How I Reverse Engineered A $100 Million Exit - Jason Lemkin

If you want to reverse engineer things, you have to have a model with economies of scale that get you to three to four hundred thousand dollars per employee, or your model is not real. Ідез на скалібо. What's going on, man? How are you? I'm so excited to be here. Uh and talk about all my first millions. Um, talk about the millions I lost, uh, a few learnings on scaling and whatever you want, Sam. It's great to be here. I love you for many th reasons. One of them is like you're so catchy. And you're so good at summarizing important things, but in explain it in a very simple to way, in simple to understand ways. But before we get into that, I need to like talk about background because we have to to the OG software guys, you are the guy. So like if we talk to like the founders of HubSpot or uh

I mean like Guys who run multi or tens of billions of dollars companies, they say if you want to learn about software, Jason's the guy. But we have a bunch of like sometimes 20 year old uh kids listening to this, and I wanna like give a little background. And so we don't I don't wanna spend too much time on this, but basically what I know about you is you started a few software companies, including Echo Sign, which you sold for nine figures. I don't know the exact amount, but you've said nine figures. then you've been investing in s in startups as a V C for like since two thousand thirteen, which you said I think you said you 10x your fund. Or something like that.

Is that right? That is about that is about right. Um, and then what else did you do besides echo side? Before that. Um, before that I had a a startup where I made my first million. Um uh between when the internet died for a while, I actually founded a startup making implantable batteries from nanomaterials, which I knew nothing about, which is interesting, and we sold it for fifty million after twelve and a half months.

It is kind of a an M FM story and I learned a lot from it. What was that company called? It it was called Nanogram Devices and we did something that was thought to be impossible. Um and we got bought by our competitor. It was a classic buyout after twelve and a half months when we took away one of their largest customers. Did you raise funding? We did, and it was hard. It was I'm dating myself. This was one of the crummiest points. We raised nine million in our seed round.

And sold seventy percent of the company. In our first round. And that was the deal. That was the deal. That there was no choice. There was no negotiation. It was a different time. And that meant that meant what what you and the f founder, you and your other partners, I don't know how many you had, had fifteen million left over to share after the fifty uh the fifty million dollar exit. I'd say it was more like about ten million or maybe even eight million to share. So it was enough. Interesting for the first million.

It was just enough to not work for the man. I have worked harder. I worked even harder on the next startup on EchoSign with Adobe Bot. So Ecosign was that basically like um what DocuSign is now you guys just sold earlier? Yeah, a lot of learnings. Yeah. We actually DocuSign believed I mean, I'm really dating myself. DocuSign was basically a printer driver company when we started. We were the first web solution. I wrote it all myself and PowerPoint and crappy wireframes and we built it. Um, and we got to A million dollars a month, burning four million.

So we got to twelve million AR uh growing a hundred percent with a hundred and ten percent revenue retention and cash flow positive. So if we and we sold it in twenty eleven, and twenty eleven was a long time ago, uh, in internet time and in real time. It was just before we understood the metrics. around recurring revenue businesses. And so even my board, my investors. Didn't like they weren't sure we had a good business. If I said to you today, Sam, I've got a business doing a million bucks a month, growing a hundred percent.

with a hundred and ten percent revenue retention and profitable. You would say that's the that's the ticket. That's the ticket. Now DocuSign was bigger. Um, we had about thirty Six percent market share. Um, but we were

Cash flow positive and growing a hundred percent. Um So you know, we only raised four million. So when you sell your company to make your second millions Sometimes the second one is is um there's a certain logic in it, and the logic actually in its own way can be stressful, right? It could it can be stressful. It's a comp that that was a very complicated decision because it made sense on paper. Given the the team wanted to do it and part of the team wanted to do it and given how little we'd raised, right?

But uh in my gut I knew it was uh emotionally I knew it was the wrong thing to do. Scott Galloway came out a while ago and and I didn't get to talk to him about this, but he had this awesome presentation. You and Scott are similar in that you're you're just you have beautiful language. That's what I that's what I describe these types of people and they they pick their words beautifully. Scott has this thing. So Scott sold L two, I don't know how much, I think one to two hundred million, I forget the exact amount, but nice nice exit. And he was like Well, I wanted to have a nine figure exit. And I wanted to do it in this data business because that's what I knew. And so I worked backwards and I sort of reverse reverse engineer it. And he said something like he was like, I you I was like I knew I needed to have an international presence. I needed to I I knew I needed to charge at least five uh fifty thousand a year for s a service and then like he lists all these things and then he spent eight years however long building it

And I love that because I love reverse engineering. And it's what I tell a lot of people, I'm like they want to create this amazing stuff. And I'm like, yeah, that's cool. And sometimes that works, but you can actually kind of reverse engineer a bunch of stuff to figure out what's the rules of the game that I need to play. And then you optimize for the rules. And I wanted to have you on. to basically like reverse engineer what it takes to get like either a hundred million in revenue or or even a hundred million in outcome, because I actually think those rules are actually the same. I was like, Jason, I want to talk about this like reverse engineering thing. And you like banged out this like five or eight point thing. You said that

A lot of startups right now, because they raise money in a zero interest environment, they're it's like a hundred grand. in revenue per employee, and you said no, the min new minimum needs to be three hundred to four hundred thousand. Is that right? It is. If you if you're trying to reverse engineer whether your business model makes sense, like this is one thing to reverse engineer. Certain business models have economies of scale and some don't. And If you want to go really big, you want a business with economies of scale. And if you step back in the old days of software, The old Odobe's Microsoft's Intuits made a million dollars in revenue per employee.

A million dollars. Okay. You'd have a bunch of engineers. They'd go they'd go off in their offices. Everyone used to have a private office to code. You'd spend two years building a piece of software. a small T V put it on a D V D ROM that or CD ROM that costs fifty cents. And then you Package it up. That costs 50 cents for a dollar. And then someone would sell it for you between$50 and$400. This was a really good business. There were 90% margins. And the classic Adobe Microsoft Intuit, 50 cents of every dollar went straight to cash flow.

Fifty sets. We don't see this anymore in bus in pu companies go public. It was so profitable. So that was a million. And then Things just deserve or whatever you want to call it. It got crazy and we reached a low in twenty twenty one of a hundred thousand in revenue per employee. for all these unicorns a hundred thousand. So we got

Well we only were ten percent as efficient as we used to be. Now the pendulum swung back. So we were historically we're at a million per employee. The low point was a hundred thousand per employee. I'm when employees in the Bay Area probably cost you two hundred and fifty thousand dollars fully burdened with insurance benefits. this and that. So you're losing a hundred and fifty thousand per employee. Now every public company at least, public SA software company, is at three hundred to four hundred thousand. HubSpot's at three ten, which we talked about, a Cloudflare's at four hundred.

That's where you have to be. And so when When do you have to be there? So one way to think of if you're lucky enough Or unlucky enough, depending on how you look at it, to raise capital, angel money, venture capital, whatever, it it bridges the gap. It bridges the gap. to get you to three to four hundred thousand dollars per employee, but you're gonna have to get there.

And if your product isn't profitable enough, if your gross margins are too low If it doesn't make sense, make some changes, right? You have to have a a model. If you want to reverse engineer things, you have to have a model with economies of scale that get you to three to four hundred thousand dollars per employee, or your model is not real. It is not scalable. And then you have another point here. You say um going multiproduct. And say

It's a huge issue of how, when, and where to p figure out when to go to multiproduct. But did you say uh like Ten million or or in revenue, you want to go w what did you say for going multiproduct? By the time you get to ten thousand customers, you better have a second product. That and this isn't this is the uh not obvious.

Thanks That can be bigger than the first. This one took me a while to figure out to be bigger than the first. For HubSpot, CRM in two years will be bigger than marketing automation, and HubSpot for years was a marketing company. In two years, CRM, its sales product will be bigger than its marketing product. It has to be and you you wanna be there by ten thousand customers. This is the same for econ businesses too. Like they sell uh a handful of SKUs and then they reach like uh some type of critical mass and then like all right, we need to create more stuff. So like we made deodorant, now we need to make toothpaste or shampoo.

Or something like that. Um But the second one has to be bigger. This is the one to think this is the mistake founders make. If the second it what's easiest, Sam, is to add a product extension. Okay, we sell shampoo in e commerce, okay? Let's sell shampoo and conditioner. That's the easiest thing because our customers already know us. If they bought shampoo, they'll buy shampoo and conditioner.

But the problem is if you if you if it if the second product Isn't Bigger than the first, and the first one's still growing, you never catch up. It's never enough. Right, if you're selling a hundred fifty million of shampoo and you're growing twenty percent a year, you're adding 10 million a year, right?

And you launch shampoo and conditioner and it does a million its first year, it's great, but it'll never get there. The second one has to be bigger than the first. And this is it's too we all default to the easy second product, and you actually have to do the harder one. That's uh interesting. So at the hustle So we had I don't remember a million and a half subscribers. I think we were doing a million a month in revenue. And like a media company.

is basically You build an audience and then you launch multiple businesses to that audience. So whether it's advertising, conferences, software, whatever. That's kinda typically how uh media companies are weird. It's usually a collection of small businesses and or different businesses. And um I think we were at a million a month. I forget. I think about that. And I wanted to create a s uh a a subscription service called Trends. And it was like we like And Dude, I fucked it up so bad because I charged three hundred dollars.

Uh a year. Which is so stupid. It should have been thirty thousand dollars a year. It should have been way more expensive. I think in the first month we did I don't remember exactly, but in the first month we did Almost a million in sales. And then It was a pain in the ass to continue but by the end, I think when we sold, I think we were at five like uh maybe ten months later, we were at five million a year in sales with it, but it only had like four or five people running it, which so it was profitable.

But the mistake I made was the thing of not making it bigger than the first thing. And I so like Intimately know that mistake. And it's really hard because I'm like, well, this is like a clean, just do this, then this. But it it just because it it's also like a A psychological thing of like why pay attention to this thing, just put money back into the main thing. This is

An advantage to hire an A VP of sales, for example. Founders underprice their products usually. They underprice them. We're so we're because we know what's more is it more important to get the product off the ground to get a hundred customers than to optimize pricing. As founders, we're always going medium or long, right? So we almost always leave money on the table. So that we can make people happy and get them going. Dude, I've underpriced everything I've done, I've underpriced. Yeah. And and so have I, and so have eighty percent of founders. Not all, but it's it's a I hate this term, but it's a feature, not a bug, because as painful as it is, you can fix pricing later, at least for new customers. It's harder to fix it for grandfathered customers, right?

But for new customers, then just double it to six hundred and twelve hundred and eighteen hundred. Like it is it's hard. I I think it's like rooted in like imposter syndrome of like I don't know if this is good enough. And but then you talk to if you talk to a good salesperson, you're like, dude, like I could like just put a zero behind that. I'll sell it. You know what I mean? Like if you talk to a good salesperson can can get it done. A good one will not rip people off. But a good one will will get the full value for your product in a way as a founder. You almost never can. You al you almost never can, right? That's why

A lot of the ear classic Saster contents about hiring a VP of sales because That's why in a in the first quarter, the first nine days, you should see a lift from a good VP of sales, at least because they can run this playbook with the same leads, the same customers, the same dynamics for trends or something else. Someone with the confidence to ask 30,000 for trends, knowing it's cheap compared to Gartner or Forrester or whatever. uh they'll take that off your plate if they're good and you'll see a thirty to a hundred percent revenue lift from someone that's great. Right. Yeah. Someone that's mediocre will rip your customers off and never understand your product and misspell trends and never read it and not know what it is. A mediocre one will actually see a revenue decline from founder led sales, but a good one will will solve. we'll we'll solve that piece, right? So um I think the other thing, you know, you just didn't give it enough time either.

I sold the company at four and a half years. Yeah. But that was like I was okay. I don't regret that at all because I wanted to get some financial freedom, um and I was broke. I s I think I paid myself the first two years my salary was twenty grand.

The third year. Maybe a hundred. And then the fourth year, I think I paid myself a few hundred thousand dollars. But I was like I was fucking poor at it. And so I I was impatient in what you talk about all the time. The worst thing is a tired CEO and I was a tired I was I was tired of being poor. Uh, basically. And that was a huge mistake, by the way. Uh pay yourself way more if you can, uh is what I've learned. As soon as you can afford it. Pay yourself market.

Is the learning. Yes. Is the learning always as soon as you can afford it. And you had this other thing on here. You talked about um You want thirty percent of your revenue to be outside of North America. That's very intimidating. That's probably the most intimidating thing here is going global. Um, em at least in my opinion. I think it's a very intimidating thing. Obviously, some businesses this doesn't really work, right? If you're highly regulated, it can take a long time, for example, right? If you're very specific.

Um But at scale, at scale, the average Public Софве лідер gets about a third of their revenue outside of the US. HubSpot's now a majority. The majority of HubSpot's customers, small businesses.

are outside of North America, the majority. Um And so if you so let's step back in terms of reverse engineering, right? If you there's a couple things, if you don't lean into them, You're gonna have less revenue than you otherwise would. Um, international and partners are two of them. If you try to only sell direct is an issue, too. Um

And so how do you do this? How do you learn how to sell in France, right? Germany and Milan and London. Um It's not as complicated as it sounds. Um What you do is build your business, build your brand, right? Um Be find a niche where you're one of the top two or three folks. You don't have to be you don't have to beat HubSpot everywhere, but find a little segment where you're better, your little area.

And watch who wants to buy you. And if you're in software, what will happen is Australia, New Zealand, UK, some parts of France and others. Are very used to buying from US companies. They will find you if you are the best vendor. They will find you. You don't actually have to find them. Um now

Traditional industries won't find you, right? It's gonna be tech focused folks, it's gonna be early adopters, it's gonna be cool kids, but they will find you. And as soon as you cross five percent of your revenue in in an area, then invest in it. Just invest in it. As soon as you see a cluster in England or New Zealand or somewhere you didn't expect Chile or Brazil, like support it. Um and then the cheat code, th this sounds obvious. Okay. The one one is just support it, like make your product open, right? This the the the the one that takes work. is also um

Localize your product earlier. Um, and most of your engineers don't want to do this. They don't want to localize the product into Spanish and Portuguese. Turn it turn into 30 languages. not super complicated engineering task, but ninety five percent of engineers just don't want to do it. for a variety of reasons. So you know you can you can get going in the English ish. countries and even in Europe, right? But you're not gonna penetrate uh uh certain areas if you don't actually localize your product. But that that's the second cheat code. The first one is just be be welcome to it. You don't have to go hunt customers in Japan if you have zero, like you don't have time as founders.

Going to Japan is like the worst place ever to go because the culture is so different and there's been so many failures. of Japanese companies wanting to come to America and America to Japanese because the culture is like wildly different. Cause I actually looked at uh a but uh uh one of the ways that I researched cool company ideas is I like to look at Japanese publicly traded companies. There's this one called Uh User Base. Have you heard of Useabase? So user base is uh It's a media company in Japan. They own three products. One of them was sort of like CB Insights and it was doing thirty or fifty million in revenue. The second one was a news app.

Called news picks. That was doing another thirty million. And then I think they had one more thing. And I remember going and trying to download their app and it was all in Japanese and I couldn't really figure it out. But I eventually like translated it and I was like, I'm gonna make this app in America.

and I'm gonna do it at the hustle. And so I built out this like whole thing and I was gonna d launch it and everything. And the culture of what they what they were trying to do it required users to leave feedback and opinions on news, which is like not so common here. And I remember like Fuck, why is this Japanese idea not working? And then I realized I was just like reading Wikipedia or whatever, and there's this whole term to describe the failure of American companies trying to break into Japan because the culture is so different. And it scared me like hell to like do anything involving

uh Asian cultures because our cultures are so different. I'm like I can never crack that. Whereas Germany, France, it's like mostly similar, but uh yeah, the whole Japanese thing freaks me out. I'll give you two examples, but like Salesforce Got got ten percent of their revenue in Japan in the early days.

Ten percent. Now they didn't if you you can You can Google it, you can s see what Mark Banyov said. They didn't plan it. They got dragged into Japan, and some of it was through partnerships and others, but my point is that wasn't on their day zero plan, okay. But it took off there. I was just talking with Howard Lerman, who um He's got a new company called Rome, but he founded YX and took it up to a billion. Um and they were huge in Japan and we were talking about how he was gonna do Japan the next time, but they got dragged into Japan for small businesses. They got dragged in. So my point is don't don't show up to Japan with no traction.

Yeah. Asking asking for a tour of the city. But if you if somehow in your first hundred customers, first five hundred, you've got five in Japan. Don't don't don't dismiss them. Don't be snarky like some folks are. Don't say it doesn't matter. In fact, say, Oh my God. We got five customers for Japan and our products not even in Japanese. We've got something good here. Like let's take a pause and let's figure out what the heck is going on, like Salesforce did. And get ten percent of our revenue from Japan. That's how you do it. Is there a sweet spot for how much you charge? I think with a lot of people starting out, like what I did

Um Like well, m my business was uh two prong in that we had users and then we had advertisers. Our advertisers were spending six figures a year, but I had to acquire Fucking four million subscribers in order to like make it work and it was really hard. Um Yeah, and and so

Is there like a price point where you're like you want your average customer to be paying fifty thousand a year? I think that pricing is over discussed. And I'll tell you why. There are we have all now bought two hundred At least most businesses have bought over two hundred SaaS apps. Okay. It's too many two hundred pieces of business software. And we all kind of know what stuff should cost. Like we know what Notion should cost, we know what HubSpot should cost. We're on Riverside. I don't know what Riverside is. What do you guys pay? Three hundred bucks a month. Okay.

Like Okay, let's say you pay three hundred bucks, four hundred bucks a month. Now if someone else has a better version of Riverside and they want fifty thousand. You're gonna like a month, you're gonna kinda balk, right? But what if someone had something that was better than Riverside? It was thirty dollars a month, it would seem too cheap. Right, it would seem too cheap. So my point is there are organic price points. And what you want to do is anchor around them. Go figure out the couple of products out there that are most similar to yours.

And charge the exact same way. And either charge the same pricing. Or if you're nervous. Charge a smidge lower, ten percent lower, twenty percent lower. Um, if you charge too much lower, you're telling the market you're not as valuable as Riverside.

Right, or you're not as valuable as HubSpot. And you can actually customers will bounce off you if you're too cheap. If you're too cheap, they will be get confused. Um So anchor around the comps. If you're truly ten times more valuable than Riverside, okay, and Riverside's very good. We're using it to record the session. If you're ten times more valuable, maybe charge twice as much.

Because you're telling the market we're ten times more valuable than the leader. Right, we're 10 times more valuable. But whatever you do, founders that say there's no one like us, there's no comp try harder. Try harder. It doesn't have to be the same as you just It feels the same. It feels a similar amount of value, a similar type of utilization. Do I use it? Eight hours a day. Do I use it once a month?

Um, do I use it as an API? Is it metered? Is it per seat? Just there's hundreds of apps like you. And If you price similar to similar value apps, you Remove friction. you remove friction from the sales process. And that's what you want to do.

Until you're really big. You and this is why we also underprice as founders, because you want to remove friction. We want every deal to close in the early days, don't we? We want every deal to close. And so your job as a founder, if you want to scale, if you want to reverse engineer things, your job, because no one else in your company will do this. Your job is every day.

to relentlessly remove friction from your customer acquisition process, remove friction. And people add it at scale. The classic one is contact me. You know, you go to a website you're all excited to buy on your own. I gotta talk to a rep. Yeah. Yeah, there's a couple of reasons. One reason is they've gotten to hundreds of millions in revenue and they actually want to add friction to the sales process, right? But you don't want to do that until you're at tens of millions of revenue. You wanna every day come into work

And if you can't do anything else on your company, remove friction. How can I make sign up easier? How can I add single sign-on? How can I make it easier to do check out for my e-commerce thing? How can I make the bundle easier? How can I make support better? remove friction. Having support that happens automatically in seconds rather than waiting five minutes on the dumb bubble, that removes friction, doesn't it? Whatever it takes remove friction. The last point you have is uh the m the most challenging. It's uh getting to net net revenue retention of a hundred percent.

Yes. And We've y you're I don't know how you would describe yourself. I think of you as You're a you're a CEO founder type, but I think that you have an edge on sales and operations. The churn part. I think And this is maybe maybe naive. I think that's mostly product. Maybe it's it relates to who you sell to and how you position it.

But it's like product. And it's the hardest part is like figuring out how do I make something that integrates in someone's workflow or how do I make something that's so essential to someone's life that they not only do they not want to get rid of it, they're gonna tell their coworkers and their co workers are also gonna have to start using it. It's so freaking hard. And I think it's part art, part science, but You said that you have to have a hundred percent net revenue retention. The good news is is that a lot of the big boys sucked at first. I think Brian Halligan

I think he told me that they were churning out something like At one point like Five to ten percent. Or maybe even more per month. And he was like, It was horrible. And it took us four or five years to figure it out.

But what do you have to say about churn and retention? How do you how do you make it good? If you want to reverse engineer things to your point You need to really Honestly have a path. from at a product level so that you can eventually get to that hundred percent, right?

And you can stage it. So I don't know what if HubSpot's If HubSpot really was trading five percent or more in the early days, let's say its revenue retention was more like fifty percent in the beginning, okay? I think he told me there was like a quarter or two where it was like Uh Existential crisis bad where it was like you know, it it was something like that. I think they're like year four, where it was like This is not gonna work if we don't figure this out.

Yeah. Well I know from when I talked to him it was seventy five percent from M Derech at like thirty million in revenue, which is kinda late. It's they still hadn't totally figured out until they went multi-product and a bit into the mid size of of SMB. But the point is like on the one hand, yeah, their VCs were critical, blah, blah, blah, blah, but they did have a plan to get there. They had a plan to get there. They were going a little bit up market. A little bit up market, not a lot, just a little bit into bigger small businesses, and to have more than one product to add value. And in fact, it's interesting. HubSot nominally has raised prices.

But the pro the average customer today pays eleven thousand, the average custom a two years ago paid eleven thousand, the average customer four years ago paid ten thousand. Okay. So what HubSpot has done, which a lot of folks don't do, they get it wrong. This is why HubSpot is one of the reasons it's so successful, is they're adding more value for the same dollar. They're adding more value each year for the same job. That's software is supposed to be a service, Sass. Software as a service, we forgot about it in 2023. And late twenty twenty it became soft SAS became software as a ripoff. Everyone got massive price increases for no benefit.

Right. Some folks will grumble about HubSpot, it has rage prices, but overall The prices haven't gone that much, and now they have five times the amount of software that's fifty times more powerful, right? It's like 250 times better. than when Brian started. And that's what you've got to aspire to as a founder. The flip side is Here's the th like if you have a high turn business and HubSpot started there, a lot of folks start in high turn business. Be honest, build a spreadsheet. I know you and I talked a little bit about this in the hustle in the early days, because you had high churn as a media business. It's inherent to a media. You had high subscriber churn. Okay, you were stressed about this.

I actually wrongly, wrongly challenged you to be less stressed because I thought you were you were a great founder and would figure it out. But you gotta put it in a spreadsheet and say, look, if you have chure north of three percent a month, three, four, five. And that is endemic to certain models. Look at what gravity does to you around when you get to double digit millions, when you get to 10 million, 15 million, 20 million. Usually gravity weighs you down because you're losing so many customers each month.

It almost becomes impossible to replace that leaky bucket. So we we the hustle was a daily newsletter. We sent an email six days a week. We are at one point I'm trying to remember, we are at one point seven million subscribers. We lost. Uh Fifty. fifty thousand subscriber or no, maybe it's forty thousand subscribers per month. And we were adding

Like four thousand a day. Or something like that. It was insane. Can you imagine that losing Forty thousand people and we're like, How are we gonna fix this? And eventually we did, but I know that like companies like I don't know what the hustles at now. I I assume I think they're close to three million subscribers and the churn is really low. uh morning brew is at like four and a half million subscribers and you want to know what all the all the newsletters do that people don't talk about. So we grew organically to a hundred thousand subscribers. I imagine many do too. And once you then you do paid marketing to get to many millions. And then you get a name after four or five years, and then you quit advertising or you spend very little and you're just like

We're just gonna stay at three point five million, three million subscribers. And we're gonna launch more newsletters. That's the name of the the newsletter. That's how you get to a hundred million in revenue for newsletters. It's the exact same thing as software, which is you go multiproduct, but except unlike subscrip uh so uh software. The churn is outrageous. And but thankfully the market size is like thirty million people. But it's it's like crazy high the change. But that that ties to the point of being very self aware about this, right? And that churn so you you churned out

You had like You're churning out I I'm getting that math wrong, but I think you're churning out about thirty percent of your growth each month, right? In that in that phase, right? Uh, th it was uh four uh so if we sent an email to a million people and uh if we had a million subscribers in one month and we sent six times a week times four, that's twenty four times uh a month, we would lose roughly four and a half Percent. Yeah, that's that three to five percent churn we talked about, right? And on the way up, it's sort of okay because the hustle's exploding and there's viral elements and it's great, but eventually gravity

That's the gr you gotta be honest about gravity and come up with a strategy to address it, right? For small businesses. That math just it it's you know, and and you I think you would echo this around ten million in revenue, you need so much growth to overcome that churn. Right. You need like epic, epic, like you can't even it's not even what your gut says as a founder. You need so you need Double digit growth per month. Here's the insight. You need double digit growth per month to overcome that churn. At scale.

Right. You need double the gets hard. You need to understand which business that you're in. So you're in the conference business now. I was in the conference business, sorta. I think my conference business was doing uh uh over the p handful of years, I think we probably did three million in revenue. You do thirty million in one year. So we're not in the same ballpark. But what I learned with the conference business is It sucks.

It sucks hard. Uh and for some reason I still love it. And same with media. I freaking love it, but it's way harder, I think. And why are you in the conference business if you're supposed to know all of this

great stuff about software because software seems Like we only we all work the same amount of hours per per week. Like it just seems like Just start a software company. Why start a conference business where you're you're in kind of an uphill battle. It's a good a question. I mean the um

Do you guys do you guys make out a profit on thirty million? Yeah, we do, but you have but we've got to So Saster Annual is our big flagship event and so we get twelve thousand people in the Bay Area. Now it's every September. It costs ten million dollars to turn the lights on. That's a stressor.

It costs ten million dollars to turn the lights on. Okay. Before you make a dollar. Okay. So a thousand dollars a an attendee is your cost. Yeah, about a thousand dollars per attendee is the full the honest fully burdened cost, about a thousand. We do we do one in Europe in June for thirty five hundred. That's much cheaper. Um, that'll be about three hundred dollars to turn the lights uh well, three hundred dollars per attende, but it's still like A million and a half to two million dollars to turn the lights on. Okay. Two million million and a half and ten million. What's the other thing? So you gotta get over that and then you've gotta pay people, right? And then you've got other expenses.

So Until you cross if if It's funny, I get it is a terrible business, so we should talk about I literally had A V C Managing five hundred million in revenue, making millions and millions a year just in fees with a good track record.

call me the other day saying they want to build a conference business because investing so hard. Nah. It's like dude, you still get you still get paid if there's a natural disaster or like a rainstorm. That was like my whole thing. I'm like, dude, I'm working all I'm working so hard for this freaking conference and if it rains, attendance is down. Like it just sucks. Like one or two one or two days of like some crazy weather or something can like change things. Terrible. Um The reason we did it was on accident. We we built this

Community around content. Right. So we built content. And then it's a community and yeah, we got some newsletters and some podcasts are not quite at your scale, but They have some scale. Um, and then we just did meetups and just so many people came to the meetups in the beginning. You've done I mean this was a long time ago. Like this sounds small today, but our first meetup in twenty thirteen, we had eight hundred people come and these were great COs.

Great COs, right? COs that now. All right, our I've gone public or I've nine figure businesses and they all came and that what I I didn't know it would be a business, but I knew we had product market fit. So I wanted to build then I did another meetup and the other meetup had a thousand and we had to turn people away. And then then we did a one day event just to do it. I didn't it wasn't a business. I outsourced the first two years. I never even looked at a financial statement. Now the first two years I had a partner, he kept all the profit. or the revenue, I just drove the engagement, right, and the content.

Um, and so this by the second year we had three thousand people. And there was demand. So The real reason I got into the business, Sam, wasn't because I want to, because after the second year, he quit. My partner quit and didn't want to do it anymore because it was too much work. So I quit. I had no ability to do this. I had no team. I had no blueprint. I didn't know how the revenue or the finances worked. And I had to learn for the third year from scratch. And so it wasn't intentional.

Um I felt like the a community wanted this that there was demand, organic demand and Um, but yeah, it is a terrible business. Once it got Once it got now, you can do the math in your head, right? Once it got over fifteen million in revenue, it finally generated actual profits. Right. But that's a lot of years.

Not fake 15, not pretending you're at 15, not claiming revenue that's not real, but you gotta really just get over 15 to clear the nut. But they um Businesses um on the high end can sell for fifteen times earnings, um, but a lot of them can go for

eight or ten if it's like a B to B uh trade show there's a bunch of companies A handful. A handful. Handful. Yeah, the best ones can go for twenty times if it i if it's been around for forty years and it's an annuity at that point. And uh for some reason it's always British companies. A lot of British companies buy trade shows. So there's Informa, there's uh Euromone, there's a bunch of them. Would you ever sell

Yeah, Hive. They bought uh my friend Ryan Dice's company, I believe. The traffic summit. Uh yeah. Would you uh what could you sell Saster for and would you do it? We've had two folks that have approached us to buy Saster over the years. I wouldn't say we've ever had like a a term sheet to to to be on the table. Um The learning from that is it's really been based on comps.

I know we talk about err EBITDA and blah blah blah blah, but it's really been based on comps, right? And Shop Talk was bought for a hundred and fifty million at about our size. probably under uh they got a good deal and money twenty twenty. Sold for a good deal. It sold for a hundred million, what is only doing ten million revenue. But both were like Iconic.

Dude, let's talk about that. Let's talk about that. Uh the guy who started those companies in ham is in Hampton. I've got to know him. That guy is amazing. Um what off the charts. And then he sold uh he sold another company for thirty million. But listen, these guys started a Google These guys started a tech company, I believe, like a payment company. They sold it to Google for a hundred million dollars. They went and started a conference. It Kicked ass. They sold it.

Mm. Something like fifty or a hundred, I forget. Twenty twenty for a hundred million and now it's doing a hundred million. Then they did it again with Shop Talk, which is like a trade show for D D to C. Now I forgot what's the other founder's name? It's a white guy and an Indian guy. The white guy has a new one named um It's called health. Okay, that I don't know. Uh that I don't know. I I know O'Neill I know O'Ne a little bit. I know a Neil a little bit, but yeah.

H L T H. You gotta look at this because here's what these guys do. They it's the website is all the same. Yeah it's like the same avatars for and it's like the same graphic design. Oh and it just looks just like ShopTalk or Money Twenty Twenty. It's the same thing again and again. They do the same thing. And he's it it he's done this like four times. I I think this is their fourth time that they've created a new trade show. I should have known it. So I think this is significantly larger than Shop Talk and Money Twenty. And so health is like a it's they do these trade shows. where they get all it's based uh what a trade show basically is what a lot of people don't realize it's basically a um marketplace f that lasts for three days. And so you get a combination of buyers and sellers and you hope that you create some type of transaction. And what he does is he charges people so you can go for free, but you have to offer up a thirty minutes of your time to be pitched, I believe, to set up a meeting.

Um or you could pay money to set up a meeting with a Yeah, they're they're eight hundred bucks per per ten minute meeting now at Shop Talk. So I don't know what they are at health, they're eight hundred dollars for a quick meeting. And these guys pick a variety of niches where they're like all right, there's a bunch of buyers and sellers in this market and they scale up these trade shows faster than anyone I've ever seen. I think and a lot of people don't know this they They run other companies. I but the the guy I'm referring to, I'll find out about his name. He is he's also on the board of a uh of a large private equity firm. Like these guys are killers that for some reason they pick trade shows as their main thing, which boggles it boggled everyone's mind. Was like why would a bunch of tech guys who can like make their money in significantly easier ways start a freaking trade show. They've knocked it out the park. It's wh it's like a gem of a business to study. They are gems, I will say I I only know Anil a little bit, the other uh co founder of these multiple companies, Money Twenty Twenty and Shop Talk, but

It is interesting. In terms of convergent evolution that he got into it by accident too. How so? They built Money Twenty Twenty to support their fintech. They didn't build Money Twenty Twenty originally to be a standalone business. They built it to support their startup.

Like many of us do events to support our companies, right? Jonathan Weiner. Yeah. Okay, I don't know them. I know the other one. But it took off. It took it took off. Monday twenty twenty took off. Then Shop Talk was uh that they did was was a heat seeking missile. Right. They act like it was this was totally tactical.

And they even gave up on a lot of things and just did the these um paid meetings, right? They just did it and Going back to the conversation, how do you get into something? Sometimes you you plan it out on a whiteboard. And sometimes though like these guys for these m these Event the it found them. It found them and then they then they leaned into it and became experts. But I know I've I don't know Jonathan, but I do know Neil, but I remember talking with him the last time I saw him in person and he's like

Man, this is a hard business. So you think and he built he like us, he or like me, he built a software business. Um, and uh it is it is hard. I don't know I would just caution folks. Like anything everything's harder than it looks to get into. I would just caution folks that there aren't

There aren't a lot of shortcuts and you need I'm sure that the HLTH is wildly successful, but you gotta be it's like This is one of these businesses where if you're not in the top two, you're worthless. Mm-hmm. You're worthless. You have no value at all. Nothing.

Because they are marketplaces. Why are you gonna go why are you gonna go to the fourth tier event in an industry? And in fact, most of them died at in twenty twenty. Most of the fourth tier stuff. Died. uh when we all work together in in the office and in the bay area, but most of them never came back. Only the best ones really came back after after lockdown. Let me ask you one last question. Um You are an investor. Yeah. So you've you've raised money for your own startups and now your latest one's bootstrapped and you're an investor. You've deployed tens or hundreds of millions of dollars into companies.

I have a theory. I think that if you are if you're s if you're If building wealth In a five or ten period. Is your number one or number

two priority for starting a company. Yes. You should basically raise no money or very little money and you should not raise venture capital. Do you agree or disagree with that? If your goal is to get the first points on the board to make your first millions. Yeah, I think what you call it, you use the word shekels a lot or nickels, if you want to get a few nickels. No, your first it's a lot if you want to get the money to not work for the man, where we started this conversation. Listen, all the stuff's harder than it looks. It's all hard as we know. But

If you want to have an exit for Ten to thirty million dollars, ten to fifty million dollars, which is still harder than it looks statistically, right? But north of 10. Then yeah, you wanna raise only a fraction of that. Don't raise that much. So rate if you raise, here's a simple way to think about it. If you raise A couple million dollars, which is hard. Like it's not it it looks easy on the internet, it's hard. But if you raise a couple of million dollars, You've lost no optionality. The only thing you've suffered is some delusion. The only thing you've suffered is some delusion.

After a couple of million, the game changes. After a couple million of the game changes. And so yeah, I I I think there's something to be said for raising nothing, but most people raise nothing because they can't raise anything. I think there's even more to be said if you can of raise being one and done. Anywhere from half a million to two million, whatever you conclusion together.

And you use it to not to pay yourself. That's that's what losers do. You use it to hire a few good people. to de-risk this investment, to accelerate this investment. You use it to hire a few good people and get it off the ground. Most of us need a little help. Like some folks just literally they can do it on their own. They're two great engineers. They don't need any help. They can go do it on their own. Most of us are not those people, especially if you're a A business person It's harder to do it on your own, right? And unless you build something on WordPress or or tools, it's hard to do on your own. You need a little bit of money. But stop there.

You you not only do you maintain control and have less dilution, but Then any exit works. then any exit works. Once you raise more than ten million Um, it can be worth it, but if you raise more than ten million here's and this goes your point. This people don't get this in t in today's world.

If you raise more than ten million, you're signing up for a billion dollar exit. And anything less than that is a disappointment. It just might not even work out. Like there's so many variables. You may run out of money, you might not get people, once you start raising$10 million, you get addicted to burning more money, too. There's lots of issues that that creep out from that. But you gotta commit to a billion. If you don't see a billion dollar if you don't feel it in your bones. Then don't raise double digit millions. Just don't do it. It's not, it's not generally not worth it. Find a way to do it with less and

Um, and everyone will be chill if you raise single digit millions or less and sell for whatever. Everyone will be chill. Everyone will be chill. And they're not chill once you get to the double digit millions. It ain't it ain't it ain't chill for a long list of reasons. People start expecting a lot. And too many folks these days think that Um Venture capital's free, it has no cost. Um there the social contract

between investors and founders has broken down the last three years. It has broken down. Um I I literally just suffered my worst investing loss ever. I'm 10X lifetime. I suffered my worst investing loss ever. Worst loss ever. Not all of my capital, some of it's mine. Five million out of two hundred. Okay, so it's not gonna change the pace, but I've never lost this much money.

And you know what the founder said? I try to get it. What do you care it's not really your money. What do you say to that? I could honestly, Sam, I could I had to bring in a friend to deal with him. I couldn't talk to him again.

I spent years of my life helping him. I helped him raise all his money. I put him in all of our Saster events for free. I promoted him constantly for years. And then he says, What do you care? It's not your money. I remember when I I took a little bit of angel money and I and I remember thinking like I am like a steward sh a steward of this cow I was like

I have to die to get a return. That's how I felt though, but kids don't feel that way these days. I was like, it's my life's mission now. I have just like because to take someone's hard earned money, I felt so much stress. I felt stress. I remember when I hired someone who had a kid, I was like, Oh, I have a kid now. And then I remember feeling the stress when I took someone's money. I'm like, this person just trusted me with twenty five thousand dollars. I better go hungry or die in order to get a return from them because if they if someone loses my money I'm gonna wanna beat them up. You know what I mean? I was like it's like a big deal. Like this is someone's mortgage that I uh I just took from them. I better make this uh get a ri good return. Jason, I appreciate you doing this, man. Uh

Where do you where do people find you on Twitter? You're you're a Twitter guy now instead of Quora, even though you got famous on Quora. So Quora was great for five years and Now it's non existent. Um But uh yeah, you can find me on Twitter at Jason LK or honestly, uh if you're a businessy person. Find me on LinkedIn. Dude, thanks for doing this. You're the man. I appreciate you. Um and that's the pod.

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