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Welcome to the profit pods office hours. This is the part of the show where we answer questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehoursoptymedia.com dot. Again, that's officehoursrofgmedia.com dot. Today we're kicking off a special three part series answering our questions surrounding the future of entrepreneurship routinely covered on this show. And that's what it means to be an entrepreneur. It means working all the goddamn time. And when you're not working, thinking about the business, I think being an entrepreneur is sort of a young man or a young woman's game. When I speak to people, say, I'm going to go to work here for a while, get the credentials, and then maybe being an entrepreneur, I'm like, no. Entrepreneurs are kind of born. They're not made. I don't think startups think much about marketing, nor do I think they should. I think that what you should think about in a startup is building an amazing product that ten x. Your goal should be a ten x better product that will get its own discovery. That is what it means to be an entrepreneur.

It is stomach churning. It is upsetting. It is stressful. It is absolutely nerve wracking. And you're going to wake up sometimes in a cold sweat and think that you're letting your family down. Welcome to the romantic world of entrepreneurship. The upside is that if it works, there is no limit on the upside. Here's the problem a lot of entrepreneurs fall into is that they think expenses make a business. No, expenses don't make a business. Revenues do. It's fun to lease an isoff space, fix it up, hire a bunch of people, start marketing, have glossy brochures, a cool website. Those are just expenses. Expenses put a business out of business. When you work for someone else, unless there's specific carried interest, they're always going to sort of decide, oh, you're a young guy, we're going to pay you really well. But your compensation does have a ceiling on it. So the upside is enormous in entrepreneurship, and that gets a lot of publicity, the downside gets less coverage. And that it is very stomach churning. It is a very nervous, precarious place to be. So with that first question.

Hi, Scott. My name is Ben. I'm a big fan of the show. I'm about to graduate from undergrad. I have some friends that have gotten recruited at big companies. I have some other friends that are trying to start their own thing. And I'm kind of caught in between. I'm still figuring out what I want to do. And sometimes I kind of feel like I really have that entrepreneurial drive. But other times, I wonder if I'm not cut out for that kind of grind. And I'm wondering what you think makes a good entrepreneur? And then conversely, what makes a bad entrepreneur? And when did you know that you were one? Thanks again. Really love the show.

So there's a couple answers here. What makes a good entrepreneur, but specifically, advice to you. First off, this is a good problem to have, Ben. And if you don't know what you should be doing, that is called youth. I think a lot of people never figure out exactly what they're calling us or what they should be doing. I would say I would let the market decide, and that is I would run down every opportunity around a small business or a startup and also interview with big platforms and see where you get offers and then call people, assemble a kitchen cabinet and get their thoughts, and then make a decision. But what I don't like is spending any calories on decisions you don't have. And that is people call me and say, well, should I go to business school? Should I go to Wharton or Harvard? I'm like, have you been admitted? And they're like, no. I'm like, well, okay, take the GMAT, get in, apply, get in, and then come back and we'll have this conversation. I personally think right out of college, starting a business is overrated. Or joining a small company and going to a big company is underrated.

Why am I saying that? Big companies are more of a caste system. And that is, they usually want people on a certain path. They want you to go to an elite college. They want to see other big companies on the resume. And it's a bit of a one way door. Like, if you leave Google, it's usually pretty difficult to get back in. And it's also a great place to kind of workshop what you might want to do because you get exposed to a bunch of different competencies and jobs. You could even, you know, if you go to work for Salesforce and you decide, I want to live abroad, you can transfer to an office. Well, I want to be in HR. Well, you can transfer probably in HR if you're good at what you do and they like you, they invest in human capital. And as you're workshopping kind of what you should do, which is find your talent. Not necessarily necessarily your passion, but find your talent. Sometimes big corporations can be great at that. I went to work for Morgan Stanley. I hated it. I wasn't very good at it. They hated me.

And that was a great learning, and it was a great platform to launch or get me into business school. And I learned a lot there. I worked very hard. It taught me attention to detail, taught me how to get along with assholes. Anyways, get the job done, worry about where you should go to work. Now, what makes a good entrepreneur? First and foremost, entrepreneurs are just built differently because they're much more risk, aggressive. And I'll use options as an example. At l two, we were at a point where we were likely going to be sold in the next year or two. We had a bunch of companies sniffing around us, almost everyone. I always try to be very transparent with the entire company about what's going on in the company when the business is not going well, when it's going well, because I think a real learning you can give to young people is to give them a sense of how decisions are being made and what is actually going on with the business. And the thing I hated about working with big companies was who the fuck made this decision? Or what are they thinking?

Or I don't know why this is happening, or could someone tell us what's going on? And I think it's great learning. Anyways. Point is, the majority of the company knew there was a very high likelihood we were going to be acquired. As a general practice, I've always given equity to every employee. If you want people to act like owners, you got to make them owners. And I like that Silicon Valley sort of gestalt of make everyone an owner. And I like that sort of upward draft in wealth creation. I don't like these companies that are three. People have all the equity and then they outsource everything. It's like, well, okay, how is anyone going to make any real money anyways? The way you give people equity that's tax friendly is you give them options, because if you give them actual equity, it's a taxable event, meaning they have to write a check at the end of the year and there's a chance the company never gets sold and they're just out money when it was clear we were likely going to be purchased. The bad thing about options is when you convert because the company to equity, because the company gets acquired, if you convert them to the equity and you write the check to buy the shares based on the underlying strike price, you immediately have a taxable event, right?

So you have to write a check. But if you hold onto the equity for a year or longer, you then qualify for long term capital gains, and it takes the tax rate down from the federal tax rate down from 37 to 22.8. So even knowing that this firm was likely going to be acquired, what is the number of people who decided to write a check and exercise their options, knowing that they'd get much more favorable tax treatment and end up on a net basis? Way ahead. Almost zero. A few people on the board exercise their options because they're long term thinkers and they know how wealth is created. But younger people and people who go to work for other people to be risk averse, and the bottom line is what makes an entrepreneur. First and foremost, they are willing to sign the front of checks, not just the backup checks. I am shocked how many people would never think of investing their own money in a company. I constantly call people in my organizations co founders because titles are cheap. Sure, call yourself a co founder, but here's the bottom line. The founder is the one that went home to their spouse and said, yeah, work was really hard this month.

It really sucked. I'm working my ass off. I realize I can't see you or the kids that much. And in exchange for working my ass off, we get to pay the company $100,000 this month because we need to invest to keep the company alive. That is called a founder. And most people are not willing to do that.

Two.

So one, more risk, aggressive. Two, they're willing to sell. I mean, really willing to sell. Entrepreneur is a synonym for salesperson. What do entrepreneurs do all fucking day? They sell. Join my company. Join my shitty little company. Despite the fact you have offers from better firms. Hey, client, spend money on my company. Be a client with me. Despite the fact there are more credible firms pitching you every goddamn day. Hey, investors, invest in my company. Despite the fact this is a small company and highly risky, I will get your money. You are selling all the goddamn time. So if you do not have the ability, and more importantly, the willingness to sell, which is the willingness to endure rejection, you are not cut out to be an entrepreneur if you're a genius tech person. Okay, maybe you can be one of the co founders, but you immediately have to partner with someone who is comfortable calling people and selling. What does it mean to sell? It means calling people that don't want to hear from you. And when they say, I don't want to hear from you again, you're going to say, I think you're saying maybe, and you're going to call them back again at some later date.

And then finally, and this has been my superpower as an entrepreneur, is I have always been able to attract and retain talented people. That's the key. One person is a practice. It's not a business. If you want to build a business, you have to attract talented, good people, high character people, and then you have to have the leadership skills and the self awareness to compensate them really well. When small companies don't scale, it's usually because the founders have decided that they're the secret sauce and they don't want to give away equity, or they don't want to compensate their employees, or they say bullshit things like, oh, they're young, they don't need a lot of money. I mean, there's so many reasons why small businesses can fail, but I have found the number one reason a successful small firm doesn't scale is because the founders don't want to make the junior people in the company owners or they don't want to pay them a fraction of what they're making. That's what ruins small companies. Your ability, one, to endure risk, two, to sell in three. And three, your ability to attract and retain outstanding people by making them owners, being generous in terms of compensation and equity.

A question number two.

Hey, professor. Looking for a little guidance? And I think you're the perfect person to help out. So I'm from Chicago and I am trying to start a software company, and I'm finding it a little harder than I thought to raise capital. There is no blueprint that I know of to pick up the phone and get millions of dollars from investors because you know you have a great idea. In your opinion, what is the best way to get in front of someone that has money, that wants to invest? You hear about it all the time on your podcast. You hear about all these companies raising all this capital, and it seems so easy. But in my opinion, it's the hardest thing to possibly do. Now, I'm not someone with a ton of connections. I didn't go to, I don't know, let's say a fancy school like NYU. I'm not a Harvard guy or Yale, but I do have the perfect idea that can really help my industry. Love to hear your thoughts. Thank you for everything you do. Love listening to the podcast.

Thanks for the question. I get this question a lot, and let me just say I have raised a shit ton of money. I've raised over a billion dollars for my companies and special purpose vehicles and I think I'm really good at it and I've always found it really, really hard. Got to kiss a lot of frogs, make a ton of contacts, call people meeting after meeting to find out, oh, they loved it, but they're not going to invest for the. I just always. I've always found fundraising really, really difficult. And I think I'm in the, probably the 0.1% in terms of the amount of capital I've raised. So let's be clear, no one, no one finds it easy. According to a 2023 survey by Forbes Advisor, business loans are the most popular funding method for business. 27% of entrepreneur survey said business loans were used as their primary financing source. 20% of entrepreneurs surveyed reported their primary method of funding was borrowing from family friends. Okay, so the reality is you had said something. I don't want to call it a red flag, but just something I want you to be mindful of. You have a great idea.

It really doesn't matter. That's about 10%. Your ability to execute and show that you're executing is what attracts capital. So first, the reality is initially with just an idea, it's probably going to have to be your money or friends and family money. I have never raised money from friends and family, I should say. Is that true? I've raised money from wealthy friends, but never from family. I just couldn't handle the idea of losing, like my in laws money. It would just cost too much. Mental health. I've invested my own money. My girlfriend invested in my first company in the sense that she got a job out of business school. I did not. And she paid our rent and our living expenses paid off, by the way. We ended up getting married and divorced and she got 50% of everything. So I would say that was a great investment. And by the way, she deserves, or deserved every penny. Hold me back to me or back to you. Look, it's probably going to be friends and family or your own capital to get the thing off the ground. And then the key is to throw nickels around like their manhole covers and take sort of a ready fire aim approach and either get clients or get a product launch as soon as possible and show something they might.

Unless you're an entrepreneur, and I don't care if you have a Harvard or Yale degree, that's not going to get you capital. It'll get you meetings. Because a lot of those people, 40% of venture capitalists come from Harvard or Stanford, probably 80% of the cab. And we wonder why the industry isn't that diverse anyways. Yeah, that helps you get meetings, but it's not going to help you really close a deal or get capital. What they want to see is a product or revenues or clients. And so if it's a great idea, you need to build the company or build a prototype. And ideally, ideally show that it sells, that someone wants it, that someone downloads it, that this is. Unless you're a technical genius and the VC's bring in a partner that goes, this guy's incredible, or you started other companies, you're going to have to have a product or clients or revenues. So you need to figure out what is the minimum viable product and the minimal amount of capital you need to bust a move to getting to a product. Thanks for the question. We have one quick break before our final question.

Stay with us.

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Welcome back. Question number three hello Prof. G. My.

Name is Andrea and I'm a former branch strategy student of yours. I've been a fan ever since I took your class in 2011. Thank you for all your insight. I took the entrepreneurship route after business school and fast forward to 2019. And I had a successful exit after eleven years of growing work, I'm very thankful to have reached economic security for my family, but there was also a big sense of loss and personal identity. I'm still young and I have a lot of energy to build something new, but I also started a family with a one year old and another on the way. I'm struggling to balance my desire to build with being there for my family going forward, I can no longer spend ten to 12 hours a day working like I did in the past, but I also know that building something great, it will require that kind of effort. I recognize that I have to significantly adjust the way I work going forward in the projects I get involved in. How did you think about reinventing yourself after every exit failure in your companies? Since you've done it successfully so many times in the past, any insight you would provide would be greatly appreciated.

Thank you for your time and all you do.

Thanks for the thoughtful question, Andrew. And good to hear from you. I think I have something like 5300 alum of my courses at NYU. And that's so rewarding, because a statistician once told me, if I'm ever in a room with more than 300 people, there's a 40% chance anywhere in the world in a room with more than 300 people. And I'm in a lot of those rooms, there's a 40% chance, or almost a coin flip, that one of my students is in the room or one of my former students, and it happens everywhere. If I'm speaking in front of a large crowd, people are really nice. They come up to me after the talk, and inevitably one of them is like, oh, I'm brand strategy 2014. And it's just incredibly rewarding. It's these, a, they're really impressive kids, and b, it's just really interesting to hear what they're up to, and they show me pictures of their kids and. Anyway, so, first off, congratulations on your success. You are not only very good, you're very lucky. And I've always thought, okay, one in seven businesses works. I've started nine businesses. I've had two successes and kind of three mediocre outcomes, and then four flaming bags of shit that fly into a mountain and explode.

And so I'm doing better probably than most. And all you need is one exit. Just a couple thoughts. One, be careful. You're never more prone to a big mistake than after a big win. You've had a big win. If you've had a successful exit, that's a big win. I would not be tempted to take anything more than a small amount of your capital and start another business. You're in a fantastic position where you may have developed what is mostly or a great start to economic security, and you want to solidify that. You want to diversify, like, crazy low cost index funds, and just know that for the rest of your life, you can kind of sigh or have a huge sort of exhale for the next 40 years. You don't have the financial stress of taking care economically or have a kind of baseline level of economic security for you and your family. It at risk again. Now, with respect to wanting to get back into the game, but wanting to have balance, I'm not here with a message of hope. My brother. I started my last company or two companies ago with two babies at home and it was really difficult and it was hard on.

It wasn't hard on my relationship. It was stressful with their mother because she was working at Goldman Sachs. But we were on board with getting ahead or getting more ahead and knew about the sacrifice. If you want to have a more sane job in balance, then I think you're going to have to take a job with someone where you don't make as much money or have as much upside, but it's more manageable. If you want to start your own business again, you're either 110% in or it's probably not going to work. Also, I don't. This is going to sound a bit harsh, but I wasn't around a lot when my kids were very young. Yeah, it's a sacrifice. But guess what? I'm around a lot now and I think this is more important. I think before the ages of three and four, you want to get home, you want to have bath time, you want to be affectionate with your kids, but I don't know, do they really? And this is going to sound weird, all the research says they need their dad at a young age for brain development. I quite frankly think it's bullshit.

But anyways, there's no free lunch here, boss. If you want balance with a young family, then get a job that has balance and recognize it won't have nearly the upside if you think hard. I'm an entrepreneur and I want to start another business and have an open and honest conversation your partner about the trade offs. And then the two of you have to make a decision. But everything's a trade off here. But I want to circle back to where I started. If you're fortunate to have some semblance of a nest egg or economic security at a young age, don't do what I did. I fucked it up. I had decent money all along the way and I kept doubling down on more businesses and using my own capital. And a couple of times, not once, but twice during the dot bomb implosion and the great financial recession, I woke up and had a lot less money because I did not diversify when I had money, and it really was an enormous strain on my mental health and my wellbeing. Bank that money low cost, diversified ETF's and index funds. And then have an honest and sober conversation with your partner about your needs, your wants, your aspirations.

Thanks for the question, and congratulations on your success. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehoursoptymedia.com. Again, that's office hours media.com dot. This episode was produced by Caroline Shagran. Jennifer Sanchez is our associate producer and Drew Burrows is our technical director. Thank you for listening to the props you pod from the Vox Media podcast Network. We will catch you on Saturday for no mercy, no malice, as read by George Hahn, and on Monday with our weekly market show.

Support for the show comes from Mercury. There's an art to making the complex feel simple. Everything should be in sync so that even the smallest part serves a bigger purpose. Simplicity can transform your business operations. That's why Mercury powers your financial workflows from the bank account, so ambitious companies have the precision, control and focus they need to perform at their best. Apply in minutes@mercury.com.