August 2nd, 2022
WIth Steve Hoffman, (Captain Hoff) the Chairman & CEO of Founders Space, a global innovation hub for entrepreneurs, corporations, and investors, with over 50 partners in 22 countries. Founders Space has become one of the top startup accelerators in the world. Hoffman has trained hundreds of startup founders and corporate executives in the art of innovation and provided consulting to many of the world’s largest corporations, including Qualcomm, Huawei, Bosch, Intel, Disney, Warner Brothers, NBC, Gulf Oil, Siemens, and Viacom.
Hoffman is also a venture investor, founder of three venture-backed and two bootstrapped startups, and author of several award-winning books. These include “Make Elephants Fly” (Hachette), “Surviving a Startup” (HarperCollins), and “The Five Forces” (BenBella).
In addition, he served on the Board of Governors of the New Media Council, was the founder and Chairman of the Producers Guild Silicon Valley Chapter, and was a founding member of the Academy of Television’s Interactive Media Group. He also worked as a TV development executive at Fries Entertainment, which produced over a hundred TV shows, acquired by MGM. He went on to pioneer interactive television with his venture-funded startup Spiderdance, which produced interactive TV shows with NBC, MTV, Turner, Warner Brothers, History Channel, Game Show Network, and others
Join us for this conversation where we talk about what you need to know if you are thinking of building your own business, or investing in another venture or startup. Steve provides numerous extraordinarily valuable pieces of advice, including some contrarian but wise expertise on raising capital and surviving a startup – all to help to lead you to greater success.
Join us for one of my very favorite conversations on the podcast!
Biggest takeaways (or quotes) you don’t want to miss:
- The basics are the same for every entrepreneur, regardless of what kind of business you’re establishing.
- “Whenever possible, do not borrow money from your friends and family.”
- What are the first two things that investors look at a venture?
- The difference between a non-venture capital business and a venture capital funded business.
- Customer acquisition is usually the biggest expense as a startup.
“Advisors are important to not just give you advice, but to have somebody to talk to. Those relationships are what makes entrepreneurship fun, makes you more successful, and helps reduce your stress.”-Steve Hoffman
Check out these highlights:
- 03:49 Steve shares his journey from working in Hollywood to starting his own game company and led to where he is now as the CEO of Founder Space, a venture investor, and a founding member of several groups.
- 08:36 Why do you have to get buy-in from the people around you before you become an entrepreneur?
- 09:23 What does Steve have to say to the entrepreneurs who have naysayers in their decisions?
- 17:24 Some wrong reasons why people go into entrepreneurship.
- 33:51 Steve mentions a huge first-mover advantage.
- 41:05 Why is it important to get the right people on board at the beginning?
- 48:42 Steve shares his final advice to the listeners.
How to get in touch with Steve:
On social media:
Learn more about Steve, by visiting his website: https://www.foundersspace.com/.
You may also watch the Ten Commandments of Raising Venture Capital here.
Imperfect Show Notes
We are happy to offer these imperfect show notes to make this podcast more accessible to those who are hearing impaired or those who prefer reading over listening. While we would love to offer more polished show notes, we are currently offering an automated transcription (which likely includes errors, but hopefully will still deliver great value), below.
GGGB Intro 00:00
Coming up today on Guts, Grit and Great Business™ …
Steve Hoffman 00:04
Most of us think I’ll only take the leap when I have that great idea. Well, I want to dispel another myth. The idea doesn’t matter. It doesn’t matter. At the beginning, it will matter eventually. But at the very beginning, the idea doesn’t matter. And I’ll tell you why. Because whatever ideas in your head, if it’s new, if it’s original, if it’s something that people haven’t quite done yet, then you don’t know enough to really understand whether it will work or not. And most of the big companies we see out there today, they actually began with the wrong idea. It was, it was like they started in one direction, and then they figured something out along the way. So entrepreneurship is a journey. It’s not like I have this great epiphany. And I just like Elon Musk, and I’m gonna go out and take people to Mars like it’s usually not that way.
GGGB Intro 01:01
The adventure of entrepreneurship and building a life and business you love, preferably at the same time is not for the faint of heart. That’s why Heather Pearce Campbell is bringing you a dose of guts, grit and great business stories that will inspire and motivate you to create what you want in your business and life. Welcome to the Guts, Grit and Great Business™ podcast where endurance is required. Now, here’s your host, The Legal Website Warrior®, Heather Pearce Campbell.
Heather Pearce Campbell 01:28
Alrighty, welcome. I am Heather Pearce Campbell, The Legal Website Warrior®. I’m an attorney and legal coach based here in Seattle, Washington, serving entrepreneurs throughout the US and the world. Welcome to another episode of Guts, Grit and Great Business™. I am super excited to have Steve Hoffman with us today. Welcome, Steve.
Steve Hoffman 01:57
It’s fantastic to be here. Thank you for having me.
Heather Pearce Campbell 01:59
Oh, we’re gonna have so much fun. I know you are a guy who loves to talk about business and entrepreneurship. I do. I know the first time we connected I can just feel your enthusiasm for it and your love of entrepreneurship. And so I knew then we were going to have a great conversation. For those of you that don’t know, Steve, Steve Hoffman, who goes by Captain Hoff. I love that he’s the Chairman and CEO of Founder Space, a global innovation hub for entrepreneurs, corporations and investors, with over 50 partners in 22 countries. Hoffman is also a venture investor, founder of three venture backed and two bootstrapped startups, and author of several award winning books. These include make elephants fly, surviving a startup and the five forces. In addition, Hoffman served on the Board of Governors of the new media council was the founder and chairman of the Producers Guild Silicon Valley Chapter, and was a founding member of the Academy of televisions Interactive Media Group. Welcome, I’m so happy to have you, Captain Hoff.
Steve Hoffman 03:11
Thanks, Heather. I want to help your entrepreneurs. So fire away.
Heather Pearce Campbell 03:16
I know you do. I know you gonna do this, it’s gonna be fun. And I can tell based on the work you do in your business, that you care a lot and that you love your work.
Steve Hoffman 03:26
I do. You know, I’ve worked with hundreds of entrepreneurs. I’ve also done three venture funded companies and two bootstrapped. So I know all sides of the coin. I invest in companies, I advise them all over the world.
Heather Pearce Campbell 03:41
Love that. What, what started you on the path of well, of even being interested in business or entrepreneurship?
Steve Hoffman 03:49
Well, I’ve always been entrepreneurial. So and I always wanted to do my own thing. But I actually began working by working in Hollywood. I got my master’s degree in film and television from USC. My first job was in a Hollywood television production company, I worked my way up the ladder, became a development executive in that company. Then I got the opportunity to actually go to Japan, and come up with new ideas for video games, and I worked on a whole bunch of projects there. And then I came back to the United States, determined to start my own company. And since what I knew was entertainment and technology, I started a game company. A game company did really well. Our first product was called bazillionaire, which is how to become a gazillionaire, which is sort of what I do today teaching entrepreneurs and we just went from there.
Heather Pearce Campbell 04:47
Oh, that’s so fun. What was your path when were you in Japan?
Steve Hoffman 04:52
So I was in Japan in the 90s. And I was working for Sega. And that’s the big video game company that they just surpassed Nintendo.
Heather Pearce Campbell 05:02
Oh, wow. That’s so interesting. So I went to Japan twice in the 90s. Yeah, I did as part of a student exchange program that was in place with our high school and I was in a little town called Kamakura, initially, and then the second time, yeah, like Buddhist temples, right. It’s like a real beautiful, beautiful little area tucked in right near Tokyo. Yeah, exactly. And then the second time was in Yokohama.
Steve Hoffman 05:31
Heather Pearce Campbell 05:33
Yeah. Where were you at?
Steve Hoffman 05:35
I was in Tokyo.
Heather Pearce Campbell 05:37
Yeah, yeah. Very cool. Well, I love Japan. And the irony is that now, you know, coming out of COVID, my son is nine. He’s really gotten into, you know, he watches little cartoons on TV. And he has seen some anime and we love some Japanese made films. And he’s like, Mom, I want to go to Japan. And I’m like, Oh, me, too. Let’s go back. I know, super fun. Well, and I love it. So you came back, you started your own business in entertainment technology. You started a game called gazillionaire. Was that the first of your businesses?
Steve Hoffman 06:12
That was the first? And we actually did a series of these business learning games? So games the teacher does. And they did really well. And they are actually still around today. So I can… I want to become a gazillionaire. You can download the game go to gazillionaire.com. Our games started to be used in all these high schools and colleges. That’s right, teach people how to do business in a really fun, entertaining way. And I’m still doing that. I’m trying to teach people how to do business in a fun and entertaining way.
Heather Pearce Campbell 06:46
Where does your teacher’s heart come from?
Steve Hoffman 06:49
Oh, my father was a professor. So probably comes from there.
Heather Pearce Campbell 06:54
Makes sense? Makes sense. Right? Some people, some people really love doing and some people are able to both teach and do.
Steve Hoffman 07:02
I like teaching and doing you know, teaching is revitalizing? I love it. Every time I engage with an entrepreneur when they come into founder space, our startup accelerator, you know, I’m teaching them what they have to do what they have to, you know, and I don’t just teach venture fundable companies, I think every entrepreneur, the basics are the same. It doesn’t matter if you’re opening up a restaurant, a small business, or whether you’re scaling to be one of these huge tech companies at the beginning, you have to think of the same things in order to make it.
Heather Pearce Campbell 07:35
Yeah, real and it kind of I just breathed a sigh of relief hearing you say the basics are the same, right? So if you’re listening, wherever you are on the path, this conversation is for you. And I think you’re gonna hear some good stuff today. So was there ever a point because you built a suit? Like you, you’ve gone through multiple iterations, right, built multiple businesses to bootstrap businesses? Was there ever a point where you wanted to give up on business?
Steve Hoffman 08:02
Multiple points, it’s tough. You know, when you’re doing a business, a lot of times, you can’t see the light at the end of the tunnel. There’s all these obstacles in the way, I never ran a business where there wasn’t a point where I hit a low, we’re here just like down on the floor, you’re like, I can’t do another round of meetings, I just can’t get up and do this. And then you have to pick yourself up. Because if you don’t, it’s going nowhere. And it’s all up to you. And a lot of times you borrowed money, you put your reputation on the line and can be very stressful. That’s why, you know, one of the first things I write about in my book surviving a startup is you got to get buy-in from the people around you, before you become an entrepreneur, why? Don’t do it after, you know, and this means your family, your close friends, your spouse, your kids, because if you’re going to do it, you’re going to take risks, and it’s going to be really tough. And the last thing you want to be doing is fighting with those people.
Heather Pearce Campbell 09:02
Right. Okay, so on this point, what do you say to the folks because I hear you on that you need the support you need your families and you need people who are gonna be there with you who maybe potentially could invest with you, right, depending on where your business goes. What do you say to the entrepreneurs that have naysayers in their life or in their family?
Steve Hoffman 09:23
I say a couple things. Yeah, it depends who the naysayer is. If the naysayer is a brother, a sister or an uncle, you can ignore that. Because unless you’re living with them, like right, my rule is the ones you live with, you cannot ignore. They are there on a daily basis. So whomever you live with your kids and usually your spouse you have to want to go on this journey with you. Because you think you’re going on the journey. It’s but you’re going on the journey together. Like it’s their lives. You’re dragging into this. You know you ‘ll be working all the time, you’re going to be taking financial risks that directly impact their future and their comfort, you’re going to be under a lot of stress, which everyday you come home, or if you’re working from home, every day, it’s there. So the last thing you want is them, you know, feeling resentment, like they didn’t want to do this, if they aren’t going to be on board with you doing this, then find something else, there’s a million things to do in life that you could be very successful at. Entrepreneurship is just one. I mean, it’s made out to be the big thing, but it really isn’t. You have to be like, they have to be like, Yeah, I’m all in with you, this is great. We want to do, you know, this is what we want, you know, that’s your spouse has to be saying, that’s not what you want, or I want one of us, this is what we want. And if you go into that as a partner, and they don’t have to be your business partner, a lot of times that doesn’t work, but as a as a mental partner, a mental ownership of the business with you, then your chance of succeeding without getting divorced, or some other, you know, or having all these other problems much higher.
Heather Pearce Campbell 11:09
Is it two things that actually gave me goosebumps one is, they have to want to go on this journey with you. You know, and my immediate reflection is, is what a responsible and comprehensive way to think about getting into a business or entrepreneurship. So I do think, you know, some people are really thoughtful about it, some people just leap, right. And then you also said about entrepreneurship, it’s made out to be the big thing, but it really isn’t. Can you tell me more about that?
Steve Hoffman 11:44
There’s a lot of hype around being an entrepreneur, we read about all these companies and these people that make it and we sort of idealize it. But in reality, there’s so many different paths through lives, through our lives that we could take in some people, you have to know your personality, and not just your personality, but the personality of your spouse or partner, whoever whomever you live with their personality, because some people handle stress really well. And other people, when it comes to uncertainty, when it comes to stress, especially finances, risk, tolerance, risk talk, they can handle it, you know, if you even if you can handle that, if your spouse can handle it, you’re going to be putting them through the wringer. You know, when you’re draining your 401k account, and all these other things, it’s really stressful. So know to understand who you are, who you are, as a person and who you are as a unit with this other person, you cohabitate with and what you want out of life, because there’s a lot of ways to make money. There’s a lot of ways to be successful in this world. You can work for a big corporation, you can do investing, you can do all these different things. Entrepreneurship is one way and honestly, most startups fail. Like if you understand this, I mean, none of us go into this thinking we’re gonna fail. But I tell you, no bank robber goes into a bank thinking they’re gonna get caught. Like if they thought they were gonna get caught, they wouldn’t rob the bank. They’re like, I could get away with this.
Heather Pearce Campbell 13:14
Yeah. Are you going to be an entrepreneur or a bank robber? This is funny. I don’t think I’ve ever had that statement made on my podcast. That’s why…
Steve Hoffman 13:22
I never made that statement for myself. So, No, but seriously, like, you don’t go into an entrepreneurship thing. The odds are…
Heather Pearce Campbell 13:29
You think you’re gonna fail, right?
Steve Hoffman 13:30
The odds against me are going to fail, just like a crook doesn’t go into, you know, to rob a bank thinking, Oh, I’m gonna get caught. They think no, I’m gonna be the one who gets away. And you’re like, I’m…
Heather Pearce Campbell 13:39
The metaphor I use, right? Nobody starts a marriage thinking they’re gonna get divorced, right?
Steve Hoffman 13:45
But over half of marriages get more. So the odds aren’t good. And if you combine entrepreneurship, with the odds of marriage, you know, you’re really…
Heather Pearce Campbell 13:55
Just stop listening now…
Steve Hoffman 13:58
Really stacked against you know, so what I try to do, like in my books, and in my personal talks, is say, Yeah, that’s fine. Like, these are the gods, it’s a risk reward path, like, the rewards are huge, but the rewards are only huge. If that’s what you want out of your life, and if those are the risks you’re prepared to take. And so think about that laid on the table. And then the other thing I advise when it comes to family members, is, whenever possible, do not borrow money from friends and family. Because, again, the odds are stacked against you. Like if you just like, if you just are average, right? According to him, none of us think we’re average. Okay. Well, I think we’re better. But somebody’s got to be average. And there’s a lot of us who have to be below average. So some of us are deluding ourselves. So if you’re just average, and it’s not just you, it’s luck. There’s a lot of luck involved, right, then you’re not going to be able to pay them back. Like you will be taking their money and losing it. What does that mean to lose your parents money, your uncle’s money? Your sister’s money, your best friend’s money, are they going to be as forgiving as you are of yourself, or maybe your spouse, they won’t understand, like, most of them just read the same story as you do, and they think they’re gonna be successful and they want to support you and this and that, they don’t really think ahead to the point where you can’t pay them back and what that will mean for your relationship. And the last thing you want, when your company is failing, when you’re struggling when you is pressure from your friends and family, like you want them to be supportive at that time, like that, it’s a shoulder, you can cry on somebody you can go to, for help and talk to, you don’t want them to be secretly, like annoyed.
Heather Pearce Campbell 15:42
Right. Going through that loss. Yeah.
Steve Hoffman 15:46
And if it’s their retirement funds, or funds that they put away for something special, and you’re losing it, like, there’s a price they’re gonna be paying. So I tell them, if you can’t get experienced investors, you know, angel investors at the beginning, to lay down some money for your company. And you don’t or and you don’t have enough money to do it yourself. Maybe it’s not as great an idea as you think it is. Maybe you’re not as good. Maybe you’re not as great a salesperson as you think you are. Because honestly, don’t take friends and family money if you want. If they want to, like live the high life with you, you know, give them a few shares. Give them some share, then it’s all upside for them. Like if it does great. They’re like, Yay, if it doesn’t do well, they’re like, Oh, I’m so sorry for you, you know, but it really, to me, that’s more important than the money. So I never took money from friends and family.
Heather Pearce Campbell 16:39
I love that. Well, and I just love that you’re really a contrarian on that point. Because what do you hear from others, even small business startup coaches, and people in this space is like, right, if you have to, that’s what you do. And I just love that you’re like, No, what is the whole purpose anyways, and if these people which I mean, it gets back to, you know, entrepreneurship is made out to be the big thing, it really isn’t our families, our life, the way that we, you know, enjoy ourselves and build relationships is the big thing. And I think that you just beautifully laid out how you keep that front and center in your training and your education.
Steve Hoffman 17:20
And a lot of people go into entrepreneurship for the wrong reasons. And the number one wrong reason I hear is I want to work for myself. I don’t want to have a boss, you know, that’s why I’m doing this. And I tell people, oh, you Why don’t you want to have a boss? Well, because you know, the boss doesn’t understand me, the boss is a slave driver, the boss doesn’t appreciate all the work I do. And I’m like, if you want to guarantee that to have the absolute worst boss in the world, the nightmare boss, the boss who never leaves you alone, the boss, even when you wake up at two in the morning is there in your head, talking to you telling you, you could do more, you could do things differently, stressing you out than work for yourself. You are that boss. You’re the worst boss you could ever have any other boss, like you can just say, Oh, screw them, I’ll get another job. Or I’m not gonna pick up the phone and I’m gonna go on vacation. You as an entrepreneur, you never have that luxury.
Heather Pearce Campbell 18:14
I mean, I’m just I love this. You are the worst boss you will ever have. It’s so true. Oh my gosh, people listening are like holy cow. Yes. Okay. So you know, and you’ve touched a little bit on startups around some of this early investment. When Should people think about getting investors and who are the people that absolutely shouldn’t even be thinking about that path?
Steve Hoffman 18:40
So there are different types of entrepreneurs, like all things in life, you know, this is not a one size fit all cookie cutter thing. There’s all different types of entrepreneurs. So there are consultants, like every consultant is an entrepreneur. But consultants are fairly low risk businesses. I mean, there’s no reason you should be getting investors for a consulting business. First of all, you don’t really need it, you’re not going to mark it at the same kind of leverage. It’s all relationships, putting in time in business development, meeting people, you know, networking, that’s what you do as a consultant, you don’t need a lot of capital. Then there’s entrepreneurs who might open a shop or a restaurant, yeah, you may need capital for that. And you have to think that through and you may need investors that you need a certain type of investor that’s a different type of business. And then there are those who kind of have the big dream, I want to build a big company, like, I will tell you, it’s much easier to raise money from investors. For a big company that’s very risky than for a small business, that’s really low risk. And you’re like, what, when somebody wants a low risk versus no, they don’t want the low risk, because honestly, all investor thinks about the day they give you money. Even the second they give you money, it’s when can I get that money back to And when can I get more than I put in back, like, I want it out is your company, like I want it out at least double, triple 10 times out as soon as possible. And that’s their goal, and they’re going to be pushing you and driving towards that goal, because that’s all they care about, as long as it’s in your company, your money does some no good. Like, you may think, Oh, you own a portion of my business, this is great. They’re like, I don’t care. Like this, in small businesses, honestly. They, they’re hard to sell. And when they do sell, they tend not to sell for a big premium. So most investors are like, wow, I put in my money, I waited 10 years, and they sold that business, and I got 1.5 times my money back, like, does that make any sense? Like, it doesn’t make any sense for them. So they want, if they’re going to take that risk with a start, they want to get 100 times back, if they’re coming in early, like I’m coming in early in your business, I, you know, I want to hit a home run on this. So when you’re thinking about investment, like if you’re doing a small business, you people, you’re usually going to get money from our like a bank or some other source, and they’re going to do it as a traditional loan, and then they’re going to require you to back that loan, maybe with your house or some other assets. And they’re gonna want to, yeah, because it’s, it’s, they’re not going to get an exponential return off without investment. You know, they’re just getting interest, right? So they, they want to, they want that as low risk as possible. And it’s really hard to get those bank loans for even a small business. And so yet, it’s a lot of work to run those businesses and it’s in, they’re still risky, like the survival rate is actually higher for small businesses, but not higher in proportion to the risk. So it all, it all comes down to that. So really understand what type of business you have. And let me explain to you like the criteria for the different types of businesses, because you fundamentally have to understand, so if my these, this is a very simple rule, if my business is going to grow linearly, like linearly over time gradually grow over time, that’s even if it’s not going to be a small business, even if someday you could imagine, hey, that could be a good medium sized company, or even a large company, like a lot of great companies are still family owned, like the Tabasco company that makes Tabasco sauce, something, you know, they become very big conglomerates around the world, yet, they’re still family owned. And they grew linearly. But how old is the Tabasco company? It’s pretty all right, it took a long time to grow that business. And, and so if you’re gonna grow linearly, especially like out of the gate, like sometimes a business will grow linearly, and then they’ll hit something, and they’ll take off in a big way, right? But if you’re going to as long as you’re on that linear track, I tell most entrepreneurs don’t even bother go for, you know, it’s really hard to get investors unless they’re in your industry, unless they understand your business, they’re going to come in, and they’re going to share basically the profits with you, like from day one, like they’re a restaurant tour. Like, I know, restaurant tours, and people invest in restaurants, they know that business inside. Yeah, they’re like, Okay, I’ve done this, you know, five times 20 times before I see another entrepreneurs doing that, that thing, I’ll back them, I know that business, I can guide them through it.
Steve Hoffman 23:16
In that case, yes. But, you know, venture capital, the type you hear about, like in Silicon Valley and stuff, no way, like, they’re not going to do that, like it’s the other thing. You need to until really venture capitalists the type that you read about, you know, grass. Yeah. And Google in the early days, or Facebook, these these companies, they’re not just looking for exponential growth. But when you break it down into its pieces, they’re looking for a lot of different things. So one, they’re looking for a really great team, like an amazing team. And not just like solo entrepreneurs, they seldom invest in solo entrepreneurs. So they want to see that you can get together with these amazing people who really like one’s a great technologist and others, a great designer and others great marketing person who have these skills, and they could be working six figure jobs, and they’re joining you. Number two, they want to see that you have a distinct competitive advantage. Meaning there are a lot of great businesses out there. And they usually tend to be linear growth businesses, they go into markets where they are, there’s not much to distinguish them from somebody else. So you could go into market, you could have a great idea, like, I’m going to run a service business that, you know, helps people make their podcasts or whatever, and they’re gonna look out there, and they’re gonna say you have, I can see that they’re gonna, they might even be successful doing that. But I can also see that there are hundreds of other people who do that. And the barriers to entry are really low. They’re going to be looking like what do you have, that nobody else has? Why are customers going to come with you? Why are they going to stick with you? You know, what value are you going to give them? They can’t get elsewhere because, honestly, if they can get the same value elsewhere, then you’re competing just on money, right on price. And all of a sudden the margins get compressed. Right? They’re less money. And it’s not going to be exponential growth, right? It’s gonna grow slowly, because you’re going to just be competing on price. So that’s, those are two of the first things investors look at.
Heather Pearce Campbell 25:25
Do you ever see in the folks that you work with? Do you ever see somebody sitting on a business or an idea where they just haven’t thought big enough, right, they’ve got something that could really be one of these exponential growth scenarios, and they just haven’t low in that light.
Steve Hoffman 25:44
All the time. So first of all, a lot of people don’t want to take the extra step towards exponential growth, because it ups the risk, right? It’s like, I don’t want to spend the money to develop that I don’t want to go, it’s too risky. So they don’t do it. But like I said before, investors don’t mind risk, if the rewards are high enough, like the risk, they take that out of the equation, like, it doesn’t matter. Like if the rewards are high, of course, everybody wants to minimize their risk, but their main criteria is big reward. And there’s companies out there who simply have the wrong business model, like, I’ll tell you that there are companies out there who launch on Kickstarter all the time. And they might build a little gadget or come up with an invention or you know, something, and they put it on Kickstarter and try to raise money. But what they don’t realize is that business is going to be tough. And a lot of it, one of my critical rules is anytime you have a business where you have to go out, acquire a customer, they use your product or service, and then they disappear, and you never see them, again, really tough business to grow exponentially. Because every single time you need a new one, you’re gonna have to replace that customer to keep growing.
Heather Pearce Campbell 27:00
Right. And customer acquisition is expensive.
Steve Hoffman 27:03
Super, like your employees, and your customer acquisition costs are usually your biggest expenses as a startup. So if you have to go out and acquire that new customer, and you can’t hold on to that customer, it’s going to I’ve seen Kickstarter companies, and they raised like $10 million, they shoot up like, they’re like they have this cool gadget or something, everybody buys it. And then all of a sudden, you know, they just plummet back down. And why are they plummeting back down? Well, they have to go out and start to acquire other customers, their initial time purchase, it’s a one time purchase at the same time competitors are coming on. And the competitors are like looking at their business. And they’re like, Oh, we could acquire those customers, we could build that. That’s not that hard. So they start building the same thing. And you since their initial customers left, they don’t have anything, they’re just like on an even playing field. If they haven’t built a really big brand, they don’t have anything. So I tell entrepreneurs, if you’re going to take this leap from one type of business, like make sure that when you get a customer, you get that customer, you lock them in you, you hold on to them in there two things. Number one, recurring revenue. And recurring revenue means that when a customer engages with you, you are continually providing them with value continually. And the more they engage with you, the more value they get. And that value can go on indefinitely. Those are beautiful businesses, because you acquire this customer, and they can potentially stick with you for years. And it doesn’t have to be a lot of money that they give you each time they engage like, you look at Amazon, every time you buy a product, they get a little bit. But those little bits add up, every time you go on Facebook, they just get a little bit, if you click on an ad or engage in some way, and they gather some data for you, they get a little bit of value. But you people go on also, they engage for years, every day constantly. So the value adds up. This is what investors are really analyzing. So the other thing is, not only do you have this relationship where you’re constantly providing them value, but even more importantly, that you build what I call not a product, not a service, but you build a platform. And platforms are beautiful because what they are is they are an ecosystem where the more you engage with the product or service, not only the more value you receive, but the more value you create for everybody else engaging in the product or service. So look at this, look at Amazon, like I don’t think I’m providing value to other people. But I’ll tell you, every time I go on there, I’m providing value. Every time I look at a product Amazon is taking that data and finding out which products sell and which products to prioritize. In my search for products, every time I write a review, I am not creating value for me, I’m actually creating value for everybody else in the ecosystem, right? Because of those, why do I go to Amazon, like, a lot of times I shop on Amazon just to get the reviews. So I know which products are good, like I could buy it at some other store. But they don’t have as many reviews, not the density of reviews. Every time I go on Amazon, I’m not only creating value for the other customers, I am also creating value for the other partners in the ecosystem. And that is the sellers, like so the sellers are benefiting. And Amazon created this like two sided marketplace so that the more sellers they get on, the more buyers want to come there, right? Because the more products and competition on price and reviews are available.
Heather Pearce Campbell 30:47
Right. And how many times do you Google something and where’s the first place? It shows up? Amazon, right? Yeah, even if you didn’t think it was going to be there. That’s what surprises me,
Steve Hoffman 30:57
Because they’re building value over time with all this engagement. So that’s just one example. You could run all sorts of different businesses like salesforce.com, they’re very different types of business, right? They, you know, they do CRM business. But they created this whole ecosystem, they have all these third party developers creating apps and like, so even once you start using Salesforce, you start not just using Salesforce, you start using all of their other apps. And if a competitor comes along, which there have been many, trying to steal Salesforce as customers, once you’re in the Salesforce ecosystem, you’re like, well, I could go to this competitor, they’re lower priced, they have a more streamlined app, it’s you know, better UI, all these advantages. But I need all these other pieces, that these third parties are great, and these guys don’t have it. So I’m not gonna go there. And this. So this is what I want people to think about, like if you’re going to really build it. And if you’re looking for venture capital, not just investors, like in a traditional business, venture capital, this is how they’re thinking, they’re like, can you replicate this dynamic, if you can do this, if you can show me the path towards one of these type of businesses, you’re golden. Those are the geese that laid the golden egg, like, these are the, these are the criteria that the investors are looking at. And, you know, in all these businesses, like, I don’t necessarily love Amazon, it’s not like I want to keep using Amazon. But because they keep creating more and more value for their customers over all this time, you know, overnight delivery, you know, low cost delivery, all, you know, I can return products easily, you know, they have these, this huge network of buyers and sellers, it’s so hard for any other anybody else to replicate that they raise all these what we call barriers to entry. So those are the differences between a business that’s non venture capital, fundable, and event and a business that is venture capital funded, and you have to analyze your business very deeply. If it doesn’t fit the criteria, you’re totally wasting your time, like totally.
Heather Pearce Campbell 33:03
Well, and in light of, you know, the examples that you’ve given, I feel like you’ve just really beautifully, like built people a map, like, here’s what you need to look at. And it is complex, but you see it in action every day, right? The Amazon example, you know, anytime you’ve spent time on any platform, that doesn’t matter what it is, right? That’s essential to your business where everything is integrated, and it connects with all of these other third party apps. And it just becomes a little bit like me moving away from infusions. Right? You lock into something and use it for any amount of time. And it’s especially if it’s one of the early power players in the marketplace, it becomes really hard for others to compete.
Steve Hoffman 33:49
Oh, yeah. There’s a huge first mover advantage. So when you build one of these ecosystems, because of all the criteria, I just laid out, all the factors that go into an ecosystem, nobody late comers get locked out of the market, totally, even if they have better products, like it’s not about the product. At a certain point. It’s no longer about the product. Like why do we all use Windows, right? Why do we all use iPhones and Android and why aren’t there other operating systems out there? Exactly the same reasons.
Heather Pearce Campbell 34:15
Yeah, so interesting. So what examples I’d love to hear some of the clients that you have worked with, like how their product or service or business met these criteria, right?
Steve Hoffman 34:32
So I work with all types of entrepreneurs. I’ve worked with a lot that have done traditional businesses try to guide them along. Then I’ve worked with others who, you know, do more scalable venture fundable businesses, for everybody. It’s a little different. There’s a little different things, but I love to be on that journey with them, like going on that journey. And most people I’ll tell you at the beginning, when most people you know, you probably have a lot of listeners out there, they’re trying to think what’s that next big idea. What’s the next crazy thing I could do that will make me a gazillionaire? And we all do. And they will, most of us think I’ll only take the leap when I have that great idea. Well, I want to dispel another myth. The idea doesn’t matter. It doesn’t matter. At the beginning, it will matter eventually. But at the very beginning, the idea doesn’t matter. And I’ll tell you why. Because whatever ideas in your head, if it’s new, if it’s original, if it’s something that people haven’t quite done yet, then you don’t know enough to really understand whether it will work or not. And most of the big companies we see out there today, they actually began with the wrong idea. It was, it was like they started in one direction, and then they figured something out along the way. So entrepreneurship is a journey. It’s not like I have this great epiphany. And I just like Elon Musk, and I’m gonna go out and take people to Mars. Like, it’s usually not that way. What, let me give you a company we all know. So YouTube, like when YouTube started, the founders of YouTube had this brilliant idea. And they were sure they were going to be successful. And it was called Video dating. So they were like, We’re gonna build a video dating site, where all of us, you know, where we get people together, and they date by video, wouldn’t people want to do this, you want to see the other person you want to know, it could save you a lot of time, you know, going out on bad dates. Nobody used their service was a complete failure. It was only later, when they were kind of like floundering about and they made this video they wanted to share with their friend. And they’re like, We The video is too large, we can’t share it. Oh, what if we uploaded it to our dating site, which we already built, and just shared the link? Just boom, they, it was like magic. Everybody could watch the video on it.
Heather Pearce Campbell 36:57
They accidentally created YouTube, right?
Steve Hoffman 37:00
They didn’t think we’re gonna build the biggest broadcast video network in the world. No, they just wanted to share a file. That’s what they want to do share a file. And the easiest way a video file was through sharing a link. And then they said we other people probably want to do this too. And so they started to allow other people to upload videos. And they rebranded it, you know, YouTube, and share the links. And all of a sudden, they became this repository for all this amazing content. And hence, they became what we know today as YouTube. Now, another company, many of your listeners probably heard of slack, right? So slack, you know, the big communications company, Slack channel. Yeah. They started out as a game. They were making a game, a game, and the game was failing. Nobody wanted to play the darn game. But what they were learning along the way, was it they were scrambling around again, they were like this is not working at all. It’s not working, blah, blah, blah. What they figured out along the way was that their engineers had developed for themselves internally, a hack, a way of communicating through instant messaging that made it really easy to collaborate. And so the CEO, being smart enough, said, Hey, that thing works really well. And nobody’s playing our game. Why don’t we like to see if other people want to use this and make that our product? That is when they became the slack we know today.
Heather Pearce Campbell 38:24
I love that. So it’s really just about committing to getting started like walking the path.
Steve Hoffman 38:31
But there’s even more to that. So yes, it’s about walking the path and committing. But as I say, it’s not enough just to get started. So you have to get started in the right way. So in my surviving a startup, I write more about this, I write like, go really in depth on what the steps you take. So what you really want to do is pick an area you’re super interested in, like an area that you’re like. I’m really passionate about the restaurant industry. And I want to go in there and use, you know, new technologies or new methods, new business models, and try to transform that business. And that’s what I’m here for. I’m really passionate about the fishing industry. And I believe that, you know, we’re overfishing the oceans, the oceans are being polluted, the working conditions on these fishing vessels are atrocious. You know, I want to go in and revolutionize this industry, like solve their problems and make it a better industry. So if you are really interested in this, come up with 20 ideas, 20 ideas, and those 20 Ideas are probably all wrong. So but you least you have 20 ideas, and you’re not locked into one. Because a lot of entrepreneurs get like they get they put on blinders when they have their first epiphany and they’re like, this is the idea. And they try to sell everybody on their idea and they waste a huge amount of time and it ends up failing. Instead, just say I have a lot of ideas. I want to go in there, but I want to figure out what works. And then the first thing you do after you have 20 ideas is you. When you don’t build a product, you don’t even go talk to customers. You don’t try to raise money, that’s for sure. So what do you do? You go out and find other like minded people like you who have complementary skills, who can help you not just have ideas, but actually help you implement them help you build them, and take them to the customer at a very low cost, because I’m talking us entrepreneurs, who aren’t like already insanely wealthy and famous and can just raise millions of dollars off ideas, like so you find these people, one could be a technologist and other designer another, you know, somebody in the industry who has a lot of connections can connect you. And you bring them in at an early stage of your startup and say I have 20 ideas, I’m sure each of you has 20 ideas. So together, we have 100 ideas, you know, that we can go out and explore. But what you want are people that are super passionate about solving the same type of problems you see in that industry. And because of that, all of a sudden, if you do this, at the beginning, I see so many people go out on their own, and nothing ever happens. But if you get the right people on board at the beginning, first of all, you end up having better ideas, because now it’s two brains, three brains, four brains working together on this, and you’re critical of each other, you’re questioning each other. The second thing you get is people with different skills that can like oh, we can actually build this, we can build a prototype, we can take it out. And the third thing is, you all get to go out together and engage the customers. That’s the next step. Like you haven’t built anything yet. You don’t even have you know, maybe you have a PowerPoint, that’s all you have. Don’t go to investors with that PowerPoint, go to the customers sit down with the people in the restaurants, you know, the chefs, the waiters, the owners, you know, find out what are their pain points, what’s driving them nuts, because they most innovations don’t happen inside an industry. They happen outside because the people inside are too busy just trying to stay alive. They’re just trying to run their business. So you’re finding out where there are bottlenecks. Where are they, you know, banging their head against the wall? Could we actually come in and solve this for them? If it’s high, it’s just a painful enough problem, a high enough priority? You will say yes. Second thing is certain industries might not want to change. Like you could have the best idea in the world, you know, like literally the best idea in the world and go to the fishing industry and say, Look, we could make your industry totally sustainable, and it won’t cost you a dime. And they’re like, We don’t care. Like we don’t want to change the way we do things. I’ve had people with medical products gone into hospitals, what this is such a better medical product than you ever have. Like, it’s amazing. It’s so much better for the patient. You know, maybe…
Heather Pearce Campbell 42:42
I’ll save many more lives. My sister has been in medical sales, I know exactly what you’re talking about.
Steve Hoffman 42:48
Yeah. And then they’re like, they’re the hospital’s like, well, we don’t want to change how we do things.
Heather Pearce Campbell 42:52
Right? We don’t want to have to retrain our team. We don’t want to have to, you know, whatever.
Steve Hoffman 42:56
Or can you get insurance to pay for it? If insurance pays for it, we’ll do it if not, we want things like that, that you would never anticipate. You’re like, you could save lives. You could make money, you could do this. And they’re like, no, no, no, no, no, we’re not doing it unless you meet these factors. So you don’t realize those things in your industry. If you’re in the fishing industry, they may have their own priorities, they probably do. Like, you know, how can we pay less? How can we make more money? How can we do that, you know, you so only by engaging with them, and aligning their priorities with what you want to accomplish in that industry. So if you can come to them with a solution that’s more sustainable, and you can make them more money and you know, cut their costs and do all these other things, then they will probably turn around, say, Okay, I’ll look at that, like, Yeah, something like well look at, they’re not looking at maybe for the reasons you want them to, but at the end, they’ll you can actually make a difference. So this is what this is the process of being an entrepreneur, it’s going deep in the business with the right team. And then there’s a magic thing you do, and this is the hat I want you to put on once you have those 20 ideas, you’re not what you’re looking for, if you’re hunting for one thing, and that’s pent up demand pent up demand in the marketplace that isn’t being met. So a demand is something that, as a customer, I’m saying I absolutely have to have this thing, even if I don’t know what it is. But what if you showed me what it is like I would know I have to have it. And there’s always that demand out there. And there’s always new pockets of demand being formed because the world is changing at all times, new technology, new solutions are coming up.
Heather Pearce Campbell 44:36
Right. You can just observe the edges of any marketplace to see, like in many instances where demand is developing where it has been and where, right?
Steve Hoffman 44:48
But you seldom see that at the beginning. Right. You seldom see it and that’s why I lay out this whole process you have to go through to really get to the point where that becomes visible. For you, hopefully ahead of everybody else, and you can jump in there.
Heather Pearce Campbell 45:04
Well, that’s right. And I think you have just illustrated why so many people on this path get it wrong. They do it out of order, they’re overly committed to a single idea or a single thing. They, you know, they, they jump in feet first on their own first without building a team. I mean, there’s so many ways that given your example, people can start to like, check off where you know, where they could maybe do it, use a redo, or if they were to start something new, do it the right way, this time.
Steve Hoffman 45:36
Yes. And then your chance of success goes up so much. And these rules don’t just apply to venture capital funded businesses, whatever business you’re in, you shouldn’t be doing this. Like, it doesn’t matter. If you’re a small business, you know, get the right team, right from the get go. You know, don’t stick with one idea of what you’re going to do, go out to your customers and find what they’re not getting what they would pay more for, you know, doesn’t have to be a huge business, it can be a small business. And you might discover, you know, you’re a landscape architect out there, and you have an idea of what, what landscapes people should have. And you find out No, no, they all want to save water, because we’re in a drought right now. That’s where the opportunity is like, this is what people are looking for. They want to know if you knew that your sales rate would be so much higher?
Heather Pearce Campbell 46:26
Well, it’s so true. And I’ve seen so many small businesses get overly attached to the thing that they’re doing that they’re not exploring even slight deviations, that could open up a whole different area of demand for a different kind of client or a different level of client, right?
Steve Hoffman 46:42
Click in a lot of times, they aren’t a couple mistakes, they make one they don’t, they aren’t in a continual dialogue with their clients, they just do their work, but they don’t follow up and say like, what could I do better? What could I do differently? What is something you’re not getting that you really want? Those simple questions, clients will come back to you and they will actually show you where the demand is. Another thing is, are there other clients out there who could use a similar service or product from you, but you’re not talking to them? Because you’re kind of focused on this client set? Maybe you don’t have relations there. But there may be, you could make much higher margins on this other group out there, if you just put a little effort into penetrating that world?
Heather Pearce Campbell 47:28
Well, and there’s a massive opportunity, like I wrote down your question, is there something you are not getting that you really want? I think a huge majority of businesses have missed opportunities on the you know, what they do with a client after that initial service, or that initial interaction, there’s so many ways that they could show up and continue to nurture that that they don’t, yes, cluding, even through like a customer survey or some way to capture, how is that client feeling about what you just did? So I love that, is there something you are not getting that you really want?
Steve Hoffman 48:04
Yeah, and you want to build this into the process of your organization, whether you’re a solo entrepreneur, you have a team, you have employees, everybody should be engaged in this mindset.
Heather Pearce Campbell 48:14
Yeah, I love it. I think it could really cause a swifter change inside of a business that will lead it in the right direction. Yes, yeah. Oh, my gosh, I feel like we could just go on and on. This conversation has been so fun. I mean, I feel like I’ve got a gazillion more questions. Let’s pause for a minute. And for anybody who is listening, that would like to connect with you and find out more about Captain Hoff, right? We’ve got Steve Hoffman with us, or about Founder Space. Maybe they’re thinking like, Hey, I’ve got an idea, or I’ve got a business or I’ve already started something, but I need support. Right? Where would you send them?
Steve Hoffman 48:52
Just go to founderspace.com. You can reach out to me there. I have tons of educational materials, a lot of free videos and other material. Your books I’ve been on your books are there, everything’s there. I’m also on almost every social network. So just search for Steve Hoffman Founder Space, you can go to LinkedIn. That’s a great one.
Heather Pearce Campbell 49:15
Yes, I’m a huge fan of LinkedIn. I love connecting with folks there. Steve, you’re a gem. I can tell how much fun you have doing this and working with people in this space. It really shines through what final tips or action steps would you like to leave listeners with today?
Steve Hoffman 49:36
So I could go on but I give them just a couple of advice. So first of all, when you’re being an entrepreneur, a really important thing to do is pace yourself like this is a marathon. It’s not a sprint, it’s not going to happen overnight. And being an entrepreneur takes a lot of hard work. So Be prepared to put in the hours and the time. And the second thing I want to say is that when you’re on this journey, the number one thing you can do to really help you along the journey is to get feedback and be open to feedback. A lot of us like, so you should always be questioning yourself, you should question every assumption, everything you do. And just at night, say, are we doing this the best way possible? You know, is this? Are we on the right? Is there another path we could be taking? What you know, how could we improve our product or our service? What you know, how could I improve myself? How can I make myself better? Always be questioning and then get advisors, outside advisors to come in? And tell them honestly, the struggles you’re having? And listen to what they say, people with experience other people have been entrepreneurs and run successful businesses, what feedback can they give you from their lives be really open to what they’re telling you. Because we all want to think we know it, and we figured it out. But no matter how long you could have been in this business, 10 years, or 20 years there, you’re still a lot you can learn. And I’ll tell you, the world is changing. So even if you like new everything, absolutely everything, which nobody does, tomorrow, you won’t. Because the world is will be different tomorrow, there’ll be different things out there, you know, who thought of social media who thought of cryptocurrencies who thought of like, spending all this time on our smartphones, nobody, you know, people back, you know, 1020 years, they didn’t even imagine these things. There’ll be equally profound changes coming around the corner.
Heather Pearce Campbell 51:46
Steve, that is just amazing. I love that advice. It honestly makes it feel more fun to me like the idea because I think so many entrepreneurs are lonely, right? And it’s hard, hard. Yes.
Steve Hoffman 52:02
Yeah. It’s working at home these days. Right, you know, isolated and treated, you know, in the relationships, you might have a resume or even with clients that you meet face to face might not be personal enough. So, yes, actually, that’s why the advisors are important to have not just for giving you advice, but for just having somebody to talk to really close friends, who maybe you advise them on their companies, they advise you on yours, things like that. Those relationships are what make entrepreneurship fun, make you more successful, and, you know, help reduce stress.
Heather Pearce Campbell 52:39
Right, make it a sustainable journey. Yes. Yeah. Well, Steve, I so enjoy you. I’m so glad we had the chance to connect. I really appreciate you coming and sharing your time. I know that my audience is going to get so much from this conversation.
Steve Hoffman 52:54
Thank you so much Heather. You’re wonderful.
GGGB Outro 52:59
Thank you for joining us today on the Guts, Grit and Great Business™ podcast. We hope that we’ve added a little fuel to your tank, some coffee to your cup and pep in your step to keep you moving forward in your own great adventures. For key takeaways, links to any resources mentioned in today’s show and more, see the show notes which can be found at www.legalwebsitewarrior.com/podcast. Be sure to subscribe to the podcast and if you enjoyed today’s conversation, please give us some stars and a review on Apple podcasts, Spotify or wherever you get your podcast so others will find us too. Keep up the great work you are doing in the world and we’ll see you next week.