Trajectory: Startup: Ideation to Product/Market Fit author Dave Parker

Intro  0:04 

Welcome to The Future is Borderless podcast with David Nilssen, we feature top entrepreneurs and thought leaders from around the world, those who bring a global mindset and a unique perspective to their life and business. Now, let’s get started with the show.

David Nilssen  0:23 

Hi, I’m David Nilssen, I’m the host of your show. On this podcast, we connect with amazing entrepreneurs and thought leaders, people from around the world who have what I like to call it as a borderless mindset. And we’re looking to bring visibility into new ideas, new innovations and best practices, things that can be applied to both your personal and professional life and that will help us move forward in a fast-moving world. Now, today’s episode is brought to you by Doxa Talent. Doxa Talent helps business leaders to find full-time dedicated, highly skilled workers from around the world. And this includes everything from accountants to executive assistants, sales, development reps, software engineers, and many others. And as a result of building an offshore capability, these companies can scale faster, increase margin and improve culture. To learn more about Doxa, you can visit their website at doxatalent.com. All right, I’m actually really excited for today, I’ve invited somebody onto the show that has been a big part of my entrepreneurial journey. I’ll tell you a little bit about that. But first, let me just introduce Dave Parker, who is a five-time founder and has been through over 15 exits as a founder, an operator, a member and an advisor. And he splits his time between helping to fund early-stage companies and then helping to exit them. He is a senior partner at Fearless Fund, which is focused on investing in women of color across the US in consumer and tech companies. And on the other end of the spectrum, he’s helping founders exit their company through NextPath Advisors. But he also wrote a book called Trajectory, they put a colon there, and then their startup, so its Trajectory. And the first iteration is startup and it’s from ideation to product market fit. And he’s a Seattle entrepreneur who has been a highly ranked mentor with Techstars, and FlatSix Labs, 500, startups, Founders Institute, and so on. And he’s traveled the world, sort of investing in accelerator programs from Brazil to Singapore, Budapest, and many other places. Now, on a more personal note, I’ve known Dave, since I think 2004, shortly after I started a company called Guidant Financial, and he ended up being on our board for 15 years. So unlike many of my guests actually know him very, very well. However, throughout the pandemic, and then having two kids, relocating my family, and now starting Doxa Talent, we haven’t been in as much in contact. And so I’m really excited to dig into some of the projects that he’s got going on. So with all that, Dave, welcome to The Future is Borderless.

Dave Parker  2:48 

Oh, awesome. Thanks for having me. It’s fun to catch up for any reason. So level on talking about topics that we both love. So that part’s fun, but it’s always good to see you, my friend.

David Nilssen  2:57 

Likewise, likewise. Well, I want to talk about your book for a second. And for those of you that have not yet read it, it’s called Trajectory: Startup: Ideation to Product Market Fit. The book is, I think there to help early-stage founders understand what they need to learn and test before they quit their day job. And I’m just curious, like, what inspired you to write the book?

Dave Parker  3:19 

Oh, my gosh, so easy and a couple of friends. So I had the chance after working doing my own startups and being interim CEO and some various gigs right over time, and I had a chance to work for a nonprofit. There was a global nonprofit that some folks will recognize this startup weekend. And Startup Weekend, my last full year there we did 1265 events worldwide. 120 countries, 460 cities. Can you guess I was the Chief Operating Officer at the time based on the data and 74,000 attendees. So I got to join a movement in progress, which was amazing. Mark Nagar in the team. And I think when I joined the team, David, the average age of the team was 27. So I single-handedly brought the average up. And we went from 500 events a year to 1200 events in two years in the time I was there, because it was really focused on how do we scale it, right. And as a nonprofit, we ended up selling the company to Techstars in 2015. So from that experience, and post-Techstars and global accelerator network and a bunch of other work I’ve had a chance to do, I’ve had a chance to visit 22 countries for startups, totally 34 countries total, which for kids who grew up in a small town in southwestern Washington, it’s definitely a bit of my badge of honor. I’m not done yet. I’m kind of like if it’s an interesting place to go that I get invited to I’m totally in. So but that was the big piece is people would come out of Startup Weekend and they’re like, I met David. We’re like co-founders, soulmates, I’m going to leave my job. I’m like, oh my god, no. Like before you leave your day job, there are some things you can know and things you can test. And especially for product companies, right? It’s a little different than a service company, a service company, the concept of time product market fit doesn’t really apply because other people are buying services. They’re just buying them from somebody else. And why will they buy them from you? But for a product company, this concept of product market fit is for some, especially VCs, because the world as I said, partially and today, for VCs are like, well, we’ll know it when we see it. And like, no, it’s math. It’s not pornography, right? It’s just math. And it seemed to be so weird for some people to be like, oh, no, it’s not. Like it’s actually just five things. So if you drop the podcast after this, and you’re like, I’m going to hit these five things real quick. So you know what the math is? The math is a trend math and five areas? Is the traffic at the top of my site going up? Yes or no? is the number of leads every month for demos? So if you’re doing a product demo, right, are those number of leads and demos going up? Are the number of customers going up? Is my time to close going down? And is my annual contract value going up? If I have one or two of those things, it’s exciting. Like, congratulations, you’re on your way to product market fit. If you have those five things, do you have the miracle of compound interest? Are there more things later? Of course, there are like special things that you want to measure just for your business. The answer is sure. But those five things are prescriptive, like they apply to every business, especially every product business and predominantly tech. So I definitely lean tack and lean product. The concept there are product-market fit is, the point of the book is it’s not a mystery, right, you can go find it. But there’s as you know, I mean, you’ve been around a bunch of startups too, doing a startup, there’s 1000 things that can kill you. All right, so you need to focus on the few things that you can get you to the next level. And so this book is really focused ideation to product market fit. The next book is called Trajectory Scale up its product-market fit to exit, like, things that you and I know from time together. And in 15 years, like, I originally wrote a chapter on how to run a board meeting, right? Or having great culture. And the answer is, if you don’t have product market fit, that doesn’t actually matter. because you’re dead, or you have a nonprofit. Right? So I took that content and said, like, it actually doesn’t matter. Like the only milestone for a startup is how do I get the product market fit? If you get from zero to 1 million, congratulations. Yeah, going from 1 million to 10 million whole different set of challenges, right. But as always remind founders in the early stage, like you don’t have culture, or like, if you and I started a company, we would have personalities, the investors with either like our personalities, or not like our personalities, but culture is not something you and I are going to go and go to an off-site as co-founders early and say like, we need to set the culture of our company. Now, if you’re a services business, I would say culture is a competitive advantage. But again, you don’t have a product market fit issue. So that’s why I wrote the book. And that was the audience. And it led to a really interesting set of ended up in Budapest in Taiwan, and China and all things for startups, which was super fascinating.

David Nilssen  8:05 

Well, it turns out, these are issues that every entrepreneur regardless of geography, have to deal with. So I’m actually glad you wrote it. I remember years ago, when I started Guidant Financial, and we were talking to entrepreneurs every single day. Not there anymore, obviously. But every time we would talk to an entrepreneur, you know, the questions they would ask are, what book can I read to see if my idea is the right idea? Or what book can I read to see if I’m even an entrepreneur. You can find books on how to be a great manager, how to build culture, but there was very, very little in terms of references that we could give them in terms of thinking about those things. So glad you wrote it. Now, inside the book, though, there are a couple of pieces that stood out to me that I wanted to just sort of call out. One of the lessons is around what you call, I should say, as awkward co-founder discussions. I’ve started every business I’ve ever been a part of with a co-founder. So I am really curious to hear sort of your take on this.

Dave Parker  9:04 

Well, the way I set it up in the book in the section, and by the way, some of this started with, on my blog, I wrote about 160 blog posts, and I came back at one point, I’m like, oh, my God, that’s a chapter. Yeah, that was just me ranting about something, right? The maturity changed over time, for sure. But I get these prompts and during office hours, and I’m like, I don’t want to talk about it anymore. I’m just going to write about it. And then when somebody has an issue, I’m like, go read the blog. Like, I want to talk about something interesting for me. Not always the best way to handle your customer, but their office hours are typically free, right? So is a two-step process, right? The Step one is to sit down with your co-founder, and have a discussion about phase of life time of life. Because the business in some ways, it’s most beautiful moment is the moment you’ve incorporated, right? It’s rainbows and butterflies and unicorn farts. It’s amazing. The business is all forward-looking. Everything’s amazing. And you have to make payroll, and healthcare benefits. So it’s kind of like the peak moment, and then a trough of despair, then hopefully you get to the end, and everybody’s still happy and you love each other. So, phase one is just to have a conversation about is this a good time in life and those things and we’re sitting, having that discussion, right? Then you go to a review process, the review process takes you to a site called foundrs, F-O-U-N-D-R-S rs vs. ers. And it was built by a VC in Los Angeles. And you basically put in, there’s room for four co-founders at the top and you click on a series of buttons, circles, or squares around who’s going to do this? Oh, you’re gonna be the CEO, who’s going to run the product? I want to be CTO? Whose idea was it? Right? And that can only be one person’s idea. So you go through this checklist, and you get to the end, and you hit the calculate button, and boom, it tells you what your equity split should be. So you print that out, and you bring it to the second meeting. And it’s a little bit like liars poker, right? But instead of this way, you throw it down on the table in front of you. And you’re both like, oh, I thought I was going to do that. But it was my idea? So it has this forcing function of like, how do we feel about it? Like, you’re 67%. And I’m the balance. And I felt like maybe I should be 50/50. My point is, is 5050, I think is the only wrong option. Right? Because it says, and I know, you guys were 50/50 at Guidant Financial forever, which is an anomaly for sure. Right. So but generally, it means at least from an investor perspective, it you took the first hard decision you had to make, and you decided to kick the can. That’s usually what it means. So and I don’t care if it’s 50.1 and 49.9, it’s more just a matter of at some point that you were willing to take on the hard discussion. So that’s the forcing function. I’ve used it a bunch of times. The only one time it didn’t work. It was an interesting Father, Son, Tria, or the father, son. And they asked me to come on as advisor, I’d known the Father a long time, the son I was appreciated. And he didn’t present. He’s like, I didn’t have time. Like, he just didn’t like what it said. He’s like, well, he’s going to get my stock anyway, when I die. I’m like, not the point. So the point was, is to have the discussion before, because then you end up having discussions around like, well, if I’m for 65/35, and the company needs $10,000, I’m going to put in 6500, you’re gonna put 3500, right? So I know, one of my 5050s the only 5050. I did, by the way, in order for my co-founder to take a check out, I had to put a check in. And I’m like, well, then how does that change the equity? And he was like, Well, why would it change the equity? We’ve already decided on that? And the answer was, that’s why you have the awkward co-founder discussions early rather than later.

David Nilssen  9:18 

Yeah, I’m a big fan of having hard conversations before, they’re actually hard. Although I was going to say, it was actually not an easy one. And even as a guy who’s had built an operate a very successful company with a 50/50. Partner, I would never recommend it. Because in the times that things do get difficult to your point, somebody has to be able to make a decision. And when you’re 50/50, sometimes that’s not possible. I love it. Well, hey, let’s talk about raising capital for a second because obviously, it’s brought up in the book many, many times. But there was something that you said that actually stood out to me and you talked about what I think you called it zombie startups. It’s they’re operating, but they don’t have enough capital to really continue at the rate that they need to they can’t actually raise capital. And when I read that, I thought, you know what, I bet more startups fall into this category, then people actually assume and so just curious, what would you say to somebody in that place?

Dave Parker  13:48 

Yeah. So let me define it first today and make sense for people. If they want to Google venture power curve, you’ll see this XY axis and the returns are here and then it goes on to the long tail, right? So the concept of venture power curve is certainly the fundament now we have 30 ish companies. So we’ll go with 30 because the math is easy. So the top decile of those companies will return the fund, so font one was 26, we’re working on font two is gonna be 150. We want the top three of those 30 companies to return north of $26 million, like it’s your turn the font. So that’s my top decile, my top quartile sans those top three, so my top 25% is going to create returns, but they won’t return the fund, right so that quarter of those businesses, and their return could be 1.2 times 2.2 times whatever, but they may even be as high as 10 times but they’re not going to return the fund. So that leads me to my bottom three quartiles. So the bottom quartile is easy they just die right? They vaporize super-fast is the general venture mat not been true in our case so far, because our fund has a little bit different thesis we invest in only in women of color founded companies. So that category is the most founded per capita, the least funded per capita as a category. So far in the first three years of that fund, we haven’t lost any of them yet. Recession coming, some bad business models, right? There’ll be some for sure. But my observation there is that because that group has had so little funding, they’re scrappier than other groups. So just outside observation, super interesting to see how the data comes out as the fund matures, we’re four years into a 10 years thesis there. So the challenge then, as I’ve got the top 25%, gets returned, the bottom 25% gets vaporized what happens to the middle 50%. We’re talking about half the companies. So half the companies don’t have enough momentum in the sell side of the business, we think of this as a rule of 50. Right, they have 50% growth, or 25% growth and 25% profitability. So most of these companies are growing a little bit, but they’re not growing, they’re not north of 50% growth. So they’re not sellable. Right, and they’re not doubling every year. So they’re not really venture scale. But they’ve taken money from investors, friends and family, right? And they’re like, we can’t shut it down. So where you end up is in zombie land, right, which is I don’t have access to capital, I can’t really sell the company. I feel a moral obligation to not close it for my employees, and probably for my investors, I totally get that. I’ve done that, too. That is probably the eight years of my life, I would like to have back. Right? Because the answer was not a great outcome. And in retrospect, you knew it wasn’t a great outcome. Those founders gave it I would rather they kill the idea and come back and ask for funding again. This is one of the common things in venture right venture is so driven by tweets, it’s crazy, right? And there’s what and people will quote them often and one of my favorite one to mock is the idea doesn’t matter only execution matters. Now, there’s a big assumption there. The assumption is it’s a good idea. Right? So it’s like, okay, well, if it’s a big idea. Sure, right, the execution-only matters. There’s not a lot of big ideas, right? There’s not a lot of billion-dollar ideas. There’s a lot of small ideas. And there’s a lot of ideas for tools. There’s a lot of niche ideas, right, but not every deal. Not every idea is a unicorn, right? And the idea there is like, oh, well, it’s only execution matters. I’m like there’s lots of things that people say in the venture landed I always laugh about as an operator, because you’re like this is crazy.

David Nilssen  17:37 

I think they missed two key pieces there. It’s a good idea, great execution and a little bit of luck.

Dave Parker  17:41 

Yeah, the luck is part of it. I always tell people, the formula here is you got to have a great market first. So when I started writing the book, I was like, oh, my God is the team. And I had this weird quirk. I did that two years before I finished the book, because I read 100 books a year for those two years. And that is not something I would recommend for people who have a life because if you do 100 books a year the answer is yes. Audible at 1.8 times speed. Yes Ebooks, yes kindles? Yes, physical books, you have to do all of them to get to 100. And the big takeaway in that whole process was you have to be fast to learn and assimilate data and information. The same thing is true in a startup. So when I started that, I was like, you know, so and so said team first, so and so said this, so instead said that, after reading and refreshing on all of them, I walked away from synthesizing that piece of it and said, you know, what’s really one A and one, B. One A is the market, if it’s a great and interesting market, maybe even a nascent market, it’s brand new. So think Airbnb, or Uber from that perspective, if it’s a great market, a mediocre team can still get an amazing result. But if it’s an amazing team, in a bad market, they will still have a mediocre results or fail. So one A and one B became market first, team second. Number three then was product is a super sticky, new customers love it. And number four was traction. What are the early indications that customers care about it that gets to the five-point formula around product market fit?

David Nilssen  19:17 

Yep. I want to drill into one other piece. And then I’m going to talk a little about some of the other projects Jeff going on your pricing? I mean, one of the big things is there’s 14 pricing models that you sort of put in the book, I will say after 20 years of being a CEO, and now having started yet another one, pricing is always a really complicated component, like how are going to charge for your services, what’s the margin look like? So on and so forth. But I’m just curious, when you look at the pricing models that you set out in the book, which one do you think is used most often? And I’m actually really curious which one is most underutilized?

Dave Parker  19:56 

Interesting question. So I’ll pull back up a level and explain kind of the things so the nomenclature gets set for people. So there’s the concept of a business model, the business model has three big buckets of components. Right? So the first big bucket is, what is the product or service you’re delivering? And how much does it cost to either make it or deliver it? Okay, so that’s the first big bucket. So that’s your team that’s engineering that support, right? It’s all about what does it cost to make and deliver the product? So that’s bucket number one. bucket number two, is your cost to deliver? Right? So in that case, it’s monetization. So what’s your revenue model? There’s 14 revenue models. Some are better than others, right? So what’s your pricing? And by the way, pricing and promotion are different. Remember, the three P’s back from MBA School of Business, School, right product, promotion, and price. So pricing is different than promotion, like premium is a promotion. subscription is a price. Cloud is a delivery model, right? So SAS is funny, because there’s a bunch of SAS products that are free. SAS isn’t actually revenue model subscriptions, a revenue model, or Twilio is a great example. Or AWS is a great example of metered services. So how you monetize is all about your revenue model. So bucket number one is cost to build it, bucket number two is cost to sell it. So price revenue model marketing and sales, which is what I put all those pieces together, what does it cost me to sell the product? And what can I do in promotion and pricing to adjust those things accordingly? So if you understand those as the big buckets, because a lot of people like well, that’s in my business model, I’m like, awesome. Which part of your business model is it? So and I’m geeky about price and conversion metrics and unit economics, because the background of the book is somebody asked me for my financial model, and I went to CrunchBase. It was like you can have mine, but mine’s a subscription. And yours is a marketplace. And those are kind of fundamentally different your B to C mine is B to B. So we pulled a dataset from CrunchBase at the time of 2600 companies. And because it took me so long to write the book, it turned into a five-year Longitudinal Study of which companies were successful and which ones failed. And we ended up with there’s 14 revenue models, and there’s a significant amount of learnings in that. But about a third of the book is dedicated to how do you monetize? Long way to answer your other the short question, which is, I think underrated lead gen is a really interesting one, because it’s a way to be super scrappy, and bootstrap a company, or productizing. The service is another way to be super scrappy, and not ever require. So service business is different than product as a service. And Guidant is an example productizing a service. So there’s people and technology there. But the customer is buying an outcome, right a fixed price and an outcome. They don’t care if there’s people involved or technology involved, they just want the outcome. Southwest Airlines would be another example. I’m not paying $1.87 to clean my chair. I’m paying $387 to fly from Seattle to wherever. So I think those ones are ones because they are easier to bootstrap. Now, what we discovered after the book was I was working for a family office and a hedge fund managing their venture fund. And what we discovered was the valuation differences in my original table, it’s in the book and the actual valuation differences are meaningfully different. So like a even post sell off, take a company like DocuSign. DocuSign, trades for 14, 15 times trailing 12. So they’re a highly tuned subscription-based company. Groupon who some people probably remember, because it was a new business model at the time, it actually is just lead gen plus commerce. They traded about point 37 times trailing 12. So part of that is it’s transactional revenue, it’s not subscription or recurring. When revenue goes up, it’s super spiky, then it goes down. So that is not the only thing that impacts the enterprise value for sure. But it is the thing that impacts enterprise value, disproportionately. So if you looked at so we pulled together a group of 240 publicly traded stocks across the globe, and looked at them based on revenue model. And sure enough, things like AWS or Azure, which are metered services companies, which is the more you use, the more you pay, those companies are disproportionately valued compared to companies like service companies like Dell, or hardware companies or folks that are further down the stack. So if you have a choice, if you’re listening, and you’re like, I want to choose a business model, I would choose the revenue model that has the highest returns. So if you have a choice, you don’t always have a choice. So your customer ultimately dictates how they will buy.

David Nilssen  20:27 

Yeah, fair point. You’ve traveled you said this a minute ago, I think you said 34 countries, but 22 of them were specific to running programs and, and working with startups, right. How I mean, if you think about fundraising capital, is there a major difference in your opinion between geography and the access to capital, and then how is that shifted? Now that COVID is sort of flat in the world as I like to call it.

Dave Parker  25:00 

Yeah, no, that’s awesome. That’s a great question. Well, let me point out a couple of similarities first, everywhere I go in the world, and you show up in a room of 100 entrepreneurs, and you know this from being around EO and you’re at 100 entrepreneurs, and everybody knows the math says 70 to 90% of these startups are going to fail. Everybody knows the math. And everybody knows it’s not them. They look around the room and like, have bad for you. I’m sorry for you guys. Like because I know, I’m going to succeed. So the commonality there is, and of course, three to 4% of people are just plain delusional, like completely off the hook. delusional, right? If only they had a bait, a name tag color badge that was different, it would be so much helpful. So number one, I love being around my tribe, because that’s wherever I go, whatever language they speak, and whatever we look like that’s my tribe, right? I just, I love that about it. And they want to change the world, and they want to create jobs. And so that part is always fun. So specific to your question. It’s interesting, we ran a report pre COVID, we were thinking about doing kind of an arbitrage-based fund that would basically look at how does this market compared to that market around similar stage and traction companies? So it was a PitchBook data set that we ran. And we looked at Seattle as a benchmark of 100%. And we said, well, what’s New York and Silicon Valley and Kansas City. And basically, the Seattle was 100% the Valley at the time was about 184%, in New York was 163%. In Kansas City was 87%. So basically, if it was a series a deal, so we looked at all the funding for precede all this funding precede all the funding for series A series B, and said here are the averages based on geography, which by the way, is interpreted as access to capital. The Kansas City’s a nice place, summer’s a little hotter than Seattle. So but it has nothing to do with anything other than access to capital. And those deltas were pretty meaningful. Now, then we did it with Mena. Now, there’s a couple of weird outliers, like in New Zealand, of companies getting massive fundings, right. But in general, when you took out some of the weird outliers, Mina was like 22%. So you could invest in a series A traction company, in the Middle East and North Africa. So Cairo, UAE, Dubai, etc, for 22 cents on the dollar of a company in Seattle. So that’s just access to capital? Is the quality of entrepreneurs, the answer is not really. I mean, innovators are everywhere, capital is not. Now I think the thing that will change post-COVID is I think money is more portable than it’s ever been. And with Zoom meetings, I don’t feel like I have to do, I have to really go to sit in your board meeting in person? Or can I zoom in right on it as well? So? Yeah, I think in the last three years, I’ve trained almost 600 entrepreneurs in the Middle East in North Africa. And I would tell you, it’s access to capital, they have an emerging tech ecosystem. It’s very much like what I saw in Seattle, when I first started my first company in Ada, right, we all complain about the same thing. All the angel investors here all the VC investors here, right. But the fact is, is that YC and 500, startups and Techstars have really created a common set of documents that are open source, the YC, safe document makes tons of sense, right? Some investors don’t get it yet. And the further away you are from the valley, the more angel investors don’t really understand it. But that’s really normalized a lot of things that very much the parallel would be in my first startup, we had racks and racks of servers, and today, I would rent all of that on AWS for $600. So that AWS is caused the price point required to start a startup to go down. The same thing is true with YC safe docs. Yeah, right. Instead of needing $40,000 To do a private placement memorandum, I can download and have my lawyer customize it and get the funding done for less than three or $4,000.

David Nilssen  29:05 

Yeah, it’s funny that you even bring that up the last probably half a dozen deals that I’ve seen have all been safe structures. So interesting.

Dave Parker  29:13 

Well, lots of good reasons for that, too.

David Nilssen  29:15 

Yeah. Well, let’s talk about NextPath for a second. So you’re helping entrepreneurs exit their business. And I went to the site, because I wanted to learn a little bit more about sort of what you guys say you do, and it said strategic positioning as a service. Tell us what that means.

Dave Parker  29:33 

Yeah. So for most founders, the stage we come in at, is somebody’s made an inbound call, and they’re like, what do we do? And the answer is, well, if you only have one buyer, the answer is you’re not going to get a great price.

David Nilssen  29:47 

Yeah, that’s clarify. You’re saying that someone has received an unsolicited offer another like, oh, shoot, I need to create competition.

Dave Parker  29:54 

Or even just inbound interest, right? So it’s like some associate has called and said hey, I see you guys would you be interested in selling? As a founder, we get past that flattery of like, finally been recognized for all my work, right? And then you’re like, oh, crap, what do I need to do to figure out if I am ready to sell? So, that’s the positioning part is really helping you understand, like, what do I need to do to align the business to get it ready to sell. So if your business is super profitable, congratulations, you’ve been paying yourself $74,000 a year, because that’s kind of like the minimum threshold, the IRS won’t bother you about any of taking distributions and taking your tax advantage how you manage your cash, well probably want to change that before you sell it. Yeah. So how you structure it, how you position it? What’s your product roadmap, right, whoever’s going to buy you really wants to know, like, are we buying? Or do you want to stay with the business? Do you want to go? Does your product fit into our product roadmap? So there’s some positioning that needs to happen to get you ready to sell. The other, we kind of have to skate a little bit, because people are like, oh, you do sell-side m&a. And I’m like, well, we do more than that, because we have to help the founder get ready to sell before. I think one of the flaws in this process, David, and you know, because you’ve experienced that, as well as that, broker-dealers will come to you and they’ll make up a really nice book for you. And then they’ll tote you around like a real estate agent, some real estate agents, they don’t care what they sell it for, as long as they sell it. And they get the commission, we actually think about it from a founder perspective and say, how do we help you sell it for the most you can sell it for, which are two different things. And part of that, from business development standpoint, says, if you have a logical relationship with your upmarket buyer, they’re probably going to be the people who buy you. So how do we help them strategically make sure that they’re really, really committed to you so that when we bring in an alternative buyer, they’re like, we don’t want you to go to those guys, because we really need you, and that’s relationship based. And it takes some time to do. But that’s the fun part, right? It’s, as an investor, it’s fun to see checks get wired into your business account as the founder, the best thing is getting the check wire to your personal account.

David Nilssen  31:34 

Yeah, you don’t I would imagine, it’s the best thing. I mean, certainly, I’ve had some exits. So from that standpoint, I can validate it is always nice to see that happen. But there is an emotional side of selling.  I’d love to actually hear as a result of your own experience, you’ve sold many businesses. Tell us a little bit about what that emotional journey looks like? And then what would you sort of suggest anyone do to prepare for that moment?

Dave Parker  32:30 

I think the first one was the weirdest one because we’ve done we’ve closed. I’m sitting with the sell-side advisor was doing what we were just talking about. He was doing for me at the time, Paul. And we were sitting in having dimsum. And he said, what are you going to do next? And I’m like, oh, my God, I don’t actually know. Because I haven’t had a job in a really long time. So I’m going to work for the company. By the way, it’s the first time I ever got fired, by the way, it was from the company who bought us my first company. So I actually took a break, drove to Colorado to hang out and decompress, but part of the number one thing was weird is that, me and the CEO of my first company were like, we’re together. Right? So when you pull those two things apart, you’re like, ah, identity challenge, because you’re like, I’m not CEO of this anymore. And then the buyer actually sent me on a vacation for two months, because they wanted to recruit the team without me. So I came home on like, a Tuesday, and my wife was like, why are you home? Way pre COVID. And I’m like, they sent me on vacation. So like, the next week, we went on an international trip and took a vacation and all that other stuff from the craziness of doing a startup, right? Because you’re working 60 hours a week and making payroll and all this stuff that stresses you out. So yeah, so the identity component of it is interesting. And then I think one of the, we’re like, oh, the first one was cool. So let’s do it again. I’ve seen some people are like, Oh my God, it just is, you know, magic in a bottle. I don’t want to touch it. Right. So, dabble in investments and try to day trade and see how much money you lose. And there’s some things I recognize now that I’m just not good at, right? I’m smart in particular categories, and I know things of that particular depth. But my experience as an early angel investor coming out of that was I invested in stuff I didn’t understand and I lost money. And I was like kind of wondering why that happened. So yeah, lots around the identity and, and thinking through it. I think the other thing that some of your listeners will grok is many of us do what we do for our father’s approval. And we have a chip on our shoulder and there’s a lot of people who have a chip on their shoulder for lots of different reasons, not just dad, I’m not going to dance. I’m just saying for me, right there was the like, I want approval, and at the end of the day I realized I was never going to get it and for a while that caused a really interesting like rift action around like, wow, what’s the thing that drives me now? And I have obviously processed through this enough with years of therapy, relatively speaking to be able to not have it be an emotional spot. But, I think one of the things for founders is we look at it, we’re like, this thing has been driving me a long time. I may not like it, but I’m comfortable with it, because I know it. And then it disappears. And you’re like, what’s my motivation? I feel like maybe, you know, a Hollywood movie star, you’re like, I want to know my motivation for this part. And then losing that motivation for a while was kind of weird.

David Nilssen  32:30 

Yeah, it’s funny. Most entrepreneurs that I know that have been very successful have a chip on their shoulder, you say, dad, I’m going to use air quotes here. But dad can be metaphoric for a spouse, a parent, way I was treated in school.

Dave Parker  35:49 

Yeah. As single mom on food stamps, right? I mean, whatever the thing is that caused that vow or that that ship, hey, use it as long as you can also recognize it’s probably not healthy need some help?

David Nilssen  36:03 

Totally. Fearless Fund. We talked about this, or you mentioned this earlier, I talked about in the introduction. Most people on here probably not gonna be familiar with them. But Fearless fund invests in women of color, led early-stage businesses. And as I pulled up their site, the mission is to bridge the gap in venture funding for women of color building scalable growth companies. How did you get involved with them? And what are you doing to sort of support them today?

Dave Parker  36:33 

Yeah. So about 10 years ago, I met a guy in Atlanta called Rodney Sampson. Rodney was part of Startup America. So Startup American Startup Weekend, merge department global. And so I’ve known Rodney for about a decade. And I’ve done a bunch of programming, the book programming and content we do is workshops, particularly around bipoc, and founders of color, and trying to really provide more access to programming to that group, because it’s had historically hasn’t had as much access. There’s a lot of white dudes named Dave, who have plenty of access to startup stuff. Not about you, this is just about me. So I did a seminar for them. Rodney recommended me to them, and did a seminar for them. And it was actually how startups make money and not become a statistic. So there’s our seminar we do about what are the 14 revenue models? And how do you think about it. And two weeks went by afterwards, and we did about 270, women of color, were on the first event and about 60 were on the office hours. And then a couple weeks went by and they said, hey, the principal’s like, meet you and make sure I didn’t say what they want to meet me about. And about three minutes in David were like, oh, my God, this is an interview. And I’m like, I’m super flattered, but I’m not really employable in the traditional sense. And they had a chance to share their vision and what they’re working on, and my most founded, least funded angle there. So here’s the quick math. And I wish I had written down the statistics because I don’t have it off the top of my head. But over the last 20 years, 3.1% of all venture capital has gone to white dudes named Dave. Now gyms are the problem, there are 3.4%, all women 2.8, 2.9% all women, .8% people of color, there’s not even a statistic for women of color over the last 20 years, it’s so small. So from a mission perspective, I’m like, actually, if I can, in the next 10 years of my career, if I can help change the math in that area, by being an ally and a fan, I’m in. So super excited about it, the fun has been is the investing in really interesting things, I would say a half of the fun of CPG consumer packaged goods, not my lane. I’m learning it as fast as I can. And I love to be a quick study and learn. Half the fun is technology totally feels like it’s my lane. But understanding the community and the culture and the people and really meeting the founders where they are. And I’d say for the most part has been super fun for there’s some times where, I recognize, not sometimes, I genuinely recognize my privilege. But I also recognize sometimes where those people like oh, don’t you think people are just being sensitive, calling it a microaggression? Like, no, actually, it’s legitimately a microaggression. And I seen that reflected back because I tried to be more accessible to founders and those things have been good lessons learned hard, right? There’s times where you’re like, I don’t know that I want that negative feedback. But the answer is no, that’s actually that’s what’s required. That’s what’s required of us as learners. Right to be aggressive about that. So super excited about what the funds working on. We’re at the end of fund one. We’ll have our first our final check that coming out of fund one. And we’ve started in looking at funds two, our goal there’s $150 million Ariens amazing ion is amazing. The team’s great. So it’s been interesting because I’m a senior partner with a fund, but I won’t be a general partner. And the reason is, is it’s for us and bias for women of color. And I’m like, You know what, that’s awesome. And I’m super happy being a senior partner and supporting that effort. So I think the one trend for me of, I don’t have to sit in the left-hand chair anymore on the airplane, I’m happy to be in the right engine. I don’t have to be CEO happy to be COO. I don’t have to be the founding partner. I’m happy to support the founding partners. And that’s a career spot I think I’m happy with and content with. It’s fun. And then it’s fun to focus on scale. Like, how do we really scale this in a meaningful way? And those are the things that I think I’m good at, but I don’t have to do it from getting necessarily praise and recognition. It’s more about getting the job done.

David Nilssen  40:47 

Yeah, leading from behind. I think that’s great that you’re working on this. The numbers are staggeringly low, I guess I didn’t realize how little went to just even women as a broader category. And in fact that most of the data that I’ve read shows that women-operated businesses are more successful than men-operated businesses. And so that’s fascinating.

Dave Parker  41:10 

Yeah, again, you’re back to the same access to capital topic, if I don’t have access to capital based on geography, or based on the last caller, what is systematic racism, right? So networks are open for people who have access to the network, right? So one of the things we try to do is, it’s hard to give feedback in the moment, sometimes we want to give measured feedback. So we tried to give measured feedback around market team, traction and product. There’s lots of other feedback we can get to, but again, it doesn’t matter so much. But VCs are bad at ghosting people and not providing any feedback, because there’s a VC you’re like, there’s no upside to giving feedback, right? If I give you feedback, you’re like, ah, I don’t like what Dave said. And you crush it, you’re never going to come back to me again and say, hey, do you want invest again because I told you, I gave you candid feedback. So there’s no upside in it for the VCs. The drawback is the community we serve deserves feedback. So it’s hard. And we’re trying to figure out the I would say, I’m trying to figure out the balance. I think maybe other team members have done a better job of it. But I think it’s for all founders, if, like we started at the beginning, there’s 1000 things that can kill you in the startup, if you can show me a shortcut for the cheat code to get from this level to that level in the video game and I don’t have to spend six hours getting killed by the same boss like, That’s rad. I want you to give me that.

David Nilssen  42:36 

Well, let’s transition to people for just a second. I mean, we’ve talked about pricing revenue business models, let’s talk about people, because it’s an interesting time right now. I literally can’t talk to an entrepreneur today without hearing their concerns about talent. And they’re saying, I can’t find people, but if they can, they’re struggling to afford them. If they try, they’re struggling to retain them. So what are your thoughts on the labor market today? And when you’re talking to these startups, and you guys are thinking about funding these new businesses? Like how are you sort of working with them to think about talent as they go forward?

Dave Parker  43:11 

Well, I mean, in the startup phases, obviously, it is your number one expense, right? We may call it engineering, we may call it customer success and sales, its people, right? At the end of the day, I have to be able to scale my people, I have to know what I need for them, I have to be able to manage them. So it’s the good and the bad. The good thing is, I know what I needed, the bad thing is people are involved in that’s not always easy. So the pieces there, I think is again, I won’t dig into the culture component, because I think it’s such a broad topic. Right now you need to think about your values, and what’s important to you, from a value standpoint into the people aligned with your values. If you get that out of the way in the early stage, you’ll be fine. Like we can fix culture later. So and then you have to look at my cost, right? What’s my cost of the person and whether the economics. How long does it take me to hire him? How is it took me to onboard them and train them. One of the common mistakes in startup plan is you hire the best you can afford early days. And then I’ll get to the number times founders, like we have technical debt. I’m like, that’s awesome. Congratulations, six months from now you will have organizational debt. Because it follows right, there’s technical debt first, you’re like, oh, we didn’t build this, right. And then you have organizational debt, which is I have some people that I started with the early days and they’re not really the right people, but their founders or co-founders or early first employees, and you got to make some hard decisions. So I think when you think about a scalable people process, that’s really important because as a founder, I would tell you my first company went from zero to 32 million in sales and zero to 150 people in about four years and pretty much made every mistake you can make. My fans would tell you I made all those mistakes. My detractors would tell you, I made way more than that. Um, But you make a lot of mistakes, but all the mistakes are generally, the leading problems people. So identifying the process of how you scale people faster, putting the infrastructure in place so you can do it in such a way that you’re not distracted by, did this happen? Or did that happen, just things like, you know, payrolls and things like that, automating as much of that process so you can stay on the big things that get you to the big milestones, is super important. So, I think the stuff you’re doing with Doxa is super fun, because it’s like, no, there’s quality, just like the entrepreneur story, there’s quality people everywhere, with different access to capital, from a venture standpoint, there’s also quality workers everywhere that you look at the material difference, in the development side of it, it goes like, oh, it’s now Argentina. Now it’s Georgia. And there’s always, it’s not really a race to the bottom, it’s a question of where do you find the quality people in a way that you can make sustainable relationships for your employees? And the US side have a right now that the job hoping, and we can’t call a job hopping anymore, because that’s my generation and your generation, it’d be a great resignition. Now its what’s for me as an employee. And I think that companies haven’t shown any loyalty to it. So I think if you’re old school, and you think about it, that is job hopping, which I said, you’re probably just wrong. And when employees can go make 50% somewhere else, the answer is, you better figure that out. Because it’s going to be a problem.

David Nilssen  46:33 

Well, it’s funny, I must be an old soul, because I still call it job hopping. It’s funny, McKinsey just tried to reframe this by they wrote a document called the Great attrition, as opposed to the great resignation. It’s funny, because they call it out three things that were really important to attracting and retaining workers. No surprise, number one was flexible workforce, the ability that don’t have to work in an office 24/7 That you’re managing means by objective versus by sight. And number two was compensation. And number three, was career development. And those actually, they sort of traded around depending on your age bracket. But in general, those were the top three things, those people start thinking about it. Something to keep in mind. Dave, we’re getting towards the end here. I just one last question for you. I just curious, a lot of our listeners are entrepreneurs themselves, business leaders who are maybe thinking of becoming an entrepreneur, if you were giving your 25 year old self, some entrepreneurial advice, what would it be now looking backward?

Dave Parker  47:36 

That’s so easy. I think the first 10 years, David, I focused on learning how to run a business. And then I discovered how to make money. And those are different things. So it gets back to the idea, right? And as entrepreneurs, we fall in love with our ideas. And it’s a rough mistress, right? Some of our ideas aren’t actually that good. And you’re like, but that’s the mistress I love. And I’m like, sometimes you should get a new idea. I was going to say, a new mistress, but get a new idea. Because the amount of work required to build a non-scalable, not super exciting business. And the amount of work required to build a super scalable unicorn type business, the workload doesn’t actually vary, right? Time, the commitments the pain and suffering. But everyone’s wanted somebody to say, would you come off the bench and build another startup? And I’m like, maybe I’m feeling really like, if it was a really big idea, because what I’ve learned is that really big ideas are actually really rare. There’s some really good ideas that are small ideas, like, there are some things that should happen because they needed to change the world. But it’s not a venture scale business. So for me to come off the consulting practice and making the money that I know how to make now and trading that for equity to go scale a company is going to do it. Sure. Yeah, if it’s the right opportunity, but it’s got to be a uniquely big idea. And I think for us as founders, that’s the big difference. First 10 years I was working in business that I love. And then after a while you’re like, I don’t actually know that. I love it that much. I think if it was a bigger idea. I would love it more.

David Nilssen  49:18 

Fantastic. All right. Well, we’ve been talking to Dave Parker, the author of Trajectory Startup, Dave, where can people learn more about him?

Dave Parker  49:25 

You can find me on LinkedIn as /DaveParker because I’m not the baseball player on that one, or you just go to dkparker.com is my website and you can find the blog and information on the book and contact info as well.

David Nilssen  49:36 

Awesome. Well, Dave, thanks again for being on the show today.

Dave Parker  49:40 

Always good to see you.

Outro  49:43 

Thank you for listening to The Future is Borderless podcast with David Nilssen. Be sure to click subscribe to future episodes so you can hear from more top entrepreneurs and thought leaders, and we’ll see you again next time.