The Side of my Company that Investors will Never See
If you're doing it right as a human and as an entrepreneur, you're constantly on the frontier of chaos. If you're pushing the envelope, if you're in a room or a relationship that challenges you, there are elements of security that feel nice and safe, and then there are elements that feel quite chaotic and foreign. That's where I like to live: Right on that bleeding edge of those elements, because I think it just makes me better. And if you're going to survive as an entrepreneur, you have to thrive in chaos, and even seek it a little bit like that.
But other people, and especially investors, will rarely ever see that chaos. So to that end, being an entrepreneur and especially being a boss means you’re constantly pushing through the swinging doors at a restaurant: In the front of house, you're smiling and you're putting on a show and you're trying to make everything seem very civilized and worthy of your menu’s price point. When the reality in the kitchen is often that there's chaos and mistakes and problems occurring. There are grease fires and cursing. Those two things are at war with each other. And it's the same thing when you're running a company: When you’re working on the business with your team, it's all out war. And then you have to go sell to potential clients, potential investors, potential employees, sometimes your family, friends, you name it. You’re selling the outside world a more polished version than the chaos that's happening in your head or inside the company.
I started my company, The Hub, on a shoestring, so I know more than a thing or two about thriving in chaos. But I also believe that the industries we work and live in breed that chaos, potentially to the detriment of many companies and entrepreneurs. It’s difficult to explain why anyone would put up with it, so let’s start at square one, and talk about why the swinging doors exist at all — and how to navigate them without losing your mind.
Cutting Corners Breeds Chaos
All startups, and certainly in the early days, have this phenomenon of selling things that you don't have. The industry term is “vaporware.” For me and my team at The Hub, our vaporware was the software we would eventually launch that serves as our business model and function.
When we decided to make software, a mentor of mine at the time introduced me to a team that helped build software. They said they could build the first version of what was inside my head for $75,000. I've never spent remotely that much money in one place before, so dropping $75,000 seemed like crazy thing.
Instead, I built the Hub overseas: First with a developer in Korea, then in Belarus, and then two separate teams in Ukraine. All told, they were about a fourth the cost on a per hour basis as teams stateside, so I thought I was brilliant and all the hours I was up because of the time zone differences would be worth it. I finally got a team stateside, and after a couple months of working for me, one of them came to me and said, “Look, we're taking three steps forward, three steps back. Every time we build something new and put it out into the world, four other things in the software break. We're treading water and this is never going to get anywhere unless you burn it to the ground.” At this point, I’d spent a couple hundred grand and almost two years building the first version of the software. My American team said they could rebuild it state-of-the-art in 12 weeks. So I said, you're on.
Twelve weeks came and went, and then 14 and then 16. I would get in daily fights with the leader of the team, who I am dear friends with. He was having health problems from the stress, too. We were two months past deadline and there were real ramifications for that. It was a rough time and definitely put a lot of strain on all people and all parties. One of my best employees even quit.
At the same time, I was trying to raise my seed round of funding. I failed to do so, but as I was talking to investors, I was going back into the kitchen, watching my team build this software. And then as soon as it was built, another part of my team was trying to take it to market and get a lot of people to use it very quickly because we were behind schedule. This entire time, I was trying to tell investors about how successful we were, and keeping them updated about our progress. But partly because we were late to launch, partly because of how we grew, but mostly I think just because I was new to how investing works and how VCs work, I failed to raise the money. That then led to making cuts, downsizing the team, getting rid of our office, and trying to sell the company.
My company is completely different today than it was a year ago — I went from trying to raise millions of dollars to trying to sell for millions of dollars to cutting pretty much everyone except for the core team. I had to refine myself and I had to redefine the company. The growth and a healthy trajectory we're on now had to come out of that rubble. And I think a lot of positive development — whether personally, professionally, or even romantically — comes from working through something tough and coming out stronger.
Why The Venture Capital Model Hurts More Than It Helps
Investors have ulterior motives. They want you to grow very quickly because the more you grow, the stronger your internal rate of return, which is how an investment fund is measured in terms of how well it's doing. If they invest in The Hub at an $8 million valuation, and I am now valued at $20 million or $24 million at the next round, they've tripled in value. To achieve a strong IRR, seed round and A-series investors want you to grow 20 to 25% a month at least, which is often inhumane growth.
A lot of the brands that we all know and love — Allbirds shoes, Outdoor Voices, Casper mattresses, Away luggage, all of these sexy e-comm brands — almost all of them grow inefficiently. They spend a lot of money to get customers, and then they don't make that much money back, so they’re losing millions and sometimes even billions of dollars every month. They're all businesses that should be dead, and the only reason they're alive is because investors have put in so much money to keep them alive.
I'm about to get back into the venture capital game in a few months and try to raise again, so I think about the ways in which they force you to grow a lot. As an entrepreneur, you do these things that are bad for your business in the hopes that you'll achieve what's called escape velocity: No matter how profitable you are, your overhead costs pull you back down to earth. It's the gravitational pull of a business’s growth, and you want to grow and get out into outer space. If you can resist the pull of gravity, then you win. And if you don't, then you fall to earth in a fiery mess.
Nine out of 10 startups fail, and seven out of 10 startups that have raised over $1 million from venture capitalists fail. And even despite this 30 percent chance of success, you have to think about your team, who buys into your vision. Normal businesses follow a much safer path, which means that they probably won't ever achieve escape velocity, but their chance of success is 82 percent instead of 30. So by taking on money from investors, I'm exposing the company to a chance of supreme success, but also enormous failure, huge risk. And so I'm putting my team at risk.
I don’t take for granted the amount of trust my team shows me by fighting in the trenches with me. What you want at the end of the day is to take care of your team. Good leaders eat last. My team is my lifeblood. Without them, I'd be nothing. And they are the reason I wake up every day and grind 80 hours a week to keep The Hub going. I also know it would be far easier to do that if I had the venture capital I need to really get this company off the ground — but I have to constantly ask myself, at what cost?
What Business Growth Really Looks Like
At our peak, The Hub was spending $280,000 a month running the business, but we were bringing in $125,000 in revenue. Now we're profitable, but we're only spending $33,000 a month, which is one-ninth the expenditures. I'm bootstrapping it, but right now I have a profitable business. I also do consulting for three companies and I’m bringing in $20,000 into the business that way. So half of our revenue is me consulting, and I spend 40 hours a week consulting and 40 hours a week being the founder of my company. If I stopped consulting, we’d quickly be in the red again, but right now we have a few thousand dollars a month to spend on advertising. We are growing, but it's slow.
A lot of starting a business comes down to patience, which I see now more than I've ever seen it before. By being reduced to rubble, really tightening my company, and really figuring out the bones of this thing, I see how healthy the business is at its purest form — and I see the potential of how big it could be.
Last weekend, I modeled out a path to get us to 100,000 job posts a month in the next four years. Tens of thousands of photographers will make a living on my platform this time four years from now. There's a path to get there that's very doable. I've no idea if we'll get there or not, because when you model something out, you have to make, you know, a number of assumptions: “This is how much we're going to acquire customers for.” “This is how much they're going to spend.” All of those assumptions I made feel very doable given where we are right now, but I do need $2 million of capital this spring, then $11 million of capital 18 months after that, then $24 million of capital 18 months after that. If I were to grow my business strictly based on the profits we make now, the entire endeavor would just be a much smaller thing.
Though needing to cut down my business to the bones was tough, it has also allowed me to get very clear on what it is we do and what I want for The Hub. When you realize that the chaos of owning a business isn't so bad, suddenly you no longer feel the need to spin it into a fake sort of beauty in an investor or sales meeting. I fundamentally believe in my business. I really think it should exist, and I think it will exist — if I don't build it, it will be built. There's not a doubt in my mind, and there have been doubts in my mind throughout the history of the business. There isn't one now.
If you have that clarity, it’s a lot easier to arm yourself when you're walking into a meeting. There's no salesmanship, and it’s not memorizing the talk track or figuring out the winding road to take them down so that it looks or feels convincing. Instead, I'll tell you what you need to know, but I believe, and no matter how you come at this, it's going to end in me believing. And that’s where the growth can really begin.
Who Do You Let See the Chaos of Your Business?
In venture capitalism, there are 20 or 30 funds that are sort of the gatekeepers. They have a way they like investing in a way they like seeing things. And if you want a piece of their money, you have to do the dance. There is an arms race, and every single guy that pitched before me and every single gal that pitched after me has window dressed their business. So if I'm the guy in the middle, not window dressing and being honest about the chaos in the kitchen, I look unprepared.
But there is also immense power in being honest about the chaos to everyone else, whether that be your team or your customers. On one hand, you're not carrying around a lie — a lot of experts talk about how emotional burdens can actually have a physiological effect of weighing you down. Another benefit is simply clarity: Things are never as scary when you just look at them and break them into pieces and figure out how you're going to defeat the problem. There's immense power in having the strength and conviction of self to look at chaos, to experience chaos, to subject yourself to chaos, and to find peace and order and meaning from that chaos.
Something I really grappled with in the beginning of my company was that I viewed myself as the chaos-eater. It was my job to absorb all of the chaos, all of the risk, so that what I projected back to my team was way cushier than the reality. I didn't want them to take on the risk that I've taken on, or to get burned by the same flames. In practical terms, it meant that I gave out almost no equity and that I paid everyone market rate or higher. It wasn't because I'm a nice guy. It was because I was scared.
A big learning moment for me was about letting someone share in the chaos with you. Sometimes you sit next to someone in a chaotic circumstance and you realize that they're really not your ally or that they're not bringing you peace, or that somehow the situation is made worse by each other's company. But there are also special people who make you feel calmer in the chaos. You feel better for them being there, and they feel better for being there too. So let people see the ugliness: If they don't like it, know that it’s OK, because those that do are the special ones you have to keep around.
It has also become very clear over the past couple of years that people think The Hub is a huge business with hundreds of employees. I get this all the time, and for a while I thought that was a good thing. But people have very high expectations and sometimes resentment for big corporations, and if something ever goes wrong on our platform, customers will write me these really nasty emails. And I usually try to work in the fact that we’re a team of three people rubbing sticks together. Their tone immediately changes. I still have to show as much polish as I can to our customers, I've also brought them in and showed them what happens underneath the veil if they want to see it.
People become instantly more understanding if you are upfront with them. I think it’s because we’re all tired of the lies, and we want to have real conversations. I think people want to be real, but I don't think some institutions are there yet. A lot of VC funds aren’t going to be particularly tickled if I’m honest about all of the mistakes I’ve made along the way. One day they might be, but not now.
What’s Next? Manifesting The Future Reality
A few weeks ago, I made a presentation that I'm going to show an investor on February 15th. I sort of played mind games with myself and my team and said, “I don't want to have to change this. I want to show this presentation without having to change a thing. If I printed this one out by accident instead of the real one and I put it down, I do not want to be lying.”
The presentation includes all kinds of future truths that are not yet true — numbers we're going to hit and percentage growth, that x number of people posted y number of jobs and so on. All of that's what we're trying to manifest. I went to my team and told them which numbers to focus on, and how we're going to do it. It gives supreme focus and purpose to what they're doing. And in theory, if they believe or are good at their jobs, which everyone on my team is, they'll hit their numbers, which means we all hit our numbers, which means raising money should, in theory, be easy.
I'm also taking the presentation for six months from now and showing it to investors today. “This is the deck I'm going to show you in six months. What do you think what's missing? Is this investible?” And as they give me feedback, I can change the future. And it's kind of me calling my shot, but if in six months it comes true, I look like I know what I'm doing.
I sincerely hope the metrics that we're projecting for when I'm going to raise my next round are astronomically higher than they have to be. And I hope that I'll have a lot of yeses and therefore a lot of people to choose from, which means I’ll have the luxury of not having to take whatever money I can, but to be very choosy about what money I take. Alignment of vision is important because an investment is not just money if they really like you. It's not just the million dollar check, it’s helping you hire people and a great network and all these connections. My hope would be that in addition to strategic alignment and then sharing my vision, I also have people to help shape that vision, and give me mentorship and help me learn in ways that don't involve me spending money and time making mistakes.
But as I’ve said before, I wouldn’t change making those mistakes for anything. They have taught me to get very clear on my vision, which I wouldn’t have done had I not been forced to do the hard work. This company is my life, and it’s not a job to me. So if it doesn't work, I don't work. I know there is a way to make it work. The question is, how long will it take me to get it there?