The Hockey Stick Principles with Bobby Martin

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TSP 115 | The Hockey Stick Principles

Episode Summary

TSP 115 | The Hockey Stick PrinciplesToday’s guest on the Successful Pitch is Bobby Martin, the author of “The Hockey Stick Principles.” He talks about how to hit the ice running when you’re an entrepreneur with a startup. He said “create an execution plan, not a business plan.” He has a whole thing about what the blade years are, those years after your idea’s gotten a little bit of traction, but you don’t have growth yet, and he shows how to enjoy those blade years because they can take a little longer than you might want or hope. However, he also says that impatience is a virtue when it comes to showing investors traction. Enjoy the episode.


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The Hockey Stick Principles with Bobby Martin

Hello and welcome to The Successful Pitch. Today’s guest is Bobby Martin, who is the author of the bestselling book, “The Hockey Stick Principles: The Four Key Stages to Entrepreneurial Success,” and who doesn’t want to know about that? Bobby believes, however, that a lot of startups pivot too early, quit too early, and possibly even expect a rapid takeoff too early, and maybe even are going for funding too early, so we’re gonna ask him about that. He has started in selling First Research, which is a leader in sales intelligence for $26 million to a Fortune 500 firm. He learned firsthand the challenges and solutions about entrepreneur growth. His book has been named a bestseller by 800 CEO read bestseller, and his current adventure is the chairman and co-founder of Vertical IQ, which is a leading provider of sales research for banks. Since he spent time in banking, that makes sense, which answers the question, why is he uniquely qualified? Bobby’s also an angel investor, so we’re gonna be asking him to talk about that, and he serves on a lot of boards with some innovative startups so I can’t wait to hear more about that. Bobby, welcome to the show.

Great to be here. Thanks, John.

I am always interested in people’s story of origin, so your whole concept of, you were in banking, and then you said you know what? I’m gonna become an investor or I’m gonna start my own startup. How did you get from being in banking to where you are now?

What happened is, when I graduated from college, that was in 1993, from Appalachian State University, I had this goal of becoming CEO of a bank, but when I went and worked for a bank, I realized that I didn’t really fit that well into the culture of the bank as such because it takes a certain type of personality to rise through the ranks at an organization like that, and I found myself constantly at odds with policy. I remember my uncle, he told me, “Remember Bobby, your job is to implement policy, not create it,” and I’ll never forget that. I decided then, after about five years, I said I want to start my own company. There’s a really interesting researcher about entrepreneurs. His name’s Manfred Kets de Vries, he’s a psychologist who did a lot of fascinating work about entrepreneurs, but one of the things he noticed is that entrepreneurs oftentimes, not always, they don’t necessarily fit in to the normal mode, but they aren’t the retiring type either. So what they do is they tend to escape that particular scene and create their own world. That’s why I became an entrepreneur, my idea was First Research, which are the industry profiles for pre-call preparation. I was gonna start something, by golly. I was thinking about reselling soccer uniforms, and I had dozens of ideas.

I love it. How did you decide that you were gonna write “The Hockey Stick Principles”?

“The Hockey Stick Principles,” just like First Research, sort of morphed and evolved into the book. I had an absolute ball putting it together, but what happened is, I sold First Research in 2007 to Dun and Bradstreet, worked there for a year, and in 2008 I found myself going, okay, what’s next? I was thinking that the whole startup at First Research was a very unique experience, at least I thought it was incredibly unique, and so I documented the entire thing and wrote the story, and a lot of it at the time were concepts around bootstrapping and doing more with less, making up your own processes. It was sort of lean startup before lean startup was even known if you will, but I wrote this book and realized it was only one perspective. I decided to write other perspectives, and I went out and interviewed some fascinating successful founders. One was Doug Lebda, who started LendingTree, when banks compete you win?


So I picked his brain in depth about the first three years of starting LendingTree. Then I did Red Hat Software, with Bob Young. I did Ryan Allis, who started iContact. Jim Goodnight from SAS Software. So I just picked these people’s brains in depth about the first three to five years. I was like, what did you do with your idea? What did you do first? How much money did you raise? Why did you raise it? Was it wasted? And I just picked their brains like crazy, and it ended up being eight case studies of eight startups and then I had the idea to call it “The Hockey Stick Principles,” and then one thing sort of led to another and a publisher picked me up, or really an agent, and then we turned it into what “The Hockey Stick Principles” is today. It was a blast. I absolutely loved doing it.

One of the things I’m always telling everybody when you pitch is paint a picture, and your book really paints a picture. We all know what that hockey stick looks like. That’s the kind of growth that investors look for in their financial projections. Your book continues the analogy into Chapter One, Hitting the Ice. You talk about Tesla being an example of something that people predicted would be bad, but it turned out to be a success, obviously. One of the things I know you’re big on is not giving up or pivoting too early. Can you talk about Tesla in those terms?

Absolutely. There’s so many examples. “The Hockey Stick Principles,” one of the main premise of it is that the blade years, which there are four stages that you mentioned. The first is tinkering when you kinda mess around with your idea before you quit your day job or make it a significant investment. That second stage, you’re called the blade years, and the blade years, they last anywhere from three to five years. Revenues, growth, revenue is low and growth is low. Hence the blade, right? The last two stages just FYI are the growth inflection point, where you’re like wow, how did this happen? How are we all of a sudden successful, right? And then surging growth occurs after, that’s the fourth stage.

But the blade years, speaking of Tesla, are fascinating. There was a story in 60 Minutes that basically said, look, Tesla has no idea what they’re doing. They’re in way over their heads. The car manufacturing business is very complex and requires huge economies of scale. This story in 60 Minutes, that was at the time when Tesla was really struggling. What they failed to pick up on is the fact that Elon Musk and his management team weren’t trying to sell to the masses. They had carved out a niche, and that enabled them to survive and then eventually thrive. The blade years are the most important years, which is when the most important work is done. What I mean, by the way, about pivoting too early or quitting too early, is that 70 people quit. They quit after a year or two when it really takes three to four or five years of persistence. Does that make sense?

It totally makes sense. Can you share for us what you look for as an angel investor when you’re hearing a pitch?

Yeah, sure. As an angel investor, I’ve done eight different deals, I guess you could say. They’re all quite different, but most of the companies I invest in provide information to sales and marketing professionals, but some of the deals, in particular the ones I’ve done more recently, are the types of companies who aren’t necessarily in that realm. For example, I just invested in a company called Myxx, that provides technology to help grocery stores and major brands connect recipes to their customers. It’s an amazing technology by a very smart lady. To answer your question, the big thing I look for, number one, obviously, is how qualified or how excellent the founders are, and do they have the right diversity of skills to actually pull it off? That’s really major, and by the way, I should say most of the time I invest very early stage, which would be mostly pre-revenue. So Monica started Myxx, just as an example, and I noticed immediately that Monica’s smart. Monica can articulate her value proposition very well, even though she hasn’t defined clearly what that is, her visions are quite good. She also had an outstanding programmer she was working very closely with, who was very engaged, so you had sort of a complete management team, because Monica’s really good at marketing, and seemed to have a real knack for sales.

The other thing I look for when I’m listening to pitches is obviously traction, and you’ve heard about the book, Traction. But it’s all about real, concrete traction. And it doesn’t necessarily mean paying customers. It doesn’t necessarily have to mean revenue. It has to show significant advancement on the idea, where things are getting done. And one thing I noticed that really successful founders are, is they’re very impatient. One of my principles in The Hockey Stick Principles, there are 92 principles scattered throughout, and one of them is impatience is a virtue, and they’re very impatient people. They get a lot done. That’s one of the things I look for as well. I hope that helps.

TSP 115 | The Hockey Stick Principles

Source: Pexels

That’s great, yes. We’re gonna tweet that out as one of your principles. Impatience is a virtue. It’s very clever because people go what? Cause we’ve been taught the opposite. When it comes to a startup, you are impatient for proving the proof of concept, and getting some traction. One of your other areas of expertise, Bobby, is figuring out just how much money somebody should raise when they’re pre-revenue. Can you speak to that? Obviously that just leads to so many other questions, but when you’re asked for a certain amount of money, whether it’s 100,000, 200 or more pre-revenue stage, it’s expensive money, so how do you decide how much to give up and how much should you ask for? I think those are sort of tied together, aren’t they?

They really are. The other principle I have in my book, I don’t have the book in front of me, but it basically says that the value of your equity is “incalculatable,” and what I’m really saying here is that when you give away too much equity too early, you’ve kinda blown a major asset that would be very much needed, every bit of it, in the future when you’re scaling growth and when you’re really succeeding and therefore, raise as little money as possible. In other words, I believe, now every business is different. Certain businesses just have to have cash in order to survive, in particular ones that are making a real product, a tangible product if you will and have to manufacture it, carry the cost of goods sold, ship it, wait to get paid after about 90 days. You just have to have a lot of cash, and maybe you don’t have a lot of cash. But nonetheless, one of the things I think that founders should do is raise as little money as possible. I often tell people in speeches, and I make it up, but I say 90 percent of you are raising money and you probably shouldn’t be. You should be bootstrapping like I did, because I didn’t have cost structure when I started. If you can avoid spending money on things, on experiments, you absolutely should. Too many people spend money on experiments, big money on experiments when they really shouldn’t be.

Right. Let’s talk about your brother-in-law, Brad, which was in Chapter Two of how he didn’t pay himself and how much he raised.

Yeah, that’s actually a great example. Brad McCorkle, he’s a really smart guy, he’s my brother-in-law. He’s married to my sister, and he had the idea, it’s been incredibly successful, to provide a job board specifically for the eye care industry, because he realized as a salesperson, he was selling to the eye care industry, kinda pharmaceuticals, is that everybody, all the eye care clinics, were coming to him and saying hey, could you help us find qualified candidates? We need all these candidates, we can’t find them. Brad created some really nifty technology to basically start a company called Local Eye Site. But the big thing about it is, is that it was gonna cost a fair amount of money to create the technology, and he didn’t necessarily have the money sitting around, so he raised the money from investors, and I was one of them, and then he just took no salary for the longest time. For a couple of years, there was no way he could pay himself, but he scraped by. He figured it out, and now he’s thriving like crazy and scaling the hockey stick.

What are some of the mistakes that you see people make when they pitch investors, especially when it comes to the financial projections?

I think that spending too much time and energy on the financial projections is oftentimes a mistake, because quite frankly, we don’t really know what kind of revenue we’re going to get when we’re starting a new company, particularly one with a new idea, of course. There’s too much emphasis on predicting the unpredictable, and so I encourage people, what they should do is create an execution plan instead of a per se business plan. An execution plan, it’s kinda like, what do we need to get done? How are we gonna get that done? Now we do need to try as best we can to predict time and cost estimates, but one of my principles is they’re impossible to predict as well. In fact, I just filmed a video about this I’ll send to you, you can send it out to your listeners. It’s a one minute rant.

I love it, we’ll put it in the show notes.

It’s Doug Lebda from LendingTree. LendingTree’s now worth $1.5 billion. It’s a phenomenal company. You probably hear them advertised all the time, and the idea in the late to mid ’90s was a really good one, which is, why do I have to fill out multiple loan applications to apply for a mortgage? I should just fill out one and shop it around. It’s a great idea. But Doug’s a smart guy. He wrote a business plan that said it would cost $30,000 and 16 weeks to build the technology. It ended up costing hundreds of thousands of dollars, nearly a million dollars in several months. That’s not because he doesn’t know what he’s doing, Doug absolutely knows what he’s doing. It’s because it’s impossible to predict how much projects that have never been done are going to actually cost to get done correctly. I tell people to underemphasize projections and overemphasize execution. Does that make sense?

It does, in fact, we’re gonna tweet that out. Create an execution plan versus a business plan, which totally ties into what you were saying earlier about that’s a great way to show traction, isn’t it, is hitting some milestones.

TSP 115 | The Hockey Stick Principles

Source: Pexels


Yes. Now how long do you think it takes? Is it three years for a startup’s revenue to take off and grow faster, or is there anything that an investor or a startup founder should be looking for to get to that next level?

That’s a really good question, because it’s where the rubber meets the road, which is how long does it take to reach takeoff? That’s the crux of your question. Now, in my study, I studied 176 successful startups, and I tracked their revenue growth curves, and what I found is that it took on average three years for companies to reach takeoff, which is that obvious inflection, however, some only took 18 months and some took seven to eight years, many, many more years. But I didn’t see many that took off really fast, like six to 12 months. Very few did that. But I say to people, plan on at least three years of paying yourself a chump salary. You’re just not gonna make that much money for the first four years. You just gotta plan for that, and takeoff’s gonna take at least that long. That’s how people should plan.

Which industries do grow the fastest?

One of the things I did do in my research study, and by the way, you can get a copy of my research study at for free, and it tracks and breaks down the revenue growth curves by industry, so it’s quite useful. I found that some of the really hot industries like email marketing software, once that idea was created, that concept, everybody rushed to market and the companies who could execute and had good management could really get it done. That industry, that sub-industry, did really well. I found that the energy companies did really well, meaning that alternative energy is getting really hot. People are starting solar panel type companies and technology for solar panel and different alternative energies. Those companies took off really fast, so it kinda just depends.

What’s your philosophy on equity crowdfunding platforms? Would you ever be open to doing some kind of round with an equity crowdfunding platform?

I haven’t done a round, per se, but I’m a big fan of crowdfunding. In fact, I actually invested, it was a year ago, in a company. I crowdfunded a company who had such a great idea, and that’s what I love about crowdfunding, is when people have a great idea and you just believe in what they’re doing, then pre-buying the product is well-deserved. You want to be an early adopter, and that’s why I love that traditional crowdfunding. The one I did, I met these Stanford students who had created a device that reminds you of flossing everyday, and you stick it on your mirror, it’s so nifty. It was a really clever tool, but you stick it on your mirror and then when you pull the floss out, it’ll stop blinking. After 24 hours or whatever your setting is, if you haven’t flossed, it’ll start blinking at you until you pull the next one down.

That’s great.

And they’re really good engineers. I was like, that’s just so good. I ended up buying like a half dozen of them. They were shipped from China recently and I think they have them and they’re being mailed out right now, but that was a year ago. I’m a big fan of that, but I haven’t actually crowdfunded when I put significant cash into a deal. I just tend to get to know the founders over a longer period of time.

And did the founders need to live near you in order for you to invest in them?

No, not necessarily, but actually all the eight deals that I’ve done, everybody is in Raleigh. Is that true? Everybody’s in the area.

That’s what research shows. Some people are geographically agnostic, but it helps to have that relationship. One of your other wonderful blogs is a startup is 10,000 little details all smooshed into one. I love that title. Let’s talk about the five tips for crushing the details. Starting with your find your Miss Carolyn ASAP.

I love that. Miss Carolyn, I started First Research, pretty early on, I met Miss Carolyn. This was a college student, and her name is Carolyn. I nickname everybody. Everybody seems to get some goofy nickname, and I started calling her Miss Carolyn for some reason, but she is a stickler for details. That’s how she’s wired. She’s really, really good at it. By adding Carolyn to our team, and to have her all over the details, we became a much more efficient company, and she did wonders for our company and kept getting promoted because of her ability to manage more and more details, and I see so many founders who, quite frankly, don’t ever mitigate that, and let’s face it, most of us don’t have the time to be leaders, salespeople, marketers, programmers, and great operation to details people. So you need that person, and it’s important to hire, not to overlook.

I love it. The other one, which I’ve seen firsthand so many times, is confusing unimportant details with “real work.” Like I’m too important and busy to be doing this, and you have a whole insight into that story of somebody complaining about being on the phone with the CRM provider as a waste of time, when you said, maybe not.

You’re absolutely right. Some founders, sometimes, they think that minutiae and details can’t be important, and they’re focused on the wrong things, when really, they could be focused on exactly what they should and I have found that successful founders are knee deep in minutiae. A lot of it is a grind, and a lot of it is not super sexy, a lot of it is who can grind the hardest, who can grind it out. Those sexy moments come later, quite frankly, and you’ve gotta manage details.

I’m a big list maker, and I know you’re a big proponent of that. I don’t know how people do it without it, whether it’s on your phone or what you’re gonna accomplish that day, any insights on what you do to stay productive and get the details handled?

One of the things I love to do is I’ve got one of those little pads, and they’re no bigger than your hand, and up at the top they kinda have the little wire, you know? The thing’s no bigger than your hand, and everything, I’m constantly writing things that I have to do there, and then when I fill up a piece of paper, of course I’ve marked stuff out when it’s done, I just rip it out and throw it away. It’s not nostalgic, it’s not sexy, it’s not anything. It’s not kept. It’s not maintained anywhere, I just use them and go down every day, I use a couple of pages. I just rip it out when it’s done and throw it away, I just keep writing things down that I gotta do. That’s how I do it. Other people have their own, they can use Franklin Covey or whatever, but you gotta manage it somehow. You can’t let things slip.

The things I’ve found is color coding in Gmail, they have colors you could, five to seven categories, like sales and marketing, product, HR, etc., and then I can find emails really quickly, and of course I’ll put them in folders when they appear to be done.

I know that you’re on the board of some of the companies that you’ve invested in. Are you also on advisory boards?

On my LinkedIn, I just put advisory board on all of them. I’m on the board of directors for some of the companies, about have of them, and then the other half I’m not. I prefer not to be on the board of directors, in fact, I was just invited to be on the board at one of the companies I’ve invested in, and I was like, oh, I don’t know if it’s necessary. I try to avoid being a director. I like for the founders to be directors, quite frankly. I’m a pretty loose investor, to tell you the truth. I’m not real formal.

Can you share your opinion on the importance of having good people on the advisory board as it relates to your valuation when you’re raising money?

I think too many founders don’t have board of advisors that should. I mention that great company that I’m so excited about, Myxx. Monica, she’s done a fabulous job of surrounding herself with really smart people who have agreed to be on her board of advisors, and what she does is she taps into their knowledge. They’re industry insiders and they love what she’s doing and they believe in her, whether or not they’re investors, totally separate. Many of them aren’t investors. I think it’s absolutely critical, cause then the investors know that you could go pick their brains about specialty areas and that’s really what you want. If you’re raising money, I think you should have a board of advisors, unless you’re one of those founders who is just really independent and hey, nothing wrong with that sometimes. For some people they want to be really independent, and it’s cool. It works for them.

I’m on some advisory boards, and just so the listeners all understand, if you’re not investing in the company, you still give people on your advisory board equity that vests over time in exchange for their connections and expertise.

Yes, yeah. Oftentimes they get stock options to them, or just issued warrants or shares or whatever. That’s true.

Well, Bobby, this has been so interesting and insightful. Thank you so much. Is there any last bit of advice you want to share from “The Hockey Stick Principles”?

You know, the last piece of advice I think is to really enjoy the blade years.

TSP 115 | The Hockey Stick Principles

Source: Unslpash


Too many founders enjoy it for three to six months and then it turns into a real grind. Seth Godin, the popular writer, Seth Godin, I think it was his book “The Tribe,” he basically says that every project gets to the point that it’s not fun anymore. I think that too many founders basically put themselves in a position where it’s not fun anymore, and I think they should put themselves in a position to make it fun by expecting it to be a really long ride and planning around that long ride. When I say long ride, I mean at least three years. I say enjoy the blade years, do phenomenal work and it’ll come around for you.

Great advice. Thanks again, Bobby for being on that show.

Absolutely. Thank you, John.


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