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Be The Boss Nobody Leaves with Scott Love

Posted by John Livesay in podcast | 0 comments

19.04.17

Episode Summary

Today’s guest on The Successful Pitch is Scott Love who is the author of a great book called Why They Follow and How to Lead with Positive Influence. Scott says he shows managers how to be the boss that nobody will leave. The way he does that is by getting people to think about what’s the noble goal of your company. The more you get people to buy into that, the more they are willing to stay loyal to you. He talks about three things that you need to ask people before you hire them. Then he also talks about the three core areas of success, which are influence, resilience, and achievement. He really gives insights to everybody who’s looking for the way to get the best talent to join your team and stay there. He talks about something called emotional equity that you are going to want to be sure to find out what it is and how to use it. Enjoy the episode.

Listen To The Episode Here

Be The Boss Nobody Leaves with Scott Love

Today’s guest is Scott Love. Scott is an expert on the topic of employee loyalty. As we all know, investors are really interested in who’s on your team and are they loyal to you, especially when times get tough. There’s a lot of research where he shows managers how to be the boss that nobody will leave. He is a successful entrepreneur himself. He is a former Navy leadership trainer, an Annapolis graduate, and he gives managers tactical ways to build employee loyalty so that companies can increase retention, decrease turnover, and of course, attract those all important high achievers.

Scott, welcome to the show.

Thanks, John. I am excited to be here.

You are a published author as well. You have this great book called Why They Follow and How to Lead with Positive Influence. But before we get into that, I would love to have you take us back to the days of what made you decide you want to go to the US Navy Academy?

Why They Follow and How to Lead with Positive Influence

A lot of it was part economic, part, “That’s all I knew.” My dad was a Marine Corps officer and we just didn’t have the funds for an Ivy League school. Here I was, a kid in South Texas in sixth or seventh grade. That’s when I made the decision, “What am I going to do with my life?” All I knew was the military and that’s what I wanted to do. Who wouldn’t want to be GI Joe when they grew up? Worked really hard, kept the grades up, did the sports, Eagle Scout, all the other things, and, how about that? I got in. I am surprised I graduated just because it’s so tough. When you set your mind to something, you can do it. In that school, whoever wants it the most is the one that gets it. It’s more about drive, determination, grit, and guts than talent and smart. If you can’t outsmart them, you can outwork them. That’s where it all started, my voyage in learning about leadership and talking about that as a topic to business people.

What a great topic because the grit, perseverance, and drive that’s needed to be a successful entrepreneurship you learned getting through this intense Navy experience and that’s what it takes to be a successful entrepreneur.

I have a lot of respect for my classmates that were right there with me. I am humbled to be part of that group. There had been days as an entrepreneur when I look back and I’m like, “What are you going to do? Send me underway for six months?” My biggest problems are that I’ve got a slow paying client. It’s not that bad. I’ve got friends of mine they are underway right now on aircraft carriers, in senior leadership roles. I am so grateful that they are working harder than I’ve ever worked at a lot less pay than what you can make as an entrepreneur because that is the service and it is the service. I think it’s something that does have my respect totally for people that made it a career.

I learned about leadership, I learned about getting things done. I was fortunate after I was on my sea tour to earn a spot as a leadership trainer, I was just in the right place at the right time. This was in the early 90s when the Navy had an initiative Total Quality Leadership, which was a derivative of W. Edward Deming’s concepts of Total Quality Management. That is why I really started understanding some progressive leadership concepts and teaching them to thousands of military officers, seniors enlisted, and civil service workers. I was 24 at the time. It was a good spot for me to be in prior to becoming an entrepreneur, prior to being a consultant, to doing the work that we will talk about that I’ve done as a headhunter and really developing this deep, narrow, experiential base on the topic of, why do people leave companies and how can a company keep them and keep them happy?

Are there some trends that you learned when you were recruiting people in about how important the culture fit is to making sure that that’s a good hire?

I think so. Culture is important. What I’ve seen in terms of the advisory work I’ve done with organizations is that everybody’s got a great culture. I own a company called the Attorney Search Group. I recruit partners for international law firms in Washington and New York. Every law firm I meet with, I say, “What’s different about you?” “We’ve got great culture.” Everybody has great culture. “We are collaborative.” Everybody is collaborative. “We’ve got a No Jerk Rule.” Everybody has a No Jerk Rule. I want you to tell me what’s distinct, what’s unique about you that nobody else can say and start with that.

Be The Boss: We have to look at what is that intrinsic motivation that causes people to thrive.

One of the trends that I see is that everybody, and this is what I call the first cardinal rule of human behaviors, that people are going to do what’s in their own best interest. When people come to work every day, they come to work for themselves, not the boss. When people are looking at how can we attract high achievers to our company? We have to look at what is that intrinsic motivation that causes people to thrive. We have to look at what our collective vision is, what’s our purpose, and how can we align that with the intrinsic motivation of those people that are looking to join.

Law firms in particular can be perceived as somewhat of a commodity, especially in the law world. They specialize in different things. If they are all saying the same thing, “No Jerk Policy. We’re collaborative. We got a great culture. You should come work here. There’s going to be a lot of hours.” It can’t be something like startups in Google days, “We’ll do your dry cleaning for free and you get free lunch.” If there’s more to it than that, how do you advise people on how to get this top talent? Because the audience here are probably are startups and maybe they have a cofounder, but when they get funded or maybe even they are going to get somebody else to join the team for low money in exchange for equity, what is it that they need to define? I think it goes into what you said earlier about the vision but I’d love to have you expand on that.

Let’s go back to what most of us have heard; Abraham Maslow’s the Hierarchy of Needs. Maslow, an organizational psychologist in the 1960, he came up with what’s been the most widely adapted model of human need. At the very bottom, we have a need for basic survival needs: food, clothing, water, and shelter. Above that, we have a need to feel safe and secure. Above that, we have a need to be part of a team. We have a need for that affiliation. Above that, our second most important need is recognition, our ego drive to be recognized. Then above that is self-actualization, to be fulfilled in the work that we do.

Now, I would say if you are recruiting people that are low-level administrative, they are thinking more about the bottom two. “I’ll leave for $2 an hour or more,” or they want to work in a place where they feel safe. Most people that are junior level professionals, that are recent college graduates, they might be more interested in that third one. “I want to be a part of a team, but also I want to be part of something that is bigger than myself.” I think an organization has to look especially at those top two needs. Self-actualization, how can you be fulfilled in your purpose and then how can we recognize you for making a contribution to this team?

When I was doing the organizational development consulting and leadership training back when I was 24, young naval officer, I would go around and I would interview civil service workers, people that are working at the government, a lot of them were low-level workers. People who were mechanics, plumbers, people in the trade, joined the government, and stayed there 30 years. What I saw were people that were very loyal. They were very passionate about what they did. They really cared and the harder they worked, the more their pay stayed the same. They weren’t in it for the money. It’s interesting that if we can find out how can we harness their intrinsic motivation as it relates to their recognition, showing them that you’re significant and then also showing them that you, that the work that you do makes a difference, not just for the people around you but for the entire greater good.

Here’s an example. When I was on active duty, I was an operations officer of a very small wooden ship. It was a minesweeper commissioned in 1956. This was in the early 90s. Our sonar wasn’t working and I had to get the sonar up. Petty Officer Shaffer, he had been there every weekend for the last six weekends. I got to get it up. He had little kids at home. I had to get him to spend one more weekend to get the sonar. He had to be working Monday morning. I could have used my authority. I could have used my rank. But I said, “Let me talk with you about this. As you know, the Iraqis have invaded Kuwait. Right now, we’re the most important ship in the United States Navy. We need to get underway Monday. Right now, you’re the most important sailor in the United States Navy. I need you to get that sonar working and stay here this weekend.” “Yes sir.” I was able to show him that his work mattered to help the entire organization’s goals and that he would get that recognition. Sure enough, he gave it one more weekend. Nobody complained.

[Tweet “What is the noble goal of your company?”]

This is another lesson I learned, is that employees talk. There is this invisible range of response, that’s what I call the response ratio, that an employee chooses. It’s on a scale of one to ten. If I lead based on my authority, you’re going to give me a one. You’re going to give me the lowest level of output. But if I lead based on what I just explained, my leadership, being able to tell them, “This is how your work matters. This is why you can drive significant,” and it doesn’t have to be a formalized discussion. It can just be comments that you make over time and people observe that. They make a decision, they choose, “I’m going to give it a ten based on that personal leadership.” I think that’s the one thing I would like managers on your show to really listen to and pay attention to. What is the noble goal that my company has? It’s got to be more than making money. It’s got to be more than profit. It has to be service. It has to be value. You have to start with that and then translate how does this noble goal translate into a personal and an emotional connection with our employees?

What is the noble goal of my company? Because once you communicate with that, if I understand this response ratio properly, when people are engaged and feel that what they’re doing matters as it relates to the noble goal of the company, they give a ten effort as opposed to just saying, “I’m the founder. Do what I say. Don’t ask questions. It’s my company.” Even if you’re the cofounder and all the back and forth arguments over what I want versus what you want, let’s both step back and say, “What’s the noble goal of the company?” and let that be the deciding factor versus our egos.

Absolutely, because it’s not about us. We’d like to think it is, but it ain’t about us.

Let’s talk about this great book of yours. What motivated you to write it?

I think the uniqueness in my career is very rare. I have not built large teams. I don’t have an interest in building a large team. I’ve been in a leadership role in trade associations, leading an all-volunteer force, professionals that don’t have any time to put time into something and get them to be excited about that. That’s a lot harder than leading people that have to be there. I think just some of the articles that I’ve written in the past, some of the blog posts, I chose some of those that I thought could really help people to accelerate the goal. If I could have retitled it, I would have thought, “How Do You Get Your Employees to Work Harder.” That’s what everybody wants.

[Tweet “If you lead, they will stay.”]

The title is, Why They Follow and How to Lead with Positive Influence. If you just remember why they follow. You showed the penguins on the cover, which I just love, that really will stick in people’s minds, the image of penguins. Let’s talk about the cover a little bit too. What is it about penguins and following that made that so relevant?

I was thinking what would be an image that everybody loves? Who doesn’t like penguins? I’ve never met anybody that says, “I hate penguins.” I think we’ve all seen those documentaries and penguins huddled together, they survive, and they take turns shielding each other from the cold. Just like in a wolf pack. There is an alpha in the pack and the alpha has to be a good leader, otherwise he gets killed. I think looking at the pack mentality, surviving together, how can we get people to work harder? “I’ve got to be a good leader. How can I be a good leader? I’m going to find out what causes people to choose to respond at a higher level.” Let me get right to the point of how you can get your people to work harder. You’ve got to find out why they follow and lead to that.

Be The Boss: What’s the most effective way to solve this problem the quickest, the most economically, and have the most fun?

I use game theory a lot in making decisions in business and it really cuts through a lot of the clutter. What’s the most effective way to solve this problem the quickest, the most economically, and have the most fun? Let’s find out why people follow and lead to that. That’s my whole style. Anytime I come in and speak somewhere, let me give a life changing 45-minute presentation, just two or three points that stick, that makes a difference. It’s exciting to see that.

You talked about one of the chapters being the three steps to servant leadership. Is game theory part of that?

I think it is. I used to be a professional card counting Blackjack player years and years ago. Two of the alumni of the MIT Blackjack Team mentored me. I pretty much got pretty good at this game because I liked it because you’re not breaking any laws. You’re not doing anything illegal or immoral. You’re just exploiting the casino and the game legally by understanding the math behind it, because in Blackjack, there is a defect. That’s what I learned. Don’t put money on the felt unless the count is high and don’t do anything unless there is a high likelihood of gaining a favorable outcome.

I use game theory in pretty much anything that I teach, which I think is why it makes sense to most people. I believe in simplicity. What’s the simplest way to get people to change? Giving them bite-sized easy morsels. You’ve seen the book. The chapters are probably two or three pages long. It’s a book that you can read on flight and get right to the point.

What kinds of questions do you have when someone is interviewing someone that you would say, “Is this person a good fit for me and my company?” What are the questions that you recommend a founder or anybody who’s hiring somebody ask in an interview?

Hire With Your Head: Using Performance-Based Hiring to Build Great Teams

First thing I would look at in business more than anything, it’s all about the results. Start with that. Start with the results. Get very clear on what are the performance outcomes. One of the best books I’ve ever read on hiring is Hire With Your Head written by Lou Adler. I always give him credit whenever I talk about this because he’s got some great ideas. What are the three results that you want this person to achieve? Start with that and have them tell you, “How have you achieved this in the past? How are you achieving this currently? What action steps would you take to achieve this in the future?” I would start with that.

Other three things I recommend managers to look at are the three core areas of success. This is just my own concepts, having been a headhunter for over twenty years. As I mentioned, I just sold my recruiter training company. I’ve trained, I’ve been in hundreds of search from over 4,500 recruiting and staffing firms from over 36 countries that have invested in my training programs, of my business I just sold. I taught this a lot to other people. The three core things you want to look at are: influence, resilience, and achievement.

Influence meaning, “How can I build a team of followers?” Or if you are in sales, “How can you talk people into things where they thank you for that at the end the process?” Find examples in the past of someone that has been able to lead or sell. Second thing, resilience. Have them tell you a time where they were able to turn professional adversity into success. If they haven’t learned that now, they’re not going to learn that in the future. The third, achievement. Find people that have been successful early on, “Tell me about the job you had when you were in high school. Tell me about your grades. Tell me about your musical instrument.” I remember sitting next to a young lady once on a flight and she is a professional musician. She played the flute. I was curious about this. Her father was in the Marine Band. She was raised with musicians in her family. I said, “How many hours a day did you practice in high school without your mom telling you?” “At least two hours a day.” “Did your mother ever have to tell you to practice?” “No. I did it on my own.” Two hours every day. That’s achievement.

Look for past tells, past indicators that people have a high likelihood, game theory again, of being successful in the future. Influence, resilience, and achievement. There is one owner of a firm I was consulting to and he said, “I’m so frustrated with the people I’m hiring. They’re not working out. I see so much potential in them.” I told him, I said, “They don’t see it in themselves. You’re hiring projects. You’re hiring people that have never done anything significant in their whole lives before. They’re not going to become successful once they start working for you. They need to already have had that. You don’t need a project.”

That’s the advice I give to people listening to your podcast. What are the three performance outcomes you want them to achieve, have them tell you how they’ve achieved it in the past, how they’re currently doing it, and what action steps they’d take to achieve those three goals in the future. Then also qualify them on influence, resilience, and achievement.

I love the action steps. What did you in the past? What are you currently doing? What would you do if you were to come here? If somebody can answer that for you, let’s just say you’re hiring somebody to do your marketing or your sales, they should have some great stories; what they’ve done, what they’re currently doing, and what they would do that they put some thought into why they want to work for you.

Be The Boss: I think we all have a tendency to hire people that remind us of who we used to be a long time ago.

I think we all have a tendency to hire people that remind us of who we used to be a long time ago. We like to be around people that remind us of ourselves. I think it’s too easy to fall in love with that perfect candidate. I’d recommend, have an unattached business colleague of yours from another company interview people for you. Someone that knows you, knows your business, maybe they’re a frenemy, maybe they are a friendly competitor or whatever, or if you have a professional coach, have them interview people for you and listen to their input. Because you might get all excited about that rock star candidate, but it might be for the wrong reasons.

Regarding this other area of success, what a great filter, because it’s all about storytelling. If you’re pitching an investor, you should be able to tell an investor an example of how you had influence to get your first customer or get somebody to join your team. You should be able to tell a personal story about your own resilience when things were tough at this startup or another one and how you overcame it as opposed to just saying, “I have tenacity and grit.” You need to tell a story. Then third of course, is this whole concept of achievement and being able to prove, “Look, I know how to do this and I’ve got a formula. It’s not by chance. It’s not by accident. I know what it takes to get results.” Investors in particular love to see people who have traction and know how to do it.

One of your amazing quotes is, “I show managers how to be the boss that nobody wants to leave.” You’ve touched on it a lot. First of all, on how to get that right person. Then I really think the answer to that is going back to what you said earlier about the noble goal and showing them why what they do matters, not leading by dictatorship. Is there anything else you want to expand about how to be a boss that nobody leaves?

I think it’s being someone that puts other people’s needs ahead of your own. There’s a conflict because I’ve got mission achievement and then I’ve got to take care of my people. This is something I learned every day at Naval Academy. Take care of your people. Here you are, you are working in business, and you’ve got to accomplish goals. I remember I interviewed General Walt Boomer. He retired as a four-star Marine, a Deputy Commandant of the Marine Corps. This is years ago when he was the CEO of Rogers Corporation. I asked him, I said, “Walt, you’re a Marine and you’re an executive and you have to make a decision. What’s more important: mission accomplishment or taking care of your people?” He said, “That’s a tough question.” Because we know, Marines, it’s all about accomplishing the mission. He said, “Let me think about that.” He said, “It’s taking care of your people. As long as you’ve got the right people in place, they will accomplish the mission.”

[Tweet “How to be the boss nobody leaves.”]

I think that’s the secret. If you don’t have the right people in place, it isn’t going to happen. You get the right people in place. A leader’s job in my opinion is to be invisible. At the end of the day, you want the team to stand up and say, “We did that ourselves.” It’s a concept that I call emotional equity. You want them to have an emotional stake in the success of that business. How do you do that? By asking them questions as a boss, “What do you think we should do? Why do you think we should do that? What’s the worst thing that would happen if we did this? What action steps would you recommend? I want you to do this. Draft up a one page document on the action steps that you would take to accomplish what you told me. Let’s talk about that this afternoon.” Now, it’s their idea. They own it.

[Tweet “Find out what Emotional Equity is and how to use it.”]

When you ask people questions, “What do you think we should do?” One of the most valuable things you could ever do is ask for people’s opinion. I tell people all the time, “If you want money, ask for advice. If you want advice, ask for money with an investor.” It totally dovetails into what you’re saying here. If you ask an investor, “What advice do you have that could make my startup better?” They start collaborating with you. If you ask your employees, “What do you think we should here to fix this problem?” Now they’re part of the solution as opposed to just being dictated what to do. That is a big takeaway. I think we couldn’t leave on a higher note than this concept. I’ve heard of emotional intelligence but I’ve never heard of emotional equity before. How can people follow you on social media? What is your Twitter handle?

It’s @ScottLove on Twitter. My website is ScottLove.com and that’s my speaking site. I don’t do consulting on that. I speak at conferences for right now because I’m so busy with my search practice, but every once in a while l speak at conferences for business and association groups. One thing I wanted to share, just because I have literally tens of thousands of conversations with professionals, trying to recruit them. I’d be the guy that would cold call people, and I still am, and trying to get them to leave. When people say, “I love it here. I don’t care how much more it pays.” I always ask them, “Why is that?” It’s all because of that relationship with the boss one level up. That’s all a company has to do, is help those mid-level, junior level, and senior level managers just get a little bit better with that one-on-one leadership skills. If they do that, you know as well as I do, it’s easier to get a new customer than keep an existing one happy. The same thing with employees. Nobody really thinks of it like that.

The cost of turnover is so high; productivity, time spent interviewing, and everything else. It’s night and day. Scott, I can’t thank you enough for all these words of advice on how to get the top talent, whether you’re startup or a huge company. Most importantly, how to keep them loyal by emotional equity. Thank you so much.

Thank you, John.

Thank you. My pleasure.

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The 10 Rules of Business with Karla Nelson

Posted by John Livesay in podcast | 0 comments

12.04.17

Episode Summary

Today’s guest on The Successful Pitch is Karla Nelson, who has created ten rules for business based on her five-year-old. It is absolutely adorable, memorable, and actionable. She said, “Startups don’t die from a lack of good ideas. They die from indigestion and giving up.” She said, “Productivity is not activity. You need to be really focused and have a strategy on how to get these relationships with investors to actually pay off. It’s not just about having conversations with people without a strategy in place.” Finally, she said that, “The death of entrepreneurs is solitude. It’s so important to collaborate and get help.” Enjoy the episode.

Listen To The Episode Here

The 10 Rules of Business with Karla Nelson

Hello and welcome to The Successful Pitch podcast. We have a return guest that I am ecstatically thrilled to have back. We had Karla Nelson on in March of 2016. She was episode 51. Now we’re in the 100th plus episode. Karla is someone who has so much valuable content. I just had to have her back. We were having lunch in Sacramento where she lives. She is the epicenter of all things Sacramento, whether it’s media, contacts in television, radio, contacts in the startup world. It’s just amazing to see somebody with her pulse on everything going on, not just in Sacramento but literally globally. Karla has done a TedTalk. She really is a people catalyst. I can speak to that firsthand. Karla, welcome back to The Successful Pitch.

Thanks so much for having me.

You have so many exciting things going on. When we were talking about what you’ve created here; you’re going to have your own podcast and a webinar and a book coming out. I’m completely fascinated with this concept that you talked to me about called Child’s Play: The Ten Rules of Business brought to you by a five-year-old. It’s so simple you can remember them, and so effective you’ll want to. That is so intriguing to me because it’s catchy, it’s memorable. Tell me and everyone else listening how you were able to transfer your expertise as an entrepreneur, an investor, an expert trainer into how you came about the ten rules of business.

Rules of Business: Always keep your cool.

It’s actually quite a funny story. My four-year-old at that time, the apple doesn’t fall far from the tree, was just approaching her fifth birthday and she said to me, “Mom, when I get older, can you teach me everything there is to know about business?” Of course I chuckled saying, “Darling, nobody has the market cornered in regards to business. But if you’re good and you make good choices, I’ll be glad to teach you everything that I know about business.” It stopped there for maybe a month or two. But I was still keep thinking about it. She kept on asking different entrepreneurial questions in the meantime. There was one day, it was one of her first days of kindergarten, she was very frustrated about something. She was not necessarily melting down but getting extremely upset. I said, “Klaire, rule one of business: Always keep your cool.” Instantly, she transformed into this very calm five-year-old who had just learned this amazing secret about business and entrepreneurship, which is to keep your cool.

That was so effective that a couple of weeks later, she was on her scooter in the backyard. We have a big piece of concrete that they can ride their scooters pretty fast on. She bit the dust and had scrapes all over her legs. She ran inside and she was crying. She had this big old scrape. I said, “Klaire, rule two of business: Get up when you get knocked down.” When she turned around and walked right outside and got right back on her scooter, I thought, “I might be on to something here.”

Not only is it great for entrepreneurship but it’s great for parenting and the combination. Talk about a huge market there. Let’s talk about where you came up with these first two rules yourself because this, ‘Always keep your cool, never let them see your sweat’ concept, it’s so much harder to do sometimes than it looks. If you’re in touch with yourself at all, you get angry, you get frustrated especially when other people do things that just rub you the wrong way, whether it’s your own hot button. Or for me, if I see somebody bullying somebody else, I just see red and it’s very difficult for me to keep my cool when I see that behavior. Any tips on how to do that?

I’m right alongside you in that regard. In my younger years, I would respond way too quickly. The way I’ve really identified when something is pushing my buttons is just to step away. We’re always taught, “You never want to burn a bridge.” Those two are closely related in regards to keeping your cool. But then also, you never know who’s going to be on a team, who you’re going to work a deal with. You just don’t want to get to a point where you’re not thinking logically, but you’re thinking solely emotionally. I always like to say, “People buy with emotion and back it up with logic.” That’s working in a buying scenario. But in a relationship scenario, especially early on where you can get very frustrated and you respond too quickly, what I have found is if you just let it sit there for a couple of days, it’s no longer that raw sense of urgency of something that you have to do now. Anytime you feel like you have to respond or if you feel frustrated or hurt, one of the things you have to realize is ask yourself, “Why is that?” because there’s typically a bigger underlying reason of why that is. Then really look introspectively and just take a little bit of time before you respond. If you have any of that tension in your response, it’s probably not a good time to respond.

Taking that deep breath, sleeping on it, sending an email out, all of that good stuff. Of course getting up when you get knocked down. That’s perseverance 101. You fall off a horse, they always tell you to get back on that horse. It’s true of startups. That’s the whole concept of pivoting, isn’t it?

Absolutely. One of my good buddies, John Kunhart, he ran a $300 million venture firm here in Sacramento. He has a great quote that is, “Startups don’t die from lack of a good idea. They die from indigestion.” It’s just getting back up. The other thing he always says to the different companies that he had looked at for probably ten to twelve years as they were putting the fund together is the fact that where you start is likely not where you’re going to end up. You look at a company like Airbnb, their early days, they were selling air mattresses. Now they’re the largest hotelier because they saw a problem. The way that they initially looked at solving this problem is to tell people, “Use your room. Let people rent them out. By the way, we’ll sell you the mattress to be able to put them on.” Look where they ended up. They ended up having no real estate, no product. Where they started was very different than where they ended up. If you can always continue to come back and get up when you get knocked down, as long as you’re solving a problem that’s large enough, you’ll end up getting there. You might not look at all as when you looked when you first started.

[Tweet “Startups don’t die from lack of ideas, they die from indigestion.”]

When he was saying, “Startups don’t die from the lack of good ideas, they die from indigestion,” the indigestion is basically a metaphor for getting knocked out, right?

Absolutely. They just finally go, “I’m done. I’m sick. I’m tired of whatever it is.” Startups is not an easy world. We’re slightly like gluttons for punishment. You’re constantly having to pivot, constantly having to be innovative, constantly having to jump over these hurdles. The number one thing that you can do is just get back up. I love the Chinese proverb, “Get knocked down seven times, get back up eight.”

Let’s talk about rule number three. How did that come up to being through Klaire?

Rules of Business: Relationships are everything.

She was very frustrated with her brother one day and she was saying several things that were not very nice about her brother. I interrupted her as she was talking poorly about her brother. I said, “Klaire, rule three of business: Relationships are everything.” Instantly, she realized that just by saying something negative, she was impacting the value of the relationship with her brother. She responded so quickly on all of these because it was her own learning, I was just using the concepts that we all know are accurate. We all know contextually we can apply these in many different ways, but that, for her, as far as relationships were everything, she just realized that, “It’s more important that we have a good relationship than I complain about all the things that he’s not.”

There’s another little story in there about how she was at an event for a friend and got a little bored.

A good friend of mine, Allen Batten, he’s an international trainer. He’s worked with many of the Fortune 25 companies. He was doing his eighth book launch. Because Klaire was doing so well, I told her she could earn these different meetings. She’s been in pitch meetings with me. This particular one was a book launch that she had earned. I took her to the book launch and this went on a lot longer than I had first anticipated. After an hour and a half of having a five-year-old sit very quietly, the second hour and a half was actually getting a little hard for her. When she was getting antsy, I just leaned over and said, “Klaire, what’s rule three of business?” The next hour and a half, she just sat there paying attention, engaged. Of course there’s probably a hundred adults there and she was the only five-year-old, to say the least. To have her sit there for 30 minutes was pretty impressive. It was her learning. She also sees all these people. She’s looking up to them as mentors. To apply the fact that everyone in that room, relationships are everything, she was just always wanting to rise to the occasion.

This area really is your expertise. You have, as a people catalyst, training. You break relationships down into three categories. Can you go over those for us?

In our training, we identify three different areas in being a people catalyst. Any great CEO understands and knows that in order to be a people catalyst, you have to have a great relationship and dynamic for your team and your strategy, your customer/client strategy, as well as your consumer/channel partner strategy. Those three conversations are extremely different; the team dynamics and what they need and what you need in order to support them, the client strategy and what you need to be able to support them, as well as the promoter/channel partner.

If you don’t know what conversation you’re having, what people tend to do is all they do is talk about benefits. Somebody comes to join your team, “We’re great. We’re great. You want to be a part of the team,” versus purpose versus, “We’re strength based and we leverage your strength in the midst of the team. This is our team. We think you’re a good dynamic.” Even with the client, they lend towards just the benefits. When you take a look at the channel partner/promoter, this happens all the time where people go, “Let’s go get coffee. John, you get to talk about how wonderful and great you are and I get to talk about how wonderful and great I am.” Then you separate ways and nothing ever comes of it because the conversation is not about just how great we are. We have to pull back the layers of potentially what would inhibit us from having a business relationship as well as are we an appropriate fit? If you don’t have that conversation, you can’t push that relationship down the path.

That’s such a key that most people really ignore. They leave and go, “I’m networking. I’m talking to people and nothing’s happening.” You just gave everybody the magic key to open that door, which is the values have to be matching, the brand has to match, all of the quality levels have to be there. There are a lot of things that people have to feel really comfortable before they make intros and referrals, right?

Absolutely. You have to be willing to go there to have that conversation and those relationships. Most of all, it’s difficult to have that even if you’re unconsciously competent at doing that. To become consciously competent and have a process and a strategy around it, you’re just so much more effective because productivity isn’t activity. Just because you’re active, it doesn’t mean you’re being productive and you’re moving that needle forward. Having a very clear strategy, that’s a relationship strategy, just allows you not only to have clarity around the conversation, but also to have metrics around it, to be able to measure. Then you can manage that and then teach and train others to manage it. That’s truly duplicating yourself For instance, if we’re talking the promoter conversation, a sales manager, now you’re duplicating this process and enabling them to be consciously competent at a specific strategy and then put metrics around that strategy so you could manage it.

[Tweet “Productivity is not activity.”]

Rule number four in the world of Klaire, who wanted to go to the mall.

Rules of Business: Anything worth doing is worth doing well.

This one has paid its dividends a million times over again, John, because she wanted to go to the mall and play in the little kids’ area. I told Klaire, “That’s fine, but go clean your room.” Up until this point I always had to help her; teach her how to do her bed and whatnot, how to organize and put things away correctly. I said, “Fine. Go clean your room. If you do a great job, I’ll go ahead and take you to the mall.” Five minutes later she runs back downstairs and says, “Sure, Mom. I’m done.” I said, “Did you do a good job?” “Yeah, Mom, I did a great job.” I walk upstairs and I take a look at it. Of course, things were shoved under the bed. It was obviously one of those kid deals where you’re just trying to find any place to put something. I looked at her and said, “Klaire, rule four of business: Anything worth doing is worth doing well.” She’s cleaned her room everyday by herself since that day. She keeps it really neat and tidy. It was pretty amazing. I even have a picture that I took of her room after that first day because I was impressed. I thought, “She’s five years old and she’s really truly so hungry for entrepreneurship that she’s applying these rules.” Of course I was just happy because I thought, “I’m never going to have to clean her room again.”

Then it leads right into rule number five, how do you respond when someone’s trying to teach you something?

This is a big one, John. How many people do we work with, both our clients, ourselves, being trainers, coaches? Klaire, she would respond to her dad and probably myself as well, I would notice her responding to her dad frequently with the two words before he ever completed a sentence, which was, “I know.” He’s trying to teach her and she would just constantly use this. I’d correct her every single time but it wasn’t effective. I actually was upstairs and I was viewing him trying to coach Klaire. I interrupted and said, “Klaire, rule five of business: Always be coachable.” The cutest thing happened right after that, John, is when she said, “What does coachable mean?” Of course she completely understands it now.

I chuckled and I said, “You have to be open that you don’t know everything. If you are not open, we can’t teach you anything.” Believe it or not, this is probably the rule of business that shows up the most for Klaire, is to be open and be coachable and listen when somebody that has been there, done that. Look at your podcast, it’s so valuable. If somebody has 25 years of experience, you have to be open to say, “That’s how you viewed it. That’s how you solved the problem. I don’t need to know everything.” It’s my favorite model, the Henry Ford model. You don’t have to be the smartest person in the room. You just need to be able to go find the smartest person to solve that.

Investors look for that characteristic as one of the most important characteristics in any founder they decide to give money to, because they want to give their money and they want to give their advice. If you’re not open to being coachable, then they’re not going to want to work with you. It’s really important to get that. Let’s take it right into rule six. This story of Klaire on the beanbag playing with an iPad, I love.

The kids these days, they have their electronic equipment. I think she was just getting to first grade, much cooler than kindergarten. She had her iPad and I looked over at her and she had actually responded, when I asked her a question, with that nice little kid head bob to me. I just thought, “They’re five years old. Did I just see a teenager head bob?” Instantly my instincts said, “I’ve got to fix this problem really quickly.” I told Klaire, “Klaire, your attitude determines how far you go.” That one was actually squished pretty quickly with Klaire. That one doesn’t come up too much. It was very interesting to me that when you have a child that has confidence, basically these rules are teaching her more confidence. The whole previous rule of business, ‘Always be coachable,’ it’s just so effective to have her realize that, “If I have a poor attitude, then it’s going to inhibit me from being able to do all those things that I want to do.” That was definitely a cute one. I’m sure we’ll see her head bob come back during the teenage years where I’m going to have to really pour back into those two rules.

Your attitude, you either give up or you focus on how far you’ve come and you keep inspired or you get all frustrated by you not being perfect and you get discouraged and you give up. That attitude is everything, which leads right into one of my favorite rules that you’ve come up with. An investor said, “Don’t try to boil the ocean,” to me once when I was talking to him about what’s important. I thought, “Don’t try to boil the ocean.” I’ve never heard that expression before. Tell us what that means to you.

Rules of Business: Focus, focus, focus.

First of all, I love “Don’t try to boil the ocean.” That is just fantastic, especially in a startup because you think of the indigestion part we were talking about and boiling the ocean. Those two are so closely related because if you take on too much, you can’t be effective. I’m an entrepreneur, I have six or seven different ventures I’m working on at any given time and then I also am a mom. In the morning, there’s a very strict timeline. Literally, they have checklists in the morning. Otherwise, it just doesn’t work or we’re not on time or whatnot. Klaire was really trying to get into getting prepared for school. I put a lot of onus in them. They have a lot of checklist items to do and take care of the dogs and things like that. I was constantly having to remind her, “Klaire, your shoes, your this,” just constantly. It’s because she has, very much like me, a little ADD going on where you get pulled in these different directions. You see the dog, what do you want to do? Play with the dog. Go back to go get your shoes.

There’s one morning and after, I swear, the hundredth time of telling her what her next step should be, I said, “Klaire, rule seven of business: Focus, focus, focus.” She literally, in an instant, was staring at me and then she knew the next item on the checklist. She just went and did it. I didn’t even have to say anything. I don’t even know if she said a word. She just went right over. It was probably her shoes because that’s always the one that I’m on top of her. She laced up those shoes and continued on her checklist. I never tell her what the next step is anymore. I just say, “Klaire, what’s rule seven of business?”

Let’s assume people are going, “I’m going to be coachable. I’m going to be focused. I’m going to give investors a great pitch. They’re probably going to ask me questions either during my pitch or after my pitch.” What’s the biggest mistake they can make after they get asked a question?

It’s not to hear the answer. That’s why we ruled right into rule eight of business with Klaire. I was actually telling her about a very important story. There’s two different mistakes I’ve learned when you don’t listen. One is not hearing. What I mean is, not opening up your ears to the point that you are not thinking anything on your side; not how to respond, not that they’re right or wrong. Just being open to hearing those words and empathizing with whatever it is that they’re sending your way. The second one is to actually not do something with the information that you’re given. For Klaire’s, even the one leads to the other, the first leads to the second. For her, when she’s being communicated with, a lot of times she will want to respond or she will want to just not completely see your side. If it’s directions, then she missed a step in the directions or I have to remind her. There’s really two steps of listening and one feeds the other one.

For this particular situation, it was pretty serious. Her grandparents were in a horrible car accident. Her grandma broke pretty much every bone in both of her legs. I was trying to communicate to her this and she kept on interrupting me. Then I told her, “Klaire, rule eight of business: Listen, listen, listen.” After she stood there and did hear it, she was very concerned. It was cute. She went back to rule three of business, ‘Relationships are everything,’ and helped me put a big care box together and drew some cards up for them as well. ‘Listen, listen, listen’ is so critical from the young ages, she was five at the time, all the way to pitching an investor.

So many of these are connected too because think about ‘Always be coachable’ and ‘Listen, listen, listen,’ those two are so closely tied as well because I truly have to hear what somebody is saying to me then to open up and then go, “Okay.” That doesn’t mean you don’t listen from twelve different aspects of entrepreneurship and then come to your own conclusion and move forward. What it means is, when somebody is talking, you give them your undivided, open-minded attention of where they’re coming from and what point they’re trying to make. Otherwise, as entrepreneurs, the very thing that we’re looking to do, which is risk everything in pursuit of some dream, ends up working against us because we don’t see enough pitfalls or challenges. We’re experientially learning instead of just intellectually learning.

Listen to all of your senses, your gut, everything. When an investor asks you a question after your pitch, I always coach people, “Rephrase the question in your own words to make sure you heard the question properly.” The worst thing in the world is to think you heard what the question was and you give them that answer and it wasn’t what they were asking. Then they think you’re avoiding answering them and you’re no longer trustworthy and the deal is off. The real bonus is, after you answer someone’s question, I always tell people, “Go back and say, “Did that answer your question?” Because sometimes it didn’t and you need to get it clarified. Sometimes it did but it generates another question. That’s what you want to have, is collaborative conversation. I really love rule eight. Rule nine is probably my favorite. Why don’t you tell us about the time you were at the gym eating pizza?

Rules of Business: Gratitude is always the best policy.

One of our gym actually has a lot of soccer games there and whatnot. Every once in a while after we get done working out, we decide to completely ruin it and go eat pizza. We had taken the kids to get pizza. I had also let them have a very unique treat, chocolate milk. As we were finishing up dinner, my daughter looks over and says, “Mom, I’d really like some chips.” I was basically, “No.” I had already gone over my junk food threshold for the month. I said, “Klaire, rule nine of business: Gratitude is always the best policy.” She wasn’t happy with my no. But immediately I followed it up and I said, “Look. You’ve got pizza. You’ve got chocolate milk. Why don’t we be very thankful for what we have instead of not being satisfied with that.” I just used that one actually yesterday. Anytime they press for more and more, because one of the best things you could ever tell your child is no. How much do we learn from ‘no’ even as adults? Figure out a different way. Be innovative. No doesn’t mean it can’t happen, no just means the timeframe that your expectations are might not be the same.

That’s rejection in general; whether it’s rejection on getting funded or rejection on somebody joining your team.

I always say this, “Disappointment is when you didn’t get what you wanted in the timeframe you wanted it.” If you change that thought process of it and you’re thankful for all the things that you do have, it shifts your energy into, “The answer is yes. It just might not be on the timeframe of yes.” I really try to do that too with Klaire, is to say that, “The answer is yes.” My background used to be in finance, so we did loans, real estate, commercial against businesses, all different combinations of them. Then PPM’s, help raise capital, that kind of thing. I used to tell everybody when they looked at their financing, I said, “The answer is yes.”

Which brings us right to rule number ten.

This one’s a funny one because as I was sitting at the gym, I remember thinking, “I really want to make this one big.” Because I knew I was going to stop with the ten rules. You’ve got to keep some simplicity. I was very aware of everything that was going on. Her brother, Cole, has now been piggybacking the rules now. He’s learning but he was only two when I started. If I said, what’s rule three? Klaire didn’t want to respond, Cole would chime in. Now they hold each other accountable when Dad and I put up the rules of business. Rule ten, I sat there and I was diligently watching them, because I wanted the last one to be really, really good.

As we got done with dinner at the gym, I always ask Klaire to clear the table. She grabbed the big pizza tray and she started piling up all the napkins and paper plates and whatnot on the tray. I noticed she was just about ready to topple over. She had way too many stuff on the tray. I interrupted her and I said, “Klaire, rule ten of business: Never be afraid to ask for help.” She responded right away. It was interesting. She didn’t ask myself or dad for help, she asked her brother for help. She said, “Cole, will you help me throw this stuff away?” Of course he jumped up right away and helped her throw the garbage away. I remember thinking, “I really could use rule ten of business a little bit more.” That was a huge learning for myself. So many of us, we go at it alone.

I know I’ve shared on the previous podcast, I love the quote I got from a good friend of mine, Ernesto Sirolli, “The death of an entrepreneur is solitude.” The thing that makes us strong about being able to risk everything in pursuit of this purpose, passion, idea that we can turn this thought into a thing, ends up working against us because we think we need to be all things. We think we need to do it all. A lot of times we think, “I can do it better than someone else,” all these different entrepreneurial challenges. Truly we’re much better, all the stats show, all the research shows, that we have unique strengths. That’s why the people catalyst aspect of it, the first piece is, “Who are you and what is your strength?” If it’s not your strength, don’t do it. Because what happens is you trade your peak work in all the wonderful brilliance of who you are for weak work that robs us of our enthusiasm and our passion. We’re not good at it, so why try to do it anyway?

[Tweet “Death of Entrepreneurs is Solitude.”]

There’s a whole ecosystem that you have to learn in order to get funded. You have to know what investors want to hear in a pitch. You can try to figure all that out yourself or you can get somebody like Judy Robinett to tell you, “This is what you need to do step by step” and you get there much faster.

Funny you say that, John, because that’s how I referred you guys to so many different entrepreneurs. They come to me, I’m later stage as far as that. What I mean is, I can connect you to investors. But what I can’t do, I can’t prepare your pitch deck. Are you kidding? Number one, that’s not my strength. I always work with somebody else in doing that because it’s a unique problem that you need to solve. Here’s the thing, I could have 500 investors to introduce to entrepreneurs and I still can’t introduce them. Why? Because they’re not prepared. They’re not going in there. The thing is that we can see it from a million miles away. Newbie, it’s all over. What’s funny, John, is how many people that it’s not their first rodeo, they’ve done it over and over and over again, and they know that they can’t even create their own pitch deck. What do they do? They find somebody that that’s what they do and let them solve that problem for them.

Karla, how can people keep up with you on social media? You have a great webinar on how to be a people catalyst. Tell us all the good things that people can get more of you.

If you’d like the free webinar on how to be a people catalyst, then you can go to the website www.KarlaNelson.com. You can just put in your email and get that free webinar and take a look at it. It goes through not only the ten rules of business but also the different areas on how to be a people catalyst. It goes into a little bit more depth around those three different relationships that you need to have, especially as a CEO. Even if you’re a sales manager or whatever area of the business that you’re focused in on, relationships are truly everything. You solve problems with people. The more strength you have in your relationships, not only the happier you’re going to be and the more successful person you’re going to be, but it’s truly the key to business.

It’s Karla, what’s your Twitter handle?

It is @KarlaLNelson.

We’re going to follow you. Thank you for sharing these charming and memorable ten rules of business. You rocked the podcast for the second time out. Congrats on that.

Thanks so much for having me on the show, John.

My pleasure.

Links Mentioned

Crack The Funding Code!

Fox 11 News Los Angeles John Livesay The Successful Pitch book

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How to Get 7M in Funding with Mark Sears

Posted by John Livesay in podcast | 0 comments

05.04.17

Episode Summary

Today’s guest on The Successful Pitch is Mark Sears, the CEO and founder of Cloud Factory. Mark turned a two-week vacation to Nepal into a six-year journey creating his startup. He’s raised over $7 million in multiple rounds of funding and takes us through the journey of just how he did it. He said, “When you see the world as flat, you can then build your brand globally. They key is punch above your weight limit.” In other words, get top talent. When you have a culture that defines your why, your passion, your mission attracts the top-T people to join your team and that’s really what investors are looking for when they give you funding. Enjoy the episode.

Listen To The Episode Here

How to Get 7M in Funding with Mark Sears

Today’s guest is Mark Sears, the founder and CEO of Cloud Factory, which is a startup focused on changing how the world works by using technology to make it easy for startups to scale. Who doesn’t want to do that? It believes that talent is equally distributed around the world but opportunity is not. He has a mission to create meaningful work for one million people in the developing world. That’s going to be an interesting topic for sure. Mark, welcome to the show.

Thanks very much. It’s my pleasure, excited to chat.

Mark, I always like to ask my guests, what was your passion for starting Cloud Factory? How did you get on this entrepreneur journey?

It definitely was born out of a passion, out of a personal life event, you’d say. 2008, my wife and I are Canadian, we decided to head over to the Middle East. My wife got an opportunity for a job there and I was running an online company receiving software royalties and we were just in a position where we could do it. We don’t have kids yet, we want to travel and we can do that from the Middle East.

It was back in 2008 when we were there that we had an opportunity to travel. On our bucket list was to go to Nepal, so in 2008, we went to Nepal for a two-week vacation. I had two very good Nepali friends that I had the opportunity to go meet their families. It was during that time, you mentioned in the intro, that we’ve learned and believed in the thesis that talent is equally distributed around the world but opportunity is not.

It was definitely on that trip where I recognized that. I met three young software engineers and just was blown away. I’m a software developer as well, I don’t get to do too much anymore, but that’s how I started. We really saw the opportunity. It’s something like there’s 1.1 billion people have come online for the first time in the last five years and there’s another billion coming online in the next five. We’re in the middle of a decade where two billion people are coming online. They’re super talented, they’re hungry, they’re hardworking and we just really found this opportunity. That two-week vacation actually turned into living in Nepal for six years. It was. It was Kathmandu, Nepal. That’s where a lot of our operations are today. It certainly wasn’t a vacation. We’ve worked pretty hard those six years to get things off the ground.

[Tweet “Get 7M in Funding: A 2 week vacation in Nepal turned into 6 years”]

I’m always interested in helping startup founders, when they’re working on their pitch, come up with the reason why. Your “why” of why are you doing this besides making money has to be so much bigger than just making money. Investors want to know what your “why” is when they decide whether they’re going to fund you when you’re pitching because that’s what keeps you going when things don’t go well. Let’s talk about your philosophy on why they must, not only define it but you say redefine their “why.” Can you tell us what your “why” is and how you’ve defined and redefined it?

Get 7M in Funding: Our “why” is creating meaningful work.

You’ve allude a little bit to the crazy ambitious social mission of connecting a million people to online work. Our “why” is creating meaningful work. We believe that work is this a huge and wonderful thing when it’s done right. There are so many people in the world that do not have that opportunity to work. Earning, learning, growing, finding community, work is more than a paycheck. That for us is what drives us. We‘ve all received opportunities to get where we are. As a team, we get to come together, build a really great profitable business that can scale and create opportunities for many others, and especially for people that live in places where there aren’t many. Our “whys” is definitely about that. We’ve got tons of t-shirts, create meaningful work t-shirts, lots of different things that continue to remind us of our “why.”

It has been a really big focus of the company. We spend a lot of time thinking about what is meaningful work, why are we doing what we are doing, and building a culture really around that idea. The opportunity and the responsibility for us is operating in places like Kathmandu, Nepal and Nairobi, Kenya, where our operations are, is how do you do this in a way that can really invest into the next generation of leaders? Because we employ mostly eighteen to thirty year olds, about 2,500 people on a part-time basis, and around almost 200 on a full-time basis. It’s really an important aspect for us and I think it served us well. Like you said, when things don’t go as planned, you hit road bumps, things never go in a straight line. It’s always a crazy jagged left and right turns, and there’s no question that being able to make decisions through the lens of your “why” is important. It served us well.

Assembling a team is one of the most important things that investors look for. I think having a “why” defines the culture of the startup you’re doing and then that helps you filter out who belongs to your team and who doesn’t. Would you agree?

No question. It’s played a big role. The “why” is a big part of attracting the right talent and filtering out some of the talent that we don’t want as well. We absolutely want people who want to be a part of a growing successful tech startup. But we also want people that get excited about the opportunity that we specifically have as a company. I believe it has attracted people for the right reasons. I believe we’ve been able to punch above our weight in terms of recruiting people that are excited about the social mission that we have. Like we talked about, it also helps us all stay united and grounded in the ups and downs that can be the startup life.

[Tweet “Get 7M in Funding: Punch above your weight class, get top talent.”]

Because it allows you to attract better talent when you have a culture and a “why” defined that makes it really strong, right?

Yeah. It’s no question. Everyone talks about millennials and just how they’re looking for more purpose necessarily than just compensation. I think that in general, there’s been a big shift obviously. When you’re dedicating so much of your life to work, you want it to be something that has some purpose and meaning and end-of-the-game game. I know for me, I was a part of a great startup, we raised $40 million. We grew from five to 140 people in fourteen months. It was fantastic. But I ended up leaving that startup because they didn’t have a “why.” I literally woke up, sleeping under your desk, working 20 hours, sleeping for four hours under a desk as a developer and project manager and product manager.

The only why that I was given was we’re making games run faster on Japanese teenager phones. That wasn’t enough for me to continue investing what I was investing. A lot of people have that. A lot of people are looking for and really needing to understand. Even as families, people want to understand when their spouse is going to be gone, and sacrificing. What exactly are we even as a family investing into?

That’s clever. Everybody has to be invested in making this a success. Take us back, Mark, to how you raised money. Can you take us back to what it was like pitching for funding? Tell us exactly how you came up with the amount you wanted, was it from one investor, multiple investors? Anything you can share on that journey would be very helpful for our audience.

Certainly, I can take you back but I don’t even have to go back that far. We’re very active in a fundraise right now. We’re daily in the thick of it, which is great. It’s fantastic. I’ll go back to beginning. We’ve raised about $7 million to date. We started with a $700,000 seed round about four and a half years ago. It very much shapes the company that we are today. We found a small private equity fund. It’s a $12 million initial fund. The second fund is now $50 million. We ended up connecting at a conference. They were just raising the fund. They really liked what we were doing. Had a thesis that involved emerging economies and the rising middle class as producers and consumers, etc. It was very, very interesting conversations. It led to us coming to Raleigh, Durham, North Carolina where they were based. We ended up opening up our US sales marketing headquarters here, which was not the plan.

That was a very interesting raise that has led to a very significant partner, obviously a board member and mentor in many ways. That was an interesting raise because they were actually, like I said, raising their fund at the same time. We were their first investment for that fund. I was doing a little bit of a dog and pony show for them as they were raising their funds saying like, “This is the type of company that embodies our investment thesis.” It was weird to be helping them actually raise their money in order to get a portion of that as our seed investment.

It’s so important that your investors also fit into your culture as well. That sounds like you found the perfect fit there.

It’s actually been hard because they set the bar pretty high. It’s hard for us to find, since then, to find people that are really ready to get strapped to the mast and bring more than just capital.

I always talk to people about, when you pitch, especially for the seed round, you need to be able to say, “Here’s who we help and what problem we solve.” Can you take us back a little bit, Mark, to a 90-second elevator pitch that would describe that so people would go, “That’s interesting, we want to have you come in and give a ten minute pitch to the group,” or what have you.

Get 7M in Funding: The story was really mostly around the opportunity; what would it look like if we were able to take this platform.

Four and a half years ago, it seems like a century ago. It’s hard to do the time travel back. There’s no question that seed round versus our series A versus our series B that we are currently raising, absolutely different things that we are talking about and able to talk about in our pitch. Back to the seed round, we didn’t necessarily have a large established team even at the time, in terms of a leadership team. We weren’t putting forth team. We weren’t putting forth revenue, obviously at that stage.

The story was really mostly around the opportunity. We talked a lot about what would it look like if we were able to take this platform, at that time we had a technology platform or work platform that split work up into small micro-tasks and allowed us to do a lot of automated quality control and really allow us to connect to a company so that they could send work in via API, so over the internet. We had some technology. We definitely did a lot of demos of that to help them understand the vision and the fact that we have some progress. The problem that we really pitched was more of the bad alternatives that are out there right now for our target customers. People that need to get back office work done right now are doing it in a pretty old stale traditional way. It’s the typical outsourcing type model. We just knew that there was a better way to do it that was very, very tech-centric in its approach.

We talked a lot about the pain that was involved in the current ways that the customers we talked to were getting it done and how we can use technology to do it much better. It was more from that perspective. It was more from the opportunity of the amount of talent that’s available in what we call emerging or frontier locations, like Nepal and Kenya. You have obviously Urban India and Urban Philippines and China that obviously are contributing a lot to getting work done. Be that high level IT to more of the back office business process outsourcing, etc.

We talked a lot about the emerging locations and how they’re coming online with such amazing talented people. Obviously, at that time we were based solely in Nepal, we hadn’t expanded to Kenya. We talked a lot about that. We were in a great place. We had a great engineering team at that time, so we were able to train up and see a great Ruby on Rails team. We had a lot of fire power in terms of engineering. We had a great opportunity, obviously a huge supply of talent. We were able to show a glimpse through our technology that there’s a better way to get routine repetitive work done.

I want to underline something you mentioned there, that you really were able to paint a picture of the pain of your ideal customer or potential customers. The more you understand your customer’s problems, the better the investors think you have the solution. It sounds to me like that’s exactly what you did there.

I would maybe just tweak that to say that it proved that we knew how to build the solution and deliver the solution that could take away that pain. Obviously, at the seed stage, you may have something but you’re still far away from product market fit, most companies. For us, it was showing that we understood the bad ways that are trying to solve the current problem their customers face is one thing. Like you said, gave the confidence that we could build and scale a solution.

[Tweet “Get 7M in Funding: Understand your client’s pain to show you can execute the solution.”]

Now, you’ve got some revenue. You hit some milestones, I’m assuming, and you decide, “Now, we’re going to go for series A.” How much was that?

It was a total of $5 million. It was $3 million equity and $2 million debt.

What were the differences in the pitch? Obviously, you now have some traction. Do you talk about what we’re going to do with this $5 million? Do you talk about exit strategies at this point? What kind of questions are you getting asked that are different from the seed pitch?

That’s a good question. The story and the pitch around our series A was a lot of it had to do with our growing customer base. Yes, we had a revenue that was trending well. The numbers were good for the stage. That was there. The biggest story that we centered on was the quality of our growing client base. We had a group of customers that really proved that we were onto something. If so and so is trusting you and paying you this much money this quickly, that’s exciting. Having that referenceable client base that’s actually paying significant money, and the key was that it was growing. We’d have a customer that came on at $10,000 a month and they were going to $20,000, $30,000 a month. That kind of expansion from quality names was probably the biggest story in our series A pitch.

Let me ask you a couple more questions around that because it triggers three questions. The first one is, do you keep in regular contact with your clients? Because I know a lot of investors tell me that that’s one of the key things that they look for, that you’re proactive in reaching out to your customers to see what they like and don’t like. Do you have a system in place to do that?

Get 7M in Funding: We’ve actually recently launched a formal customer success team. We work with our customers regularly.

We do now. We’ve actually recently launched a formal customer success team. We work with our customers very, very regularly. But like you said, that’s a little bit more in the reactive way when things need to get done. We do now have a customer success team that is proactively checking in. Those touches have been really, really key for us. For us, it’s different because our motivation obviously is to have very satisfied customers, but we have so much expansion opportunity. When people like using Cloud Factory, when they trust it as a great way to get their work done, they grow their spend immensely. That makes it really easy for us to not look at it as an expense at all. It is absolutely a great investment for our business. That makes it easier. You want to stay in close contact.

Would you recommend startup founders like yourself to start that proactive connection sooner than later?

I think it’s definitely required. Obviously, everyone’s deal size and model is different. If you’re selling something that’s a one-time versus a SaaS subscription, if it’s a $300 deal size, if it’s a $100,000, obviously, there is a correlation between how much you can really invest into each client relationship depending on some of those variables. For where we’re at, there’s no question that if you have the ability to really be touching key accounts regularly in a proactive way, then of course, there’s the question of, is it over email? Is it over phone? Is it over video, Skype, or what have you, or is it in person? Then we really look at all of those mediums and determine really according even to customer spend. When we have a quarterly business review, that’s the proactive. We have a quarterly business review with our larger clients and that’s on site in person for our top accounts. For medium sized accounts, we do a QBR but it’s probably over video conferencing.

You said an acronym there, QBR. I just want to make sure everybody knows what that means. Would you define that really quick?

Quarterly Business Review.

Did the investors talk to your top customers to see why they were sticking and growing so fast before they give you your series A funding?

Yeah. We did do client references. Ironically, literally five minutes before we started talking today, John, we actually just initiated another round of client interviews with the investors we’re talking to for this round.

You are getting customers to scale very fast, right? That’s one of the things that investors love to see when they’re putting money in at any round level. Let’s talk about your expertise that you can share on how can startups scale smarter and faster?

Like you mentioned at the very beginning, that’s our core business. Essentially, that is what Cloud Factory’s whole purpose is in coming along side clients to help them scale their operations. Every business nowadays is thinking differently than they were ten, twenty years ago, where it’s not about necessarily having all full-time employees. We see most of our customers and companies thinking that I’ve got strategic work and non-strategic work.

For strategic work, I need to have my employees. I need to own that workforce, those need to be my actual employees. But for everything that’s not strategic, I really need to be thinking about more contingency ways to really staff that part of my business, to get more elasticity and sometimes to get more expertise. We often will draw a pyramid where at the very bottom base of the pyramid is automation and AI. Everyone wants to shift as much work as they can for efficiency reasons to that place. All the work that we can possibly automate, that’s what we do. We can justify the upfront investment of actually developing those models and technology.

Above that is looking more at a solution like Cloud Factory, where you’re able to get an on-demand workforce, where you’re able to have some levels of elasticity. You pay for what you use. Learning how to almost use a company like Cloud Factory as a tool in your tool belt to grow your company is something that we’re seeing is what a lot of winning companies are doing. Then you’ve got your full-time employees, doing your strategic work. Even at the very top of the pyramid, we often put experts. Even looking at freelancers, consultants, and contractors, I don’t necessarily need to hire those people, but there’s times when you have to pay $200-$500 an hour. Beginning to think about that core, middle of that triangle or pyramid as your full-time employees, but how do you then compliment and build your business, call it an enterprise 2.0 model, where you’re really thinking about how to augment your employees for growth and scaling operations.

It sounds like you’re using and applying this pyramid to your clients, which allows them to scale, which in turns then gives you more revenue because they’re seeing success so they spend more money with you. Is that accurate?

That’s exactly right. You got to get work done and you’re trying to find the best way to do it. Efficiency is important, but convenience and there are a lot of other factors. When someone begins to understand that, “I don’t have to do a traditional outsourcing. I don’t have to just hire freelancers. I don’t have to try and hire full-time employees or interns or temps or all these different ways to do it.” We love when people get it. That’s exactly how we can help them grow and they can obviously help us grow.

Let’s go back to, whether it was your seed round or your series A, because I’m imagining the answers are very different. One of the questions that comes up when you pitch for funding is, what’s your barrier to entry to competition? In other words, why can’t Microsoft or Google do what you’re doing? They’ve got all the money in the world and just wipe you out. That’s a big concern that investors have no matter what business you’re in. How did you prepare for that question?

Get 7M in Funding: For us, going to strategic locations and building those data centers looks completely different.

That’s a great question. Defensibility. I have a pretty non-standard answer for a tech company. I’m still a little apprehensive in sharing it, but you asked it so directly I feel like I have to. There’s no question, obviously in terms of intellectual property and protecting intellectual property and technology. We’ve got 55 engineers who have been working for years on our technology. We feel really confident that we’ve got a great head start in terms of technology.

That’s not actually where I usually go in answering this question. It’s really more about something we talked about earlier, with the “why” and the culture. The branding and for us, we have this thesis as a business that someone’s going to create the world’s workforce. The same idea of Cloud computing and AWS and other companies going to strategic low cost locations, building massive data centers, writing software on top of it to virtualize it and rent out slices of that to the world, to power the computing resources of the world. We believe that Cloud labor is also completely inevitable and someone’s going to do it.

For us, going to strategic locations and building those data centers looks completely different. It’s actually building delivery centers and it’s building very intelligent workforce model where we’ve invested a ton into. In 2012, we hired our first 25, what we call Cloud workers. We tried putting them in teams of five and they’re working from home but they would meet weekly with one of our full-time employees and a full-time employee, we call it Cloud seeder, would actually supervise twenty teams of five or 100 of these Cloud workers. We would do leadership lessons every week. We did community service projects. We’ve done over 4,700 community service projects as a company.

All that I say is that we’ve actually spent a huge amount not just developing technology, but developing a workforce model and a culture and iterated on a way to really know. The key is that we’ve done this with boots on the ground. This was me and my family and then other people coming from Canada and America and other places to live in Kathmandu and now to live in Nairobi and for us to partner all together to really do that. Whereas a lot of our competitors are tech companies building platforms in New York, San Francisco, Seattle, etc. that have never met any of their workers. They certainly have not been through to it. I usually get fairly graphic. How many of the other tech CEOs have gone through thirteen bouts of whatever living in a developing country?

We know that that’s a big part of the future of work, truly seeing the world as flat and leveraging technology to do it. But it’s a lot more than just technology. It involves building a culture, building a workforce model, being the best gig in town for the people that you’re trying to actually hire a talent for. We believe defensibility can be in that area of culture. It can be related to why. It can be a little bit more intangible than just how many patents you have.

[Tweet “Get 7M in Funding: See the world as flat when you build globally.”]

The fact that you have boots on the ground, it keeps going back to the team. Everything is the team at any stage of the funding and not only is of the team that are here in the States, but the team around the world that you have boots on the ground. That’s a great, great answer. One final question, do you get asked a lot at any of these funding rounds about the exit strategy during due diligence? Do you think that the investors are looking to get a return on their investment in three to five years with somebody big buying you?

No question. Literally this morning, I had that conversation with investors that are pretty late stage. This is definitely a very recent and relevant question. Almost every fund that you talk to, they’ve got a life cycle, they’ve got a term. The key question I think to ask is, “How many years into the fund are you?” Usually, if it’s a ten-year term, they have to place all their money in the first five years. If they’re in year three or four, that’s trying to get later in the sense that they’re going to be looking for a faster return than if they just started in the last year or two. I think that’s something we’ve learned as we’ve talked more with different funds. Three to five is obviously a very standard answer. You can give whatever answer you want. When you sign that final definitive agreement and close, there’s usually going to be some terms that are related to them getting liquidity in some way, shape or form. It’s a key part of the terms.

When you have a growing company that really has big ambition to really continue growing and scaling, you’re going to be taking follow-on capital. Oftentimes, that follow-on capital is actually another option. It’s not as simple as, “Are you thinking acquisition or IPO?” There are different management bio and other PE, private equity type options that really do provide a very potential path for exit for funds that are on a fixed term.

Mark, is there a particular book you would recommend someone read, either about startups or life in general the “why,” anything that you think would help people.

Get Backed: Craft Your Story, Build the Perfect Pitch Deck, and Launch the Venture of Your Dreams

The first that comes to mind is a couple friends put out a book, I think it’s probably about a year ago. I went through a business accelerator with them. It’s a great book called Get Backed. Definitely, for anyone who’s raising capital, it’s 100% required. Everything from email templates, in reaching out to investors, getting warm intros, a big part of it is around creating the pitch deck, creating a story, forming a storyline, story arch, it’s an essential. I definitely broke it out again as we prepared for this round.

How can people follow you? What’s your Twitter handle? All that good stuff.

I’m @MarkTSears on Twitter and Cloud Factory is The Cloud Factory. Fairly active on Twitter and quite active overall on social media. CloudFactory.com, our blog is there. That’s probably the best ways.

Thanks, Mark. Congratulations on all your success. I’m sure the next round is going to be equally successful and we’re going to look forward to you coming back on and telling me about your successful exit in a year or so.

That’s good. Sounds like a plan, John. Thank you.

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