back and say, oh gosh, like this isn't working. I need more help. And I think the ones, the Amazons of the world, some of the best companies build these organizations like critical functions in their being.


And those are really strong. But there's a lot of businesses that sort of do it to check the box. What does it look like?


I think early days, it's a head of growth and maybe some consultants, someone to analyze numbers and data, someone who can do the creative stuff, and maybe a web developer who can make the experimentation faster. One thing that we always recommend is like engineering and product. You have to create some kind of a sidecar for marketing. Otherwise their stuff gets prioritized underneath the core product stuff. And you're not able to make marketing go as fast as an early team.


Could just be like a head of growth 50 percent and designer of fifty percent, analyst type person at scale. What we think a great organization is like, you've got a CMO ideally who is strategic, who can look forward, who can tell the story, you can do all those things, but also is pretty analytical and can think about numbers.


And if they're not, they certainly have surrounded themselves with another person who's highly analytical at a senior level who can drive those things. The leadership then breaks down into there's might be stuff like PR, comms or other things that but they're really the head of growth is this person who we think of them as they look like a VP in an investment bank or an engagement manager at a McKinsey type place. They're very strategic. They're very rigorous, they're very comfortable with numbers.


And they really can understand how the pieces fit together to be able to build and scale this thing. And they have a system in a paradigm that they built and then underneath them, it depends a little bit on the business. Sometimes people do it by the major product line, sometimes they do it by channels. But there's some form of like the actual marketing output that's going out. And then surrounding those groups is like designers, web developers, the doers of the actual marketing.


So there's like these centers of we call them. Marketing leads or whatever growth marketing leads, but they're really doing the day to day of that stuff, but they're surrounded by the people who are helping them execute those things and have a skilled organization.


We've talked about how this is a new discipline. And I think that's just an important thing to for people to recognize. I think what you tend to see in the world, as you see, there's a lot of I'll call them handwaving brand marketing. And it not meant to be negative towards them. It's just they're not the people who are going to run rigorous analytical Facebook campaigns. They're the ones who think of the ideas. There's a lot of hustler's in this space, which, again, I don't mean negatively.


I just mean they're freaking creative people who come up with good ideas, but they're not particularly rigorous. And now there's, like we call them, the ambush breed that every phase of growth, Edward Ash is run by a former and push person to give you a perspective. Right. And there are the people who combine a little bit of hustle, but really they're analytically rigorous people who get into this experimenting and testing orientation. And that's kind of what we think they look for, just for the founders and everyone out there.


Those people are not that's not like an engineer or even a product manager. The world is not as developed yet in that talent orientation so that those things exist. And so part of his you have to be willing to create that or just recognize that that's what's out there today and that people need to learn to get there.


Is there anything else that we haven't covered on? I'll call it like the present state of opportunities for marketing that you find interesting. Obviously, I know you focus on direct response, maybe Facebook even more specifically. What else is interesting? We haven't talked about aggregators like Nerd Wallet or Thumbtack. I really don't know much about them. I'd be curious what you think about places like that or you mentioned the original stuff. Newspapers, radio, television. There's lots of places that we haven't talked about that aggregate attention.


Walk us through the rest of this sort of like succeed by selling something for somebody else. What are the other attention aggregators? How do you think about them? How do you advise companies?


A couple of interesting trends I'd highlight. One is always experiment with everything. People always go, Oh, I tried that. Hey, have you ever tried this? I tried that didn't work. We try to train people as a last time I tried that when I did it, it didn't work. It's back in the bottom of the pipeline. I'm gonna try it and I'll give you a very specific example, which is kind of crazy. Snapchat, when it first came out, was not great in terms of their marketing.


And then Instagram stole stories, Instagram made stories, creative work, and made that thing work. Now, someone this year literally inside of amperage. I heard this is like a bullet point somewhere.


Hey, we took what we were doing on Instagram. We try it on Snapchat stories and it's crushing it and go, wow, Snapchat. It's the fastest growing channel for us right now as an organization. Right. And so constantly test and experiment everything. And there's also we didn't talk about product channel fit, which I think is another important thing, which is some products and some things are just better for certain channels than others. Gaming tends to work on the Snapchat and even Facebook in the early days.


They tend to be a leading platform online education and or insurance. And search is amazing. I'm looking for auto insurance. I want to buy it. And so thinking about product channel fit is a really important concept broadly.


Are there any other general lessons there that you think people should ask themselves about that or even channel by channel? What sorts of things do you think about?


Yeah, I think the easiest hack for it honestly is just look at what people are doing, where and what's working. And by the way, that could be a reason to do it. There could also be a reason to not try to sell auto insurance on Google. Today, you're going to get crushed. So maybe you've got to figure out a different who, what, when, where for Facebook. The other big thing that you'll see is there's a tech effect version of Old World channels.


There's this company called Pebble Post and they let you run a direct mail campaign like it's a Facebook campaign. So you can log in, you can make your creative you can decide what kind of addresses you want to send it to. They'll ship it out for you on your behalf and you'll start to get customers from and they'll track it and they'll tell you what's going on with it. And that's happening every what's happening on television with the TV.


So the tech effect, if you can learn how to run a campaign on Facebook or Google, you can probably put that capability in mindset over to a lot of these new channels as it goes.


And then, you know, the other thing that we've heard and seen a lot in the marketplace is combining channels in smart ways. So we had a partner who they ran, they took the country and they split it into thirds. And for one third they ran radio, one third they ran direct mail. And the third third, they ran both. And individually, the economics did not make sense for either of the first two when they combined. Then the economics were like a six X, right.


And you just maybe it's a slightly older demo they're going after.


It's like, oh, they heard on the radio then it's like, how many impressions did you serve to the person before they did it? But I think the biggest underpinning of all this stuff is be very open minded, be very curious and constantly experiment and never tell yourself that did not work. We got we would change the language to say we were not able to make that work or it didn't work for us. Right. Because the thing works. Somebody is spending money on it and doing it.


And so I think for all those other channels, I think DTV is going to be compelling. Again, the big things that matter like Rich, can you get to a lot of people at scale? Can you measure effectively? One reason our TV's compelling is because of that vanity URL. So the fact that you can say something with podcasts like you can really get to the specifics of that and then can you build this kind of analytical and testing framework on top of it and from those things then on?


See, any channel can work like many things, right? Everything can't work for everyone all of the time. Do you have a single company example from somebody that you've worked with across and Bush's history that you think was the most interesting sort of end to end experience, whether that be because of how they did it, that led to success or failure, or you picked the reason why? Was there an end to end customer of yours that you learned a tremendous amount from?


We worked with Uber for a long time and did a lot of driver acquisition for them. And that was a fascinating it made me realize how much of our business was the bottom of the funnel and activation versus traditional marketing. There are huge customer of ours, was a huge badge of honor. Right to work with them. And I get in every Uber I got into, I hear about Uber and my cousin, my nephew, my uncle, my best friend.


And I was like, what?


We're spending like tens of millions of dollars on this. And then I realized that's asking the wrong question.


Then I started asking same question, where did you hear about us? And same answer. So where'd you sign up for Uber? Oh, Facebook. Oh, I did that on Facebook. And I was like, yes, like that's an ad from us.


And I think what they did that was really well was Uber because of the immense talent and rigor there. We talk about a long funnel and building an advantage in that funnel. They would test and measure and every little piece of it, you know, where did that person come from? What city was running in it? Is it better to text message than once they sign up or better to call them? OK, how do we and think about the funnel for drivers.


Insane, right? First you have to sign up, then they contact you, then they run a background check on you. Then you have to get your car checked, then you have to actually start driving and then they have to keep you driving. And so I think the level of rigor and experimentation at every little piece of that kind of blew our minds. Right. We were able to connect things like amount of driving the person did or even amount of effective customer demand.


They drove because of incremental supply to the specific ad creatives that we were running and that kind of regret. You don't see it that often.


It brings up an area that we haven't talked about that I want to make sure to touch on, which is retention marketing. So we've talked mostly, I think, about the ultimate revenue yield on per thousand impressions or whatever this combined metric that you think is important at the front end. What about after you have a customer? So what have you learned there about driving retention, about continuing to market to people even after their customer? What are the best practices from your seat and that you see companies do in this area?


I think my depth is much lower in retention. I think what we've seen there learned some of it is the old adage of great products, great services. People stick around and that matters a lot. I think the best companies think a lot about the natural orientation of a customer. Everything we've talked about goes back to customer centricity in some way or the other, but they go if you email someone every day, and that's not the natural cadence. They need your product or service.


It's spam. If you never email them, they're going to forget you exist, you never interacting with them. So I think the best companies think about what's the natural interaction that happens with the customer. And they put a little bit of extra pizzazz or fuel against that to keep the person engaged and keep them going.


The other thing is, and this goes back again, I'm a I'm a hammer. You're looking at a nail. But like people who segment their customers to understand, there are some customers who never leave you or keep spending more with you every month. How did you acquire those? Who are they?


Well, that's actually one of the funny examples in the market we see is what's your CCAC? And one telltale sign of someone who's not yet sophisticated enough to go, oh, it's 50 bucks a hold on.


The sophisticated answer will go, well, we have five.


We know our highest quality people, the people who say refer remittance business. We work with, well, the people who have family everywhere and they send money every week. We'll pay three hundred dollars for those guys. Right. And and then the next little over two hundred for these types, these other people we only pay fifteen bucks for because they use us once for a transaction. They never come back. You mentioned Snapchat is the fastest growing of the platforms.


What are the other. I'll call it pure frontiers in performance marketing. Even if you're not there active yet, you have your eye on it as something worth watching and interesting that's emerging.


Tick tock is an obvious one. It reminds me of Facebook in the early days. I mean, there's going to be something big. There is almost no question in my mind about that. They're very early. And so it's going to take some time and there's a little bit in this space. We learned it the hard way a few times of that adage of pioneers get slaughtered and settlers get rich. So there's there's no reason to be the first. Oftentimes it's actually better to be second or third and let somebody else go through all that rigmarole and then come in and and just build a better mousetrap.


And these specific channels, the CCTV or TV, I think is going to be a beast, like it's going to be a big, big thing.


Can you say more about what those are? I think a lot of people won't be familiar. Yeah.


So that's when you're on Hulu. Hulu has a self-service platform now. And so if you have the ad version of Hulu in between your your random episodes of Seinfeld or whatever, you'll have ads, it'll pop up for you to see brands or for others. And you can actually upload a video creative service there and pay the way you would run a Facebook or Google campaign. And because the vanity URL will say Puji Dotcom for Hulu, there's actually a really easy ability to tie it back to what you're spending there.


And we've heard lots of positive things about it in the marketplace.


That's. Very meaningful frontier, we actually do a lot with this and it's growing fast and it's big, it's not a channel so much as a how I guess I would call it in my little thing is influence our stuff. And I think influencers in the top of the first inning. Give us the quick overview there. So both sides scope how you would attack it.


Are there interesting businesses like self-service platforms being built so the influencer, one on one was going to pay someone a fixed fee? They're going to write an Instagram post and they're going to say, buy my product to a one four influencer was, hey, influence a record bunch of different ads for me and I'm going to run ads from my handle. Inflows are three to one is I want to take your handle and I'm going to run media from you. So I actually have a separate voice in the marketplace that's beyond my own brand.


I have some woman from The Bachelor or whatever, and she's going to have her own creative talking about how great my product is. We apply the prowess of ambushers, media rigor and all that to like an ad campaign coming from whoever whatever Kelly someone's name. And we're able to get massive scale. They're incremental to what we're doing with the brands and stuff like that. But the four or one in the five one is like we've seen some of this in the past with the Kylie Jenner stuff.


I think China is the only place I go to look when I try to understand this. Like in China, there's literally entire firms that they recruit influencers. Influencers have their own product lines, and it's all orchestrated by third companies that are doing this. But it's like Shopify meets some of the three or one influencers stuff where these people are launching their own stores or even temporary stores. Right. Or this live TV shopping stuff. Part of your question is like what exists out there?


Well, there's SaaS companies that are powering the recruiting, almost like an applicant tracking system. The power, the recruiting of them, the payment of them, the so that's a whole segment. There's like three or four really good companies doing sassed up there, their services, businesses that will help you recruit it there. There's talent agencies that are now involved in this. So there's an entire ecosystem coming up in and around this. You know, they're all mostly micro influencers.


One of the crazy things we learned early on was that there isn't a correlation necessarily with scale and size and ability to actually convert economically. And in some ways, there's like Moneyball where you go, I don't want to pay Snoop Dogg's fee or whatever to run a campaign from his thing. It's just too expensive and doesn't back out. But some person who you and I have never heard of, but fifty thousand people have heard of them, they actually are the best economic trade off.


And by the way, this is all happening on Facebook. Instagram snaps. So it's not like these are channels persay, but they're almost a tactic inside of the channel. You asked about nerd. Well, the nerd was that's a massive business. It's a really a lot of adventures. Does is buying those businesses.


How does it work? You just describe how it works. Sure. So generally speaking, those businesses are trying to help a customer navigate a purchase decision.


If I'm what credit card do I get for this or if I want to maximize my points? And typically, most of the source of their traffic is nonpaid, partly because of the way the economics work. They want to write really good content, build calculators, all these tools so that you can come on the site and get value and you're getting picked up through SEO through organic search, which is sort of a fixed investment, but no incremental cost every time you come on.




And then I'll go in your wallet, I'll read a different bunch of articles and then I'll go, oh yeah. This credit card based on that, I have two kids. I live in the Midwest, whatever. That's the right credit card from you. Click through and buy it. And then the credit card companies say American Express will pay nerd wallet a bounty every time they attribute the customer back. So it's a form of performance marketing where they start as a source and it exists in almost every vertical.


And so those businesses, I think if you're a brand and one of those spaces, especially early on, because they're fixed price and because they already get volume of customers, they're really good place to start because there's no variable cost. There's almost no risk as long as your economics work on your side of the revenue event. I think in every vertical you're going to see versions of that. Let me help the consumer make a decision and then I'll get paid by the company.


And Google is pretty good about managing that. And even customers are pretty smart. Like if they go to something they have, as is so bias, it doesn't make any sense versus the people who keep it pure tend to do better in that realm. And aggregators take all kinds of flavors like you'll see some that they really are just editorial articles and they make money on the back end of that. You'll see you mentioned Thumbtack, where they really want to help the customer from end to end.


There's a lot of creativity in that world. At the end of the day, there's a customer who wants or needs something that has some challenge and there's like businesses who provide it. Yes, Facebook is this massive non vertical ised, but has this ability to show the person the right message, the right place at the right time. But then there's so many different onion layers of what other ways can I serve that customer trying to make a purchase decision to allow them to get that?


That's a win for everybody. By the way, the customer gets a better experience, aggregator gets paid and the person gets a customer. Generally, this category is called affiliate. Affiliate has some negative connotations associated with it, but generally affiliate will be anywhere from fifteen to twenty five percent of the mix of a scaled marketing direct response campaign.


I'd love to now take your collective experience and apply it in sort of a different way, which is I always say I love people that get just an insane amount of reps. Looking at other businesses through some unique lens. You have a very unique lens. You've walked us through that, that. Way in which on the side tons of different businesses, God knows how many businesses and worked with over the years acquire their customers with all of that learning, I'd now like to ask you questions as an investor.


So let's say tomorrow everything employee related was gone and you set up a new fund to just be an arm's length investor in businesses. And I'm not even going to specify the kind of business early stage, late stage doesn't matter with everything you've learned. What would be that lens like? Walk me through that lens of how you and I'm sure you've done this to think about businesses as you consider investing in them. The place I typically would start would be maybe, not surprisingly, understanding the economics of the business.


And by that I mean, what's the revenue? What's the gross margins? What's the cycle of selling this thing? How challenging is it?


It's all these things that kind of happen after the click, if you will, to try to understand how big of a problem is this for people and what are the economics look like when you get it right? There's some of the common lenses of what's the actual value prop? Is it a big market, the standard stuff. But then the next step is, OK, what are the economics of this business? And, you know, how much does it occur?


What are the gross margins associated with it and kind of go through that economic thing to understand how challenging will it be for them to get from a person looking at this all the way to actually purchasing this? And then what does it look like if they're successful? And if you believe that someone could be successful in doing that? As an example of business, I did invest in its competitor, small direct club called Candid, one of the first angel investments I made in the employee journey.


And I was like, oh, so this is like everyone knows that they have this problem. Like, I know my teeth are a little crooked. I like that a lot. Right.


I can be built very engaging, creative. That's going to catch people's attention to drive up interest in this dynamic. I talked about the numbers in a campaign. Ten million people, one percent of them click. It's oftentimes very driven by the psychology of impulse and. Oh, OK. Yeah, I've been meaning to get that done. You don't need to convince me that I have that problem. OK, I'm going to I'm going to click on that.


Oh, there's a funnel. Well I got to go. Either go into a center or actually do a home kit if you get really great at that. There's a lot of alpha ability in building that out. And then the product is like two GS, which is much cheaper than the competitor Invisalign. All in economics of customer acquisition can be fifteen, twenty percent. It's very believable that that's the case. And I'm like, yes, I get this and it makes sense.


And then the APM, I think over time can get better and better in those businesses.


It can be in every different channel. The other thing I'll look for kind of it's a little bit talent, a little bit economics is have they already built some of these unique moats and typically. Well, the way that shows up, by the way, is in some insane LTV to tack. Right. Or some metric where you're like, wow, they're getting five to one economics or six to one.


And you go, oh, wow, they've got this huge little community of like two hundred thousand people that are constantly coming in. And yes, like they can blend down their Facebook costs dramatically or wow, their email is really compelling. It's oftentimes that stuff will show up economically. But you want to make sure it's consistent. It's not just they're really good at Facebook ad buying because as those things scale, you're going to want to see the ability to have multiple things that blend to superior economics over time.


It plays well in two directions. One, you can spend more on marketing and scale. The other one is you can actually put more into your product and actually improve if you're selling medication or whatever, you can get the formula even better. You can do other things with it. So I'll spend a lot of time on is this the best the economics will ever get or do? I actually think they're already pretty good at this and they haven't even tried.


It's like the base base VXI playbook, a standard big market, whatever, and then believing that there's a lot of marketing alpha in their business.


Part of this, too, is understanding obviously the teams and how they're going to execute. And I think you have a really unique viewpoint. Sort of everything that I've ever talked to you about, I think, is because in many ways you yourself were a bootstrapped business that never had the luxury of billions of dollars in the bank before you produced revenue, sometimes for a long time, a lot of cash burning. I want to talk through what that bootstrapping experience has taught you and sort of have you evaluate when it's appropriate to do that building versus the more traditional funded variety where he might not make money for a decade or longer, as is the case with a lot of the biggest financial outcomes for investments, at least in the last ten years.


So just give us the basics of lessons from bootstrapping, maybe what it requires, the good, bad and the ugly. And I want to weave in this concept that you have of the entrepreneurial execution loop. I think this is a really powerful concept that I want to walk through the steps of, and I'll let you decide how to introduce those steps.


But bootstrapping in the execution loop, I'd love to spend some time on one less thing to add on the previous thing and kind of relates to this question of the way we we had a point of view and around businesses and executives, there's a certain type of executive and there's kind of this funny Buffett ism right where he says, I want to own invest in a business. Any idiot can run the venture, an idiot will run it. And there's these incredible franchise like Visa, right?


Like, man, I don't know any one of these. I'm not saying they're bad executives, but, like, that is a fantastic business. And there's a lot of command and control. And like my reports, I'm going to make sure my reports do this and that, sort of the traditional kind of what you think of as big corporate as. It says, and then there's this other one, which is like, I can go to the bone any time I want because I can dive, and businesses like Amazon, like the senior people there, could get into the innards of these things.


You and I are talking about any day of the week if they wanted to. I met the president of Disney Plus and I kid you not the guy is thirteen hundred people responding to him. He went toe to toe with me in a conversation about Facebook attribution. How does a guy who has thirteen hundred reports, it's just a certain way of thinking and playing that they all have decided they're going to do.


And to me that's the mode of executive that I get excited about too, from an entrepreneurial perspective and think about investing in, because it's someone who can talk about like a CEO of a company who I asked them, maybe they know it is your character in my clickthrough rate or and they don't they start to show that they lack the ability to go into that. I'm like, hold on a second. I'm not sure I'm going to invest in you because I want someone who they don't live in the bone.


But if they need to get to the bone, they can quickly get there and they quickly understand it.


So let's switch gears and talk about bootstrapping. I think a lot of it starts with what you want. I think there's at least two two reasons people start businesses. One is like you have this idea and you just want it to exist in the world. And it's only thing you care about is this idea and some version of it existing. And then there's others that are really like the idea of starting a business is very exciting. You're just excited by business and entrepreneurs.


But the first thing is like bootstrapping. Is it to be a very personal choice. And I think it has to be like what's driving you and what are you solving? For me, it was like, I want to do this for a long time. I don't know exactly what business I'm going to be in and I don't care. I want to live every day. I want to solve problems. I want to work with great people. And I want to do this as long as I can.


And for me, that was the motivating thing of like, I'm going to bootstrap.


Why would I go raise money? I guess I'm sure I could put together a deck and pitch someone and they would give me money. But why am I going to go do that when I don't want to go on that path? And I think that path starts. I always tell founders it starts probably after your angel round. You could probably raise money from a bunch of individuals and still go bootstrap once you start taking institutional money. Their job not in a bad way is to get a return on that capital for their investors.


You've got to stay on that trajectory to go to an outcome and to an exit. And I don't think, by the way, there's anything wrong with them. In fact, I think VCs are amazing at building businesses. I think they can get you faster, better. But typically that ends with some kind of an outcome for everybody, including yourself. And that has to be something you want. And it might be public. You might be a public CEO.


And so I think there's it's not just ownership in the equity sense, but there's ownership and the like. Whose show is this and how is it going to run that? I think as early as you can try to figure it out and sometimes you can start a whole business and go down that path. And the second one, you go, OK, this one I want to I want to own I want to be the person running the show and in charge.


But I think people who bootstrap for like minded more the cap table or vice versa, if that's not the reason, it has to be something that you truly want and you're willing to go through that orientation.


So for us, it was we want to do this a long time. If you make one dollar of profit a month or cash flow in the case of like Bezos orientation, you can exist forever. And that for us was important, can exist forever. We don't want the pressure of burning tons of cash and being dependent on the kindness of strangers for the next round of our funding. That was is very important to us.


And then we put up whatever money we had and let our credit scores drop down to eight hundred from eight hundred to six fifty or whatever. And we charged up a lot of our credit cards.


And part of, you know, one thing, I also want to talk about bootstrapping, which is very personal. We had set ourselves up with the cushiest cushions of life if this didn't go well. And so I don't want to be the, like, hustle poor. I know you've got to go. We went to Wharton, I worked at McKinsey, then I worked at Goldman Sachs. And then I said, you know what, the worst case scenario is?


I'm going to fly to business school in a few years if this doesn't go anywhere. And I'll probably get some insane, very high paying jobs that I'll be lucky and grateful to have. So, yes, I'm OK. Charging fifty thousand dollars on some American Express. It will be inconvenient if that happens. But it wasn't a life and death thing for us.


Another version of that I say that is like I think most people who want to be entrepreneurs, they start thinking about it ten years before they become an entrepreneur. In my case, I my dad, I was fifteen, sometimes twenty five. I was ready. And people go, man, Jesse, you're such a natural. No, I, I just started thinking about it when I was fifteen. You might start thinking about when you're twenty five and by the time you're thirty five you'll have enough savings, you'll have whatever and then they'll be the right time for you.


We've shift a lot of the math and the thinking here. So one is we say your customers are your investors. Very simple. They're the people paying and let's solve for exactly what they need, which I think all these things have to be taken in the middle. If you go too hard on that, you become too much of a services business. If you go too far in the other direction, you're just building random stuff they don't want. You have to find that happy medium between them.


And there are some compromises you would make. I think that's a really important one.


The other one that we do, too, is my favorite one is the unit. So I all the unit sold math and with the unit sold math, you come to me and you say to get the basic operation running, I probably need about fifty thousand dollars a month.


And let's assume you're not raising any money. How many of whatever you're doing do you need to sell minus the gross profit to get to fifty thousand. OK, you're hawking supplements for strength training or whatever. Fifty bucks a bottle and you make forty dollars every bottle and you need fifty thousand dollars. OK, now by hook or by crook by any way you can write. Figure out a way to sell twelve thousand of those, and to us, that's a big part of the culture early on, which is like, man, you learn the words of all of these things very quickly to understand, instead of talking to me about your investor deck and how many investors you're going to talk to.


And because that's the metrics everyone typically talks about, I go talk to me about your unit's old math. What's your plan to get to twelve thousand a month?


And I'm very passionate about this because not because I think there's nothing wrong with venture funding. But I think it's it gets a lot of airtime relative to this other path that I think there's a lot of potential for and a lot of entrepreneurial go. Yeah, I had my whole pipeline of a hundred investors in this and that, and I just do that, just apply that same energy to the twelve thousand units a month that they'll come back and go, wow, I did that and I have a path I don't need.


Invest the money. I'm going to go do it this way. The old cash is king mindset and I think being creative and thoughtful about that, whether it's using credit cards, because that's a deferred cash liability.


I have talked earlier about negative working capital like things that can provide you cash today, asking your customers to pay up front, just things that can keep you alive. And the cash flow concept and learning it very early is super, super important and being able to figure those things out. And I think the nice thing about it is if you can make a dollar a month in profit or cashflow, if you can hire a certain number of people, if you can hit the units you want, you get to build is where you want it.


And you get to this really deep execution ability and Problem-Solving orientation that can take you very far away. And it's your show. You could do whatever you want and you get to take the business in the direction you want it. And if you want to try something different, you can try something different and it's fun. I do think there's meaningful trade offs, right? I think there are certain businesses like Uber or maybe a biotech business where there is a true value in the capital.


Getting you to a point of either like a marketplace that get that scale is going to be the ultimate outcome winner or there's just something so capital intensive. No way you could bootstrap. You just need that money.


You need that cash to do it. I think one thing we struggled with, I think we made a lot of mistakes early on. We've been every type of incorporation type. We've been a C Corp, we've been an LLC, we've been an escort, just silly things like that that I think having VCs, having people who have built businesses many times over would have saved us from making those mistakes. The amount of reps of those people have seen about building businesses like they are very valuable.


Another one that was a negative is it's really nice to be running your own show. It's kind of sad sometimes that nobody else cares about your business except for you. Literally, no one else does matter.


It doesn't matter to them if anything happens to that or not. Maybe your customers, but you have no investors. You've no person who's gone. Hey, how's it going, guys? Like, let me figure out what's happening with your business. I think the other thing I think about with more of my pure investor hat on is, again, there's just a lot of businesses being capitalized that don't have sustainable moats, especially in these direct to consumer segments where at scale you look at the business and you go, man, you're going to raise two, three hundred four hundred million dollars ueber.


I get I get that it created an immense amount of value that could only be built in one way through speed and scale and all that stuff. But how does a business that sells generic medicine to people maintain that advantage in a ten year horizon? I don't think it's possible. So I think that weighs a lot of these beans are capitalized, don't match the ultimate kind of economics. They're much more built for the venture returns that they could generate by getting big fast, which is all great in today's economy and today's world.


But in a more challenging world, I think it becomes very tough on those businesses.


Can you walk us through this idea of the loop, the execution loop, and maybe it specifically? I don't think it is specifically just suited to bootstrapped founders or businesses.


I think it's very generally applicable is interesting combination of rigor, quantitative rigor, and acknowledging that you don't know what the future holds. Maybe there's some over the horizon vision or goal or whatever, but that you have to be very flexible along the way, but also be very rigorous. So not Lucy Goosey along the way, like hold yourself to hard standards and that there's this happy medium for the best operating cadence within a business. Can you walk us through this loop?


Let me talk a little bit about why we built it. I think that's a very important piece of backdrop. So we started the business when we were twenty five. In the first few years, like most businesses, is really fun. And then the business actually had real revenues and EBITDA and then we realized we were waking up more often than not, shit scared that somehow the golden goose was going to go away. And we said, you know what?


We thought we wanted to build something long term and cash flow. But like, let's just sell that. Let's just let's get this thing, that exit. We grew really fast. Glassdoor started popping up with very negative things about the culture. My wife was like, what's up, dude? You don't seem that happy doing this anymore. And we really got to the point where we said, man, we're not enjoying this and our culture is not great.


People don't like the culture. And it is a very common entrepreneur fan, especially in the first business. And so we start working with the coach and we got very we said what's what's going on here? And there was a few things we started doing. This thing in the conscious leadership program is this book The Fifteen Commitments of Conscious Leadership, which has been pretty life changing for me. And I'll just share a couple of concepts in the night. You talk about the loop.


So the first concept was types of motivation. And there's these five types of motivation according to this paradigm, and it's fear, extrinsic intrinsic play or genius and then like empathy or love. And that's more about the human. It's not about a person individually, and these are all again, these are a fractal, so we might feel these all five of them in any given day for given different things that are going on. And in general, we're motivated by them.


Right. And you think about fear, motivation as like a chip on someone's shoulder. I'm not great enough. I'm going to go conquer the world. And you think of me, love is like my Mother Teresa. I'm going to make everyone's life a little easier. Extrinsic as money titles, intrinsic as my own thing and genius. I think of like Buffett where it's like, oh, I just love what I'm doing. I'm enjoying it.


And they talk about fear. They're all effective forms of motivation, by the way, and there's no one better than worse. Fear tends to leave a negative residue on yourself and other people, and it tends to run out on a non-renewable renewable resource. The common thing where someone goes, I got my number and you get to your number, you go, oh, no, no, I want that other number because I was scared.


Now I'm here and I sort of run out of motivation and love and empathy and play ingenius tend to be renewable and they tend not to leave and they tend to lift people up as you do them.


And so we start learning about this and kind of had this moment where we were like, oh my God, we've been more or less totally fair, motivated for a very long time and no wonder the culture, no wonder everyone feels negatively. And the other concept I tie into this is the concept of context versus content. And this is another paradigm which is like oftentimes really bright people especially go, oh, do I like health care or do I like marketing services?


Do I like and I got to this point personally where I was like, I don't like marketing services. Why did I start a business like this? And I'm not motivated to keep doing it and to help my coach Milanesi like you.


Rafea motivated. You made some money, you sold a part of your company, and now you're just you don't feel scared anymore. And so you're you're struggling with what motivates you and kind of went through this whole process.


And the context versus content idea is it's sort of like from where are you doing it?


And there's people who are mission driven cancer curing companies. But if they wake up every morning and they're coming from a place of fear or they're worried about how they show up in the trades or how much money they're going to make, you'll hear that they're not happy. Their cultures are not happy. On the flip of that, you'll hear of insurance, brokerage or some random commodity. Business isn't sexy, doesn't have a great mission. But the people doing it, the founder especially, is coming from a place of wanting to make his employees lives great and wanting to help people get better in their careers or truly wanting to help his customers.


And those businesses are flourishing cultures and all the great things. And so that's a concept of context versus content from where are you coming? And a lot of the paradigm conscious leadership is just starting to first notice. In one moment, you're feeling fear and you're feeling like you want help and empathy.


And we looked at ours, which we've been using, and we said, you know, gosh, these things, there are two issues with them we didn't like in particular.


And most of the goal setting processes and systems, we said they seem very fear oriented. They just felt like you got to set this arbitrary goal out there and you're going to rush to hit it. And it's got to be a big jump up. And if I don't hit it, oh, gosh, that's not a good thing. And and the other thing we didn't like about it was it tends to us at least it seemed like way better for a business you understand and know to go.


I can improve conversion by twenty percent.


But entrepreneurial ventures, you don't exactly know what's going to happen. And so so the motivation behind the loop is can you build an organization and a culture that gets all the benefits of entrepreneurial thinking and approach speed, ambition, creativity, problem-solving, tenacity, all these amazing things and mitigates the things that tend to make humans lives not fun and the fear of fundraising, the failure of someone getting reamed in a conference room. And by the way, I don't know that it's possible to be clear, Bill Gates talks about himself as being a terror when he was building the biggest company in the world.


Right, Uber. We've heard stories like there are other stories, like read ventures where I think they're truly they have accomplished versions of this. But that's what I'm most motivated by personally, is an organization that teaches people, brings them up, but also is ambitious and exciting. And they're doing that for the purpose of learning and growth of the people and that people sometimes refer to them as deliberately developmental organizations, that the businesses are there actually to serve the people's growth and learning, not the other way around.


And that's like I'd call it, very aspirational, but that's my aspiration for what I do with my career forward from here.


And so our love is the first version of like, OK, well, look, if you're going to have an operation, if you want that, you have to have an operating system that supports that.


And so it starts with this idea of what's our desired future state, what do we want in the future?


And that's not uncommon.


And we give this example of JFK saying we want to put a man on the moon.


Sex is motivating exciting thing that people want, but it's not a thing you have to do or you should do. And you often hear the words entrepreneurs and business, how we should really get this launch or we should really become the highest market share. No, no, no, it's not it's not a thing you have to do or you should do or you must do or the world. It's like you really want. It's coming from desire and it's ideally coming from a play place or actually helping people in some way.


So that's what it starts with. That's the desired future state, not part most people get. But it's disconnected from today's reality. It doesn't have to be what today sets. And then the next point is there's this idea of current reality. And this is a really hard one. This is actually one of my biggest personal development challenges. I'm the guy who can do desired future state all day and the. I just did it, I just got you excited about my vision of an organization and then current reality, like Jesse, you're not.


You didn't do reviews for people, people five people are waiting on their reviews. What the hell? Right. And part of current reality, the challenge of it is, first of all, seeing it clearly and not with rose colored glasses or not seeing what you want to see, but what's actually there, which I struggle with.


And then the other part, and this is a really interesting one, is accepting the current reality.


And so what acceptance means? What do we do when our numbers desired? Future state was 50 percent revenue growth or whatever, and now it's twenty five percent. We try to explain it. We try to blame. We go to these negative places, which is very common. It must have been because of these three things happen. And you know what, honestly, if you just think about it and this gets very sort of meditation, whatever, mindful, it's just what reality is in this moment.


This is the no, this is actually what happened.


And oftentimes we don't think you can do the desire for change until you're accepting what is here. And just fully OK, this is where we are and all of us kind of go through that sometimes where we have a bad situation. We don't get to college. We want to eventually then we get, OK, we're going to accept this. And now. Now what? Now to what do we do. Right. So it's kind of like trying to make that a real system or process.


That's sort of the basics. OK, here's where we are today. Here's where we'd like to be. And then we have this thing that we call waypoints. And it's a sailing analogy. I'm not a sailor, but somebody taught this to me. And it's the idea this is where it's like a little different than, OK, ours is when you're sailing. Apparently, sailor, you don't just say, I'm going to go from here to India.


You go, like to get to India. First, I need to, like, figure out how to get to Hawaii. And so I'm going to actually my waypoint is next. I'm going to put my degrees in this thing until I get to Hawaii. Then from Hawaii, I'm going to look at where the best place to go is. I'm not necessarily going to go to Japan. I might go down to Tahiti or whatever. Then I'm like, you're you're sailing around the world.


And that's we think that's more similar to the process of building a business than ours are. Kind of like getting into business school. There's a checklist, do your game at your school or whatever. You go through this whole process of essays, get your recommendations and then you get into business school or not. This is much more of a I don't know exactly what's going to happen. So then the way you set goals is much more about either hypotheses you have doubts you have, which is an interesting one.


I'm not sure the people will buy this product. Let me launch an ad campaign to see if people will buy it or I'm not sure that the content is going to get that. And let me launch five of these things to get content and it tries to really engender that beginner's mind.


Right. Sometimes we call it learning. Leverage is goal. So learning leverage means what can teach me the most in this moment about what I'm trying to figure out. There's some prioritization against it, but generally you're operating less from a I must hit this metric or point seven of this metric and more of where do I need to get to to the next step and what's the progress I'm going to get as it relates to that, then what do you do?


So you set that all up, then you do what we call entrepreneurial rigor. And this was like a learning we had after a long time, which people would say, I'm either really rigorous and analytical and I analyze everything and I come to or I'm like, I just Kusile, I just get it done.


And neither of those quite satisfied. As we say, there's a two by two here and there's like hustle on one vector. Yes. No. And then there's wriggler like are you being analytical. Yes. No. And we actually use it as a coaching technique internally, which is like, hey, you're really good at analyzing. But when it comes to getting stuff done and work are you're really good at hustling. But we need you to be a little bit more analytical and we think that the best entrepreneurs do both of those together.


Right. So they're looking at numbers. They're reacting. They're constantly going through their own version of this. And that's the way you execute and you try to accomplish those waypoints. And then the last part of the loop is accounting and response and so counting. There are a couple of things we learned. Accounting is separate from response because think about what typically happens in an organization is I ran my waypoints. I didn't prove the thing out. I thought I would prove out or the numbers didn't come the way they would.


They we wanted them to immediately. If you're an executive or your person, the narrative starts to shape around that. Why did that happen? What's next? What and we said, you know what? Let's pull all the emotion out of accounting. Accounting is just what happened. Tell me the facts. Tell me exactly. And the facts could be we missed this number by this. We beat this by this accounting. We realize and we started doing it in meetings.


It's like a five to ten minute process because there's just no story. There's no narrative. There's no nothing attached to it. You just go this with this. This will happen. There's not this. And then the response is, is a much more interesting conversation. OK, what can we learn from this? Oh, you know what we're like pretty bad at setting goals as it relates to how many creative we can build in this much time. We're pretty bad at setting goals around X or Y.


Maybe we didn't actually miss the mark. We're just not good at actually setting the goals right. Or you know what? I don't think we have the right people who can do this. So the response is a separate activity where you start to think about and the response can range, can tie you back into any of the three buckets. So you can say, you know what, I think our desired future state was off. I don't think people want to buy direct to consumer rubber gloves.


I just don't think it's a thing because because my way points taught me that nobody clicked on the ads I ran. It could be, you know, I was testing the wrong things in my waypoints. It could be my execution wasn't where I'd like to be. But then based on the response, you kind of start that cycle over. And again, I'm not sure that any of this is super original. The idea behind it is language matters, the approach matters, the words matter.


And it's about learning and.


Both of the people and of the process and not about must hit this goal at all costs and we're trying to make it fun and enjoyable and a play orientation for building businesses and entrepreneurship and not a not like life at all costs has to be put in this direction.


I always leave our conversations thinking about this. You ended it in the right spot, which is this combination of rigor and hustle, rigor and curiosity, qualitative and quantitative, meaning and execution. There's this kind of middle way that is powerful in business. And I think your career has taught you that. You know, my closing traditional question for everyone. So I'll ask you now, what is the kindest thing that anyone's ever done for you?


Well, I'll talk about is the founder of Adventure's Rick Elias as a mentor and an inspiration to me. And I was telling you about the culture and how the culture got really negative and ambush. He's the only person who's ever put money into the company other than me. And Chris is gay. And you did this deal. We flew out to Charlotte to meet with him and we took our whole management team with us. And it's like this fancy dinner.


And he comes in and he's like, how's the temperature of the company right now? Like, how are people feeling? How are people doing this? And it was a very innocent question.


There was something about the way that conversation went down there. Like me, we didn't say anything of our management team started being like, people are tired. The culture has gotten really rough. And he was incredibly kind in that moment. And it's like a testament to who he is as a person and a business person, which is he's operated businesses. He's seen these cycles before. But in my mind, I literally was like, oh, my God, this guy just gave us fifteen million dollars.


And if I was him, I would rehme. I'd be like, what the hell did I just get myself involved in?


And his response, we kind of took me aside later after the dinner. And he was just like, I know building a business is hard. I understand how this is and I'm here to support you and I'm here to be a part of this with you. And can you imagine in that moment getting that kind of grace from someone and even me as a developing leader just showed me like it was one of the first things a man, there's a different way to do this.


There's a different way to lead a different culture. Fantastic.


Well, this has been so much fun. I could do this with you every day. You've taught me basically everything I know about this part of the business world. So I'm glad we got to do it on the record. Finally, thanks so much for your time.


Thanks, Patrick. This episode was brought to you by Venta in this five part mini series. I sit down with Venta CEO Christina Cacioppo to hear about the origins of Venta, how Venta is automating security and when companies should look to partner with Venta. In this week's episode, Christina and I discussed how she encountered the problem of shock to compliance and why the traditional model for getting SOC to compliance just doesn't make sense. So, Christine, I think a good place to begin the story of Venta is how you first encountered the problem itself.


It's not exactly a problem that a lot of people wake up even aware of or knowing how to solve, but it's an increasingly critical one in the world of software. How did you first alight upon the idea itself? I was sort of the founding insight, absolutely.


So two ways to tell the story. One worked at a Dropbox and worked on a new product at the time Dropbox paper. It's a collaborative document editor where a small team of about 10 people trying to take paper to market for the first time and sort of got sideways with Dropbox itself because we realized we couldn't take paper to existing Dropbox customers because paper wasn't soc to comply and it wasn't tested, it wasn't a vulnerability monitored, etc..


And so we were this 10 person team that had this kind of terrible choice of either porzel product or work for a year and a half to go get stock to compliance or skip that. But then again, take this to market, but you're not allowed to give it to any Dropbox user and a sort of terrible choice.


So at that time, just talk us through literally what stuck to is what it means, how it's risen to prominence.


And before you started building Venta, how one acquired a stock to seal of approval today in the market.


I think the way we explain it to customers or talk about it, it's just it's the de facto default way to tell your customer that you take security seriously and you have good practices in place.


And what specifically means is the host of a hundred specific tasks that you complete on a regular basis, but at a higher level. It just gives your customer assurance that if they put data in your tool, you'll keep it safe and you will leak it on. The Internet, I think is a really important service for Reverend Wright. Increases trust between vendors and buyers, makes the sales process go faster, gets more software bought from innovative companies. So that's sort of how we think about what it's OK to does on the market today.


And then in terms of how you used to get one, it was this sort of bespoke, arcane consulting process where you sort of start by calling up someone who'd done it before, sort of like taking a company public at the CFO. You can't do it till you've done it. So similar here. You can't go through a stock to until you've gone through a sock to see if you can find one of those people.


They'd kind of charge you a bunch of money to to tell you about all the tasks you needed to do. And then you were sort of left on your own to do them. And then at some point, an auditor would come in and ask for proof that you did what you said you did and sort of rinse and repeat every year. If we'd done it with paper at Dropbox at the time, it would have taken us about a year and a half to go do all of that.


And that's kind of a full team working on it. And so it's a ton of. Time and energy, if you enjoy this episode, check out join Colossus Dotcom there you'll find every episode of this podcast, complete with transcripts, show notes and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condensed episodes to the big ideas, quotations and more, as well as share the best content we find on the Internet every week.