The Titanic Effect: Helping Startups Navigate Through Icebergs with Drs. Todd Saxton and Kim Saxton

Posted by John Livesay in podcast0 comments

 

Hitting icebergs is just part of the business, especially when you are in the startup stage. Nevertheless, it does not mean that you can’t steer away from them because the fact remains that these mistakes can be costly. We double up the insight in this episode as host John Livesay interviews business professors Drs. Todd Saxton and Kim Saxton. Giving us a preview of their book, The Titanic Effect, they help startup founders navigate the icebergs that so often sink startups in the ideation and early stage of development. As they touch on the four oceans that startups have to get across and how they can do that, they also offer great advice on practicing your pitch.

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The Titanic Effect: Helping Startups Navigate Through Icebergs with Drs. Todd Saxton and Kim Saxton

Our guests are Drs. Todd and Kim Saxton. They’re award-winning professors at Indiana University’s Kelley School of Business as well as co-authors of The Titanic Effect. The book is a practical guide to help startup founders, as well as their investors and supporters, successfully navigate the icebergs that often pop up that sink startups in these early stages. They’re going to share their decades of academic and professional experience, business strategy, marketing, venture-funded startups to help you navigate these deck burgs that often sink early startups. Drs. Todd and Kim, welcome to the show.

I’m fine. Kim is fine. Thank you so much for having us. It’s a pleasure.

I’m excited to be here and chatting with you.

Let me ask you to each tell me your own little story of origin before you became professors, married and all of that stuff. I love to hear one of you start and say, “When I was growing up,” you can go back as far as you want, “my dream was,” and give us a sense of how you became a professor. We’ll get into the story of how you started working together and got married.

Here I thought you were going to do the origin story of how we got together, which was already dialing back many years.

I’m always fascinated, especially people who dedicate their lives to teaching the university level. Did you know in college this is what you wanted to do or did you as a young girl know, “Someday I’m going to be a professor?”

If I say what my real childhood dreams were, honestly, my first dream was to be the president of the United States. I went to MIT because at some point in high school I discovered I was good at math and computers. I worked in a debit processing center at the local junior college and got to play with some of the first personal computers that were coming out. By the time I got to MIT I had realized, that whole be the first American female president was going to be a tough way to go and would be fraught with a lot of icebergs even though I didn’t know that term. I thought, “I’m going to go make money instead. That’ll be a lot more fun.” We both got into consulting directly out of college, helping companies identify what they’re going forward, strategies ought to be as what I did. Todd did something some related. Todd started to want to go back and get a PhD and follow in his dad’s footsteps of being a professor. I pulled out my SAT scores and I discovered that what I told the SAT when I took that exam to get into college was that I wanted to be a professor as well.

[bctt tweet=” Practice your pitch on your least likely prospect first. ” username=”John_Livesay”]

I can’t wait to hear. Your dad was modeling for you, Todd, what a professor’s life was like?

The academic connections, it’s funny because Kim and I have both been out six years from college and working in business consulting on the East Coast. Circle back a little bit, I’m a Jersey boy. I grew up selling newspapers on the Jersey shore. My mom bought the lawnmower in exchange for me mowing our own lawn for free, which meant I could use the lawnmower to mow our neighbors’ lawns. That’s my connection back to your network.

I can relate to you both well of Kim talking about early computers. I was at the University of Illinois in Urbana-Champaign and we had Plato where you can touch the screen back then. That was totally cutting edge. I don’t know if you’ve ever remembered or heard of those. I also had a paper route, Todd. I would do the entrepreneur thing, knock on the doors, “Do you want to subscribe?” You sell it, you deliver it and you’ve got to go collect it at the end of the month.

If you’re good, you make your money in tips.

Don’t throw it in the bushes.

There are things you throw in the bushes in New Jersey, but it’s not your customer’s newspapers.

Ironically I skipped over that. My early pitching was as a Girl Scout, I went door-to-door. Those times you had to haul the boxes with you. After a little while, you only had one type of cookie left.

You had pushed those. The mints are gone. Now we’re pushing peanut butter or something. I can relate.

You learn how to message pretty quickly so that you don’t have to haul those cookies back to the house.

Let’s hear those story of the origin of how you too wonderful people connected. You can make it as romantic as you want or as academic as you want. The choice is yours.

I’ll share the non-romantic part. Our first jobs out of school were at the same consulting firm in the DC area. Kim was the sixth and I was the seventh person hired. This was a relatively small entrepreneurial consulting firm. For the first few months, we struggled to work together. We did not get along. Kim may ask me to cut this out, for now, just between us, when we started dating and it got serious enough. We were like, “One of us probably has to leave.” Kim went to talk to the founder to say, “I’m moving onto something else. Part of the reason is I’m dating someone here.” He went through every member of the company, including some that were married, the other women, the janitor, the company dog and the only entity left was me. It was like, “It can’t be Todd.”

We got to keep that in. That’s at least likely to be dating. Kim, what’s your version of that story?

It’s pretty much like that. In fact, at that time, I was conservative and he was clearly liberal. There were so many different ways that we should not get along at all. As we tried to work together, that same founder one time said to me, “Would you stop yanking his chain already?” I didn’t realize I was. What ended up happening is that over a weekend thing, we realized that there was some attraction. We thought, “You can’t ignore chemistry so what we ought to do is probably date and get this over with so we can move on to the real love of our lives.”

It’s fascinating because I talk about going from invisible to irresistible in a business sense but also in a dating sense. If you have so much pressure that this has to be the investor that funds my startup or this has to be the customer that hires me or this has to be the love of my life. It’s too much pressure. If you think instead of, “Let’s get through this and we know we’re not going to be a fit, there’s no pressure.” The irony of that, if people could take that away from this show, I’d be thrilled that if you start to hold things a little lighter in your hands, how much that shifts things.

That’s interesting as a way to think about it. I never connected these two before. I counsel entrepreneurs when they go to their first pitch, whether it’s for money or a customer, go to the one you think is going to be most challenging and least likely first because you’re going to screw something up. You’re going to mess up the value proposition or the connection or frame of reference, whatever that might be. You’re going to hit icebergs. Get an iceberg that isn’t your biggest opportunity, whether it came from funding or a customer perspective because you’re going to get beaten up. You’re going to learn something from that and get better. As you get better, you got closer to home and the bigger and better opportunities because you fit some of those icebergs but survived.

He gave me that advice. He’s had to do some cold calling and I said, “Here are my best prospects.” He said, “Don’t call them. You’re not great prospects. Get them out, burn through five or ten of them. By then you’ll be ready for the good ones.”

Practice your pitch on your least likely prospects first, that’s unique advice because you’re not attached to the outcome.

[bctt tweet=”Be accountable as you scale.” username=”John_Livesay”]

Maybe it’s a phone instead of practice. There is a chance to compare it. We’re still married for many years.

Honing and practicing for me. We are rewriting everything already. I know in your book The Titanic Effect, originally, this metaphor was a sideline. It became something that anchored the whole concept. Let’s hear the story of origin for how did you come up with the idea for the book?

It started with the term technical debt, which you’re familiar with and some of your audience, for those that are not when particularly software. Any physical product that you’re trying to build it, you can’t invest enough time, resources, energy to build it all the way into the robust version that you might envision eventually. You have to cut some corners. You’ve got to build your software on some code that might be a little bit flimsy to go out there and get that minimally viable product or that early testable model to get feedback. The challenges, as you start to scale, as you move from that one pilot customer to five customers to hopefully ten, twenty plus, if you’re building on this weak foundation, it’s going to collapse upon itself. That’s from a technical standpoint, from a product standpoint, and that’s the term of technical debt. There are equivalents in our metaphor, these other oceans.

You have the people that you work with, who you surround yourself with, how you allocate equity. You get advice from who helps guide you, who you hire as your early employees. In the human ocean, all of those are important decisions, but also have associated debt with them. As we thought about it was all of these decisions look obvious and easy when you are resource-strapped, and that’s the part above the water. There’s all of this mass below the water that you can’t see or anticipate because you’re making decisions under conditions of uncertainty. That connoted the image of the iceberg, and at least many of us, when we think about iceberg and failure, we associate that with the Titanic. I’m like the superficial naming guy was like, “We’ll call our presentation The Titanic Effect, then something after to make it a little more specific.” They were like, my co-authors, Michael and Kim, “It’s a good idea. It’s catchy. We should probably make sure there is some substance.” I was like, “Substance, that’s your bailiwick. I’m out of here.”

You have images of all the different icebergs and things. I’m a big Titanic fanatic. I’ve been to the museum, the menus, touched the cold ice and watched all the documentaries. You’ve got me in a minute. The research that you showed people that it’s not what icebergs are not all the same, Kim?

We started with that idea originally of marketing debt and human debt. We started thinking, “Let’s name the debts and all that.” We got onto the iceberg. We started doing iceberg research. It turns out that icebergs are super cool. They have such a variety of size from little bergy bits. Imagine a berg all broken up to iceberg islands. It’s huge masses. They have different shapes. Some are downed, tabular and all this stuff. We started getting into it. It was easy to envision these debts as different icebergs. Even since I focus in the marketing area, I have a visual image of each one of the ones as something a little different. In the book, they all look the same. There was too much granularity to try and talk about size, shape and all that. It was pretty exciting. I’m the researchy person to do that background work. I said, “If my very creative co-author and partner here is going to come up with a fancy title, I need to figure out if it has any legs. I started researching it and it turns out that there’s a lot that’s been written about the Titanic.

There are many resources too. We’ve read books, documentaries, online research. The museum has a lot of information too. We started finding thing after thing that matched up. Todd usually tells the story of a change of investors bringing on a new investor caused them to change the shipyard that they use. You can imagine what the ramifications of that are going to be. They have three different segments, this luxurious class and the steerage as we know about. The groups of people are trying to do different things. What was cool is that the first-class luxury passengers were Americans and the third-class steerage was from Eastern Europe. Can you imagine trying to have a successful marketing program that bought those two different groups of people into the same boat?

 

Never were they supposed to interact. The romance went out as it did with your relationship. Did you dance to Celine Dion’s song at your wedding?

Can you imagine doing that in 1912 like share difficulty of that is mind-boggling?

I hadn’t thought about it like that. The buzz of getting the wealthy people, you’re like, “I’m sure everybody wanted the glamor of all that.” The masses, what would make them want to get on that versus all the other ways to get across? One of the things I want to talk about what you have in The Titanic Effect is the four oceans, the human ocean, the marketing ocean, the technical ocean and the strategy ocean. I know you have a whole chapter devoted to each one of those things. It’s such a great incentive for people to start thinking of this metaphor in a way that, “I want to buy this book now because we started dabbling in the marketing ocean there a little bit.” You can each talk about each one or you can split it up however you want to do it. Let’s dive in on what’s the human ocean? What’s the biggest mistake people make when they’re putting their team together?

The human ocean has these different seas within it. I know geographically that doesn’t quite work, but in the metaphor, please forgive us and allow us there that you have your co-founders. The biggest mistake that I see early-stage and first-time entrepreneurs make, and frankly even seasoned entrepreneurs, are allocating all the equity early and equally across co-founders. Your three people go out for coffee or a beer and they sketch out this idea on the napkin. They get all excited. They’re going to start this company. We’ll split everything three ways equally. A few months later, how many times that everyone is completely pulling their waiter or even able to fully contribute? The co-founders, how you allocate equity, whether you have the appropriate mix of people. Those are some of the debt bergs on the human side within co-founders.

The next sea that we talk about are the investors and advisors. Those are the people that you enlist their help, ideally some money as well. You need that feedback, encouragement, support, connections and how you go about doing that. Who you choose, how many you choose and how you interact with them are some also important sources of either resource or in some cases step bergs as well that can limit your success moving forward. Finally, within the human ocean are the employees and who are those early employees that you hire? Do you go after the cheap but enthusiastic interns who may be graduated or aren’t even through college and bright, but don’t know a lot and maybe can’t help the venture as much and spend a lot of time training, etc.? The other end of the spectrum, the giant whale hunter who has had the huge success and demands $250,000 salary and a lot of equity. It turns out they’re a one-hit-wonder and don’t know what they’re talking about. That can also be a huge source of a debt berg. Who those early employees are, how you leverage outside resources, that’s one of the other major elements we talk about in the human ocean.

In the employee sea, Todd, I wanted to add, the iceberg that’s named our debt berg has named the dearth of diversity is one that deserves more attention. We have been working with some incubators and looking at some of their companies. I was struck that out of all of the companies and all of the founding teams, there were four people who did not look like everybody else. Academic research is interesting when you have people who are much like you, more homogeneous, you get along better. Startups are a hard path to go. Getting along better is probably good. On the other hand, if you don’t have those alternative opinions, you’re not as well going to be able to aim your product into the market and understand the variety of needs that are out there.

Let me ask you about advisors within the human ocean. How important are they, is the first question, which they’re very important. What’re the criteria of what makes a good advisor? How often should you expect them to talk with you? What equity do you have to give them over time? I have so many questions about advisors alone. It’s one little grand of sand in the ocean there of human odds. It’s something that you are expertly qualified to answer. I haven’t heard many people talking about that granular level if you don’t mind.

[bctt tweet=”Get an iceberg that isn’t your biggest opportunity because you’re going to get beaten up. ” username=”John_Livesay”]

I can’t pretend to have all the answers on that as you suggest. It’s a complex and nuanced question. At some point, it boils down to rapport. The fact that you like working together. It’s going to be a slog when you’re involved in any new activity, innovative activity, new project, and especially a new venture. It’s a long journey and they’re going to be hard moments. You want to be with people that you genuinely like, respect, appreciate and have fun with. That’s an important underlying element. The more objective criteria, I wouldn’t dare call it a rule. I’ll have somebody who documents and shows me, it only took X, but it’s a 50 and five rule that it will probably take you meeting with 50 people having a cup of coffee, a beer, whatever, lunch to share your idea. To get five that you feel are truly in that inner circle that is our trusted advisors that you have a good rapport with that get back to you.

One of the mistakes I see some entrepreneurs make is they try and maintain connections with 50 people and you simply can’t do that. The goal isn’t to make your network as big as possible. You want to be more engaged and activated, but also it takes a lot of networking and searches to find those five, settle with the first five you get. Within those five, you want some people who are not exactly always devil’s advocates in your face, but at least aren’t yes people that do challenge you. That you’re willing to have that and that gets back to that alternative perspective that Kim talked about and having a diversity of perspective is important.

Following that, it is having some diversity in terms of their backgrounds that you have one or two advisors that are more industry experts. You have one or two that perhaps have started a company, have grown one or two that are more on the investor perspective, that’s financial savvy and hopefully, connections that when it comes time to raise money. I think of it as this critical mix of elements that are all part of the stew that or ocean that helped you be a successful startup, but also help you identify different types of debt bergs in different oceans. You want advocates and advisers who can help you navigate that journey.

I wanted to have Kim speak to this one particular thing you said, which is that you’re not hiring a bunch of advisors who agree with everything you say and being comfortable enough to be coachable, to hear other people’s perspectives or maybe even criticism like you’re going down the wrong path or whatever it might be?

Nobody likes to have Negative Nancy around all the time. You have to be tough with yourself and say, “Who is going to be the person who’s going to see all the bumps in the road?” Who’s going to be able to point out those hazards to me and it’s going to tell me 1,000 ways that this isn’t going to work. For some of us and me, if you tell me all the challenges that I’m going to try to cross them, surround them. It’s good from that perspective, but also you want somebody who maybe can see things that you can’t see. There’s this hard thing about being the founder of a startup or the founding team is that you have to be enthusiastic. You have to be persistent. Sometimes you need to go a different path and to be doggedly persistent and not to be able to hear or listen is tough.

The ultimate pivot that everyone ultimately ends up doing. That’s why people invest in the team more than the idea and that awareness is something that a lot of people don’t register with or they feel embarrassed sometimes that they have to. I’ve seen it time and again where you have to be willing to let that go a little bit. We obviously don’t have time to go into all the oceans. I did want to have maybe you talk one little bit about the strategy ocean because some people think, “Why does strategy have its own ocean or its own chapter?”

But before we go on, I’d like to close on one more thought on that advisor side because we frequently get asked to be advisors. In fact, some years we’ve done hundreds of lunches and coffees and things like that. As advisors, we have a talk and a coachability metric that we use. We’ll take the first coffee with anyone and we’ll have lunch sometimes. You go away and if you ask a second time, we’re very likely to take the second one as well if we’ve already given the first one. If you come back in the second one and you have tested nothing that we said in the first one and/or you are doggedly holding to ideas that we suggested negative things about the first time, we recognize you as not being coachable.

 

That’s great criteria or excuses of why you haven’t done something yet.

Moving into the strategy ocean, we recognize that we don’t have all the oceans in the book. We pick solutions that were in our sweet spot, our comfort zones. There are regulatory issues and legal issues and all that. The challenge that we see with some startups and probably most startups at different points in time are that because you have these different arenas that you’re moving forward. You’re moving forward the human stuff. You’re moving forward the funding. You’re moving forward what your customer relationship is going to look like. You’re moving forward the product. The whole thing gets unwieldy.

You get something that’s very in-depth on the product side. There’s no understanding or recognition of how this could be marketed or what’s valuable to customers or you get something at the sales and marketing side starts promising something that employees can’t do. That’s why we call it out the strategy ocean because that’s the place to bring the other three oceans together. To remind people that you have to be coordinated, you have to move one piece forward a little bit. The next piece forward a little bit.

That lack of coordination, one department sales promising something that engineering can’t deliver or is a nightmare even at a small scale.

Measurement, what happens, we’ve seen a lot of startups is they get so busy doing and they’re shorthanded, that they don’t even have metrics in place. They know the metrics that they’re going to need to see if they’re going to go do an angel pitch or a VC pitch. They’re not effectively running the business with metrics. We advocate different metrics at different points in time, but identifying what those metrics are and having somebody look at them. The third sea in the strategy ocean is about accountability, which is, we all think we’re heading in a certain direction, but until you put a name to it, it doesn’t happen.

Always be the founder or even the founding team as you grow up a little bit, as you start to scale, that accountability has to start to transfer to others within the organization.

What you’re saying is sometimes accountability is delegating stuff too. It’s not doing it all yourself. It’s been a fascinating look at the Titanic as a metaphor and the oceans that we all swim in, whether we’re starting a business or working in a business and all the challenges that we face. The book is called The Titanic Effect. Is there any last thought or piece of advice you each want to leave us with?

I’ll cut in on one and it comes back to very much the theme of a lot of what you talk about and making sure in your picture, in your story, you know what you’re trying to get out of it and that it is both stage-appropriate and context-appropriate in a very personal sense. We’ve talked about our own interactions with each other. When we’re looking for feedback, I’m going to characterize two different types and try and make this brief. We do a lot of writing. If I have a deadline that I’ve got to get it out by midnight and into a journal for review or whatever, I have to signal to Kim, “I’ve got a tight deadline. I need these superficial and it’s okay if you say, “That’s great, Hon.”

[bctt tweet=”If you’re good, you make your money in tips. ” username=”John_Livesay”]

At the early stages of this project, however, when we were trying to flesh out this metaphor and extend it, we needed to be ruthless with between all three of us. What may have created some challenging discussions, but that early stage, that’s the time to be open to much more discursive conversations about what’s going to work, what isn’t, what is clear and what is not? Understanding where you are in the journey and what you were looking for in your pitch, whatever that might look like is an important part of the process. As you very well know when articulate in many ways, a pitch is not this model with the constructed. A pitch varies a lot by what you’re trying to accomplish, who your audience is, etc. That’s certainly very true as you’re navigating from an early stage of launch and ideation through the later stages of growing a venture.

Keep on sailing, that’s the goal.

If people want to follow you on social media and track the book, what’s the best way for them to do that?

They can check out the website at www.TitanicEffect.com. We have a weekly blog and we email out little tips once a week so we don’t clog your inbox, but it’s fun when people email or text us and say, “I love that.”

Thank you both for sharing your expertise, navigating the waters that we all face.

Thank you so much. It’s been a lot of fun and good luck with your endeavors. To the audience, good luck with your pitch, whatever that might look like.

Thank you.

 

Important Links

• The Titanic Effect
• https://www.TitanicEffect.com/successfulpitch
• Better Selling Through Storytelling Method Online Course

 

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Tags: Development Stage, entrepreneurs, Navigating Business Icebergs, pitching, startups, The Titanic Effect