BIO: Alistair Croll is an entrepreneur, author, and conference organizer. His book Lean Analytics has been translated into eight languages and is considered mandatory reading for startup founders.
STORY: Alistair needed to raise capital for his startup. He received a series A investment of $20 million and gave up 50% equity in his company.
LEARNING: Don’t scale prematurely. Capture your market’s attention first.
“Risk is a necessary component of progress.”
Alistair Croll is an entrepreneur, author, and conference organizer. His book Lean Analytics has been translated into eight languages and is considered mandatory reading for startup founders. He helped create the Data Science and Critical Thinking course at Harvard Business School and founded web performance pioneer Coradiant. He’s chaired some of the world’s leading tech events, including Strata and Cloud Connect, and is the co-founder of Forward50, the world’s biggest conference on digital government. He’s joining us from Montreal, Canada, where he’s hard at work on a new book Just Evil Enough, a still-stealthy mobile startup called Stroll, and launching the 2022 edition of Startupfest, Canada’s original startup conference.
Worst investment ever
Alistair started a startup in the business of running websites for people. So instead of having to buy dedicated hardware, web server, firewall, and so on to run your website, the company could have that stuff and let customers use a slice of it.
The company got a Series A investment of $20 million. In return, Alistair and his partners gave up half of the company. Alistair didn’t anticipate that this trend he’d foreseen was just the start of a much longer trend that led to modern-day cloud computing.
Alistair’s worst investment ever was receiving funding and giving up 50% equity in the company long before he had adequately understood the trend he was capitalizing on.
- Don’t scale prematurely. Capture your market’s attention first.
- When pitching an idea, always ask yourself if you can change the behavior of a lucrative target market sustainably.
- Your startup is not successful until you can sustainably keep people’s attention and focus on what you’re doing.
De-risk the highest and most uncertain thing first.
No.1 goal for the next 12 months
Alistair’s goal for the next 12 months is to market his new book Just Evil Enough.
“We move the world forward by taking risks. So figure out what risks are worth it and then plunge headlong into them and don’t pull your punches.”
Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community. We know that to win in investing, you must take risks but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives. To reduce risk in your life, go to my worst investment ever.com today and take the risk reduction assessment I created from the lessons I've learned from more than 500 guests fellow risk takers, this is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with featured guest, Alister crow. Alister, are you ready to join the mission? Oh, yeah. Let me introduce you to the audience. Atlas. Nicole is an entrepreneur, author and conference organizer. His book Lean Analytics has been translated into eight languages and is considered a mandatory reading for startup founders. He helped create the data science and critical thinking course at Harvard Business School, and founded web performance pioneer co Radient. He's chaired some of the world's leading tech events, including strata and Cloud Connect, and he is the co founder of forward 50, the world's biggest conference on digital government. He's joining us from Montreal, Canada, where he's hard at work on a new book called just evil enough, a still stealthy mobile startup called stroll and launching the 2022 edition of startup fest, Canada's original startup conference, Allister, take a minute and tell us about the value that you bring to this world.
Alistair Croll 01:46
I think that talking about the value you bring is a full of hubris, because you should really let other people decide that. But if I have to look back at the things I've been useful to others, it's often in framing complex ideas in simple ways that are relevant to them, I think we live is a guy named Herbert Simon, amazing economist, Nobel laureate, who said, back in the 70s, that we don't live in an information economy, because economies are dictated by what's scarce, and information is abundant. So we have to ask ourselves, What does information consume and information consumes our attention. That's why we really are in an attention economy, Facebook is worth what it's worth, because people pay attention to it, you literally pay attention. And so what I've really found most valuable is figuring out what's interesting, because when there's too much to pay attention to we pay attention to what's interesting. So most of my life has been about trying to solve not for fame, or risk or profit, but solving for interesting. So I've had to find one value that I bring to the world at solving for interesting.
Andrew Stotz 02:46
Hmm, you know, and I've listened to some of the interviews that you've done. And, you know, you definitely come at the world from a lot of different angles. And I read a book a while ago, called Future hype. And it was a fascinating book, because we take the premise that the world is moving so fast, and innovation is happening so fast. And this book basically said, Actually, you're wrong. Innovation is going so slow, and everything is slow nowadays, compared to innovation in the past, like the Panama Canal canal, reduce travel time by 50%. You know, like, we're still flying airplanes at the same speed. We were in 1950. And it just made me think a lot. And so given your background, I'm curious, like, I recently deleted Facebook and YouTube off of my mobile phone, and it just really freed up a huge amount of my space in my head, my time. And I'm starting to wonder, is this technology really good for us? Like, is it really advancing us? Or is it taking us backwards?
Alistair Croll 03:49
I think that when historians look back at this time, they will see the last 50 years as the pivotal moment in human existence. And that's not to say we aren't overhyping things. But we have moved from the physical world to the digital world. The average North American spends one to six hours a day online, think about that. That's a quarter of our lives online, right. And we don't properly understand the impact of that. There's a very good study that came out of MIT a couple years ago, measuring productivity growth. And it says, human productivity has not really grown that much, you know, GDP doesn't ramp up incredibly fast. But if you start to look at things like the existence of Craigslist or Wikipedia, and you look at what it would have taken in terms of human productivity, to look something up or find a local product, we have reclaimed a ton of productivity because of digital technologies. It's just that the hard currency, the way we measure productivity comes from money. One of my favorite problems with GDP is like the crash of the Exxon Valdez was a huge boon for GDP. We had to pay lawyers to sort it out. We had to pay cleaning, we lost all that oil, we had to go replace it. There No way that's good activity, and yet it counted as a plus for GDP. So I think that what what the problem is, is that we're not measuring cognitive, cognitive productivity, cognitive advancement, when you look at the horrible events that are happening in Ukraine right now, we see them with a minute's like there's a certain amount of progress in terms of how we, as a species can, can, can think collectively. And we're seeing these horrible growing pains, we haven't yet figured out the balance between individual and collective online, and we're dealing with misinformation, and so on. Those are all bad things. But if you compare the impact that going from muscles to steam, had with the industrial era, to the impact of going from atoms to bits going from neurons to silicon, I think we're looked back at this and go, that was the turning point in chemistry may be our last turning point, we'll see if we can survive it. But I think that that's like such a huge turning point, we just haven't figured out what it's for yet. But a quarter of my life doesn't happen in the physical world anymore. Of course, we are not measuring that properly. And so I would, I would say that that thesis is looking at the world through the lens of the past, rather than the new metrics and scorecards and currencies we need to think about in the future.
Andrew Stotz 06:16
While I got you on the line, and I think you're qualified to answer these kinds of questions, I'm going to ask a couple more. And I think another one that I was thinking about is that could it be that technology is already turned on us? I mean, sometimes when we talk about, let's say, AI, we say, Oh, well, if it gets the machine learning, or an AI gets so smart, you know, the machines could get smarter than us or whatever. But when you think about, let's just say, addiction to mobile phone, you know, that, that, absolutely, like the young people are being absolutely consumed, their attention is being destroyed, or let's say consumed into that mobile phone. You know, we've come to some conclusions of the way to deal with alcohol. It's good, you know, to have some fun and party and all that. But you got to be over a certain age to use it because it has harmful effects. Same with drugs, same with a lot of different things that we look at in society. But I'm just curious, like, is the cure worse than a disease? Or does this cause something that's already really putting us back?
Alistair Croll 07:27
Norman Borlaug save 2 billion people. He was a researcher who bred strains of wheat, and effectively increased the carrying capacity of the planet by a billion humans. He's a hero. That was a cool technology that addressed the problem at the time. But you could argue that many people now have problems with gluten intolerance, like the human race tends to build the thing, just in time for when it needs a thing. We figured out sanitation when our cities are getting populous. We figure out search, when our information is getting abundant. Every one of these technologies recalibrates the balance that we see in society. So I'm going to get really philosophical for your listeners just for a minute, because you asked, the fundamental tension in the universe is the fight between the individual and the collective, you can zoom down to the subatomic level and electrons are torn between flying off with momentum and being crashed into the the nucleus by the forces that happen at the atom. The same thing is true of a satellite orbiting the Earth, there's a tension that pulls it away. And there's a tension that sends it crashing into the earth. And it's in orbit in a stable position. Because it's right on the edge of individual and collective of being pulled in and being flung away. Every great innovation happened because somebody tried to ignore the norm. If we didn't have people who bucked the trend and tried something even though it was inadvisable or stupid, we would never get progress. This is the essence of your podcast. Risk is a necessary component of progress. Unfortunately, most of the time you crash and burn like the satellite into the earth, right? Sometimes you hit escape velocity, but human society is poised at this exact balance between the individual in the collective when you talk to people about what freedom means or what fairness means in politics. Some people will say fairness is equity, I get what I put in, that's a very self centered view. Other people say that fairness is equality, we should all be treated the same. That's a very collective view. And the older I get, the more I see that this tension between the individual and the collective is what always happens. Now technology, especially the internet, communications technology, has changed the laws of physics for human communication. And just like if gravity, we woke up tomorrow and gravity was cut in half, all buildings would like float away, topple down, things would happen, but we'd eventually rebuild society, according to a new set of laws, right? The physics of information changed in the last 50 years. Governments, for example, are an information management organization, governments, all they all government does is it tries to be more aware of what the collective needs are than a bunch of individuals and coordinate that. That's literally what government does. It's an information management system. No kidding that every government in the world is in upheaval in some way or another, because we change the laws of physics for information. So is technology bad? Well, I mean, if you woke up tomorrow, and gravity was half what it was, is that good or bad? It's probably a mixed bag, right? We have decades ahead of us before we figure out what a stable form of society is for technology, what the right thing to teach our children is whether we need to regulate certain aspects. There's what kind of algorithms are good or bad? We just don't know. But we're like inside it. We know, it's the old David Foster Wallace thing to fish swimming along. And the older fish sister, the two fish, how's the water in the first fish like to the second says, What the hell is water? What the hell is technology? We don't know yet.
Andrew Stotz 10:59
Yet, it's funny, because I remember that the first day that I realized, holy crap, Facebook is on the other end of this, just observing everything that I'm doing. It's like a, it's like a one way mirror, you know, when we were kids, and we went in something in years, a one way mirror, like all, I could watch people and they wouldn't even know. And that's, you know, like, there was that moment that I realized that and I just started thinking, and then now, you know, as an American that left America 30 years ago, came to Thailand and kind of built more of an international life. I look back and I look at how the weaponization of the social media of the flow of news. Even now, if you if we saw it in Canada that a government could actually shut down people's bank accounts. Now, previously, you could say, well, they were a terrorist. Now you can use that word and say, Hey, anything you do could be terror, terrorizing somebody, and therefore, it can be turned. You know, whereas if you go back 50 years, your grandpa used to be a guy that had a really strong opinion, and nobody liked him. And he went around town and he pissed people off, you know, he could still keep some money in his house, you know, cash. And even if nobody liked him, he could still like support himself. But nowadays, you can just be cut out. And so I guess what I'm hearing from you is that we're in a moment of time where we're trying to figure out how what is that balance? And we're not Yeah,
Alistair Croll 12:27
we have no idea. I mean, I live in Montreal, Ottawa is just down the street. I can tell you, there was a very big difference between Black Lives Matter protests or Occupy protests or the indigenous like, we've got a bunch of First Nations that are saying, can we please have drinking water? Could you please not dairy our kids in unmarked graves, the cops showed up with pepper spray and rally railroaded them out of there. Meanwhile, a bunch of people showed up with trucks for three weeks honk their horns parked everything, you know, started yelling at people, antagonizing food kitchens to give them free food. And the cops didn't do anything. So you have to be in Canada and are saying the all situations I will say that the stories I have seen on coverage of that in other countries are way off. I won't try and tell you what the truth was. I'll just say that the stories are very different depending on who you listen to. And that's the core here. We used to have two or three broadsheet newspapers, you might listen to the left leaning or right leaning or the centrist one. But everyone else is listening to the same newspaper. Right now. Your feed is personalized to you, based on who you like and what you react to. No big surprise, we have a billion bad librarians out there. Right? No big surprise that this is divisive, because the old model we had for what truth was went away. But I think the thing that we really need to realize is we are currently connecting ourselves to the rest of humanity and realizing we don't like each other very much. I didn't use you know, in the old days, you would maybe meet 100 eligible partners that you might hook up with. And that'd be great. Today, you know, you can go look online and see 1000 Boobies with five clicks. All of these things our brains are designed with things like Dunbar numbers, the maximum number of people that you can keep track of your relationships with, it's around 250. So if you get into a chat room with 500 like minded people, you suddenly think that you are in the Moral Majority. And everyone agrees with you. And no surprise that we have like protest marches for everybody thinking about their cars. Our brains have not it's like if I say to you, what's a billion miles you don't that's not a that's all humans understand, from like a millimeter to a kilometer, you know, an inch to a mile if you're in the States, we understand from like, zero to 100 Celsius minus, you know, minus 32 to 200. And something I don't know, we're running on jungle surplus hardware. And we are confronted with like an incredible amount of information at scale tailored for us by the profit motive of the platform that we're talking about. These are for profit platforms. Of course it's great raking us. And what I hope is that whether you're on the left or the right, or you're a centrist, your allegiance is to humans first. Because whether you don't like rules or you do like rules, whether you want to the freedom to do something or the freedom of from something, yeah, you're a unique and special snowflake, but so is everybody else. And as a result, we got to figure out how to get along. And I see so much radicalization on both extremes that we have forgotten that we is like, there's a famous thing that Clay Shirky said Wikipedia was created in around 100 million hours, like Wikipedia is one of the seven wonders the online world right free resource, incredible amount of data was created in about 100 million hours and people say, wow, how did they get 100 million hours of time. And Shirky points out free Americans watch that spend that much time watching TV commercials in a weekend? The question should be why aren't we making a goddamn Wikipedia every weekend? Because we can't get our heads out of our asses because we're busy streaming stuff. So that's what I get upset about is like, where are we doing better things, you ask whether technology is slowed down, it has slowed down, because in the same way that you know that, you know, TV consumed our time now the internet's consumer time. And so we're not really focusing on big stuff. Sorry, that was a bit of a rant. But it's good. That is where a lot of your listeners, when they think about risks have to look at those risks in the context of like the tides of history and the major shifts that are happening, because you don't make money in it. You might make money like day trading, but you really change the world, when you figure out where a pattern like this is heading over a decade.
Andrew Stotz 16:42
Yeah. And I did listen to some interview you gave about your upcoming book Jesse evil enough with your co author. And you know what part of what I got out of that, and what I'm hearing from you is that pay attention to where the attentions going. And, you know, how do we understand our attention? And also, how do we understand how to disrupt that a bit and, you know, appeal, in some ways to people's attention. So there's a lot I'm looking forward to that, that book coming out, maybe you can just give a preview to the listeners out there so that they know what's coming.
Alistair Croll 17:19
The simple version is, every new business spends way too much time worrying about what product to build, and not nearly enough time worrying about how to get people to care about it. And in a world where we are saturated with information and where attention is a precious commodity, you need to do something that's unusual. In order to break through the noise you have to be novel. That generally means finding a gap between what is possible and what is considered normal. And that gap. Like for example, Netflix figured out how to turn the US Postal Service into a broadband network and stick DVDs and envelopes. They subverted the US Postal Service. Tesla reframed the automotive industry for decades, the clean car industry, the electric car industry was about range. And about, you know, sustainability. And Elon Musk said, No, let's go raise some big daddies. And he made it about performance, right? That was a good example of reframing something. So when you come up with a novel frame or an asymmetric advantage like that, you find a gap between what is expected and what's possible. That is inherently novel, it inherently captures attention. And we haven't kind of immunized ourselves against it. And that's why I call it just evil enough is that we're not Emily and I are saying like don't actually be evil. But think like a supervillain. What's your hack? What's your zero day exploit for getting inside people's brains? If you're not devoting as much time in your business to that as you are to building a product, you're gonna fail?
Andrew Stotz 18:49
Yeah, the word subverts version reframing something I heard you guys talk a lot about. And it's, I look forward to that coming out. And now it's time to share your worst investment ever. And since no one goes into their worst investment, thinking it will be tell us a bit about the circumstances leading up to them, tell us your story.
Alistair Croll 19:10
So I told you ahead of time, this is going to be a little unusual. I founded a tech company called co Radient started as a company called Network shop in 97. And we were in the business of running websites for people. And back then, everybody, if you want to run website, you'd have to buy yourself a bunch of hardware to go buy a thing called a load balancer and a firewall and a server, and all these different devices, switches and so on. And we thought, you know, that's probably a good business opportunity to be in. I wonder if there's a way that we could buy one of those things and then share it with other people and run their websites for them. And this was known as the managed service provider industry. The problem was this brilliant insight of ours that instead of having to buy dedicated hardware, web server, firewall, and so on, we could have that stuff and let you use A slice of it. This idea of virtualization, it's called in the technology industry was a good business model. Of course, we had to buy a lot of hardware for that. So we got a series a investment of $20 million. This was the biggest series A investment in Kadian. History, we also gave up half of our company. So it was the worst investment ever, because I let someone buy half the company from me. And we needed to it was what we needed to get in this business. I was 29 and naive. But someone else now had $20 million of money. And I had a new boss, which was my investors. What I didn't realize was that that trend, which I had correctly foreseen about not needing a dedicated piece of hardware, but being able to share, it was just the start of a much longer trend. Today, we know that is cloud computing, you can use Amazon Web Services, which is a massive business, and you can rent a machine by the drink by the minute, by the second, you don't need to buy hardware, we thought we were smart, saying Don't worry, I'll buy the hardware, and I'll slice it up into pieces and let you have part of it, we didn't realize that Amazon was gonna slice that thing into some ephemeral cloud. Now, it's a happy story. And the reason we're still talking is that, in the end, we switch, we realize that the problem, when you have a lot of complexity is that it's very hard to tell what the user is experiencing. And so there were a lot of people that did web analytics, which showed you what people did on their website. But nobody could tell you if they could do it. Maybe the reason that you're losing 20% of your sales, is because those people are getting errors, or the page is too small. And so we built this thing called TrueSight. And eventually, the company was bought by BMC Software for around 135 billion, like 10 years later. I see it was a bad investment. Because if I had thought through the trend that I had correctly anticipated, that a physical machine would become slices of a machine and eventually become pay by the drink machine cloud computing, then I would have gone and built a cloud computing company and we'd be meeting on my yacht. But I didn't, I only figured out half way. I was like, okay, I can sell you slices of something, right? I never figured out that there was a utility pure utility model that was down the road. Fortunately, we then realized that with a lot of complexity comes a lack of visibility, we built something for visibility, so we returned good value to our investors. But we didn't return a lot of it, because we'd already given up half the company at the beginning. So we allowed us we received investment, and gave up equity in the company, long before we had properly understood the trend we were capitalizing on.
Andrew Stotz 22:49
And before we go into the lessons that you learned, just explain what was your thinking at that moment in time, when you were giving up 50%? Because a lot of people when they're starting up companies, and let's say they got good traction and all that they're saying, Hey, 10% 20%, that's what you're going to get maybe 30%. But to give up 50%? That's a pretty big step. And just tell us like what was your thinking at that moment when they proposed it when you had to think it through?
Alistair Croll 23:16
Sure. So it was a very capital intensive business. In order to do this, we needed to own a lot of hardware. And so in order to get cap, get this kind of hardware and deploy to many places in the world, because you need to be sustainable, you have to have a minimum of like three web servers, a load balancer, a firewall, a switch, like each data center, you're going to stand up is going to cost you like half a million bucks just in the hardware. We were okay, because this was actually we actually received the funding in 2001. So things were a little cheaper, because the.com bubble had kind of burst, which actually worked in our favor initially, because people were looking, outsource that stuff. But yeah, when you're building a capital intensive business, you can take equity, or you can take debt, we should have taken debt for that stuff. But I was 29, we were a bunch of young, naive co founders. And this was the best way to get money. And I have zero regrets about it, I learned tons of lessons made lifelong friends, we created an entirely new product category, if you go to BMC a website, like all their products are called TrueSight. Because they liked our name. So yeah, it was a great lesson. But when you start a capital intensive business, you're gonna have to give up a lot of equity if you can't get debt leverage for it.
Andrew Stotz 24:27
So let's just talk about that for a moment for the people that are listening who are in startup businesses, and they want to understand what you're saying. And I'm assuming that what you're saying is that because capital intensive business has a lot of physical assets, it's more likely that you're gonna be able to use those as collateral to a bank or to someone else as a way of and then and then borrowing off that rather than having to get people to have I mean to have people buy equity. Is that what you're saying? Because it's a physical asset.
Alistair Croll 24:57
Not exactly. So imagine that you want it to set up this business in 10 cities. And each of those cities requires half a million dollars a hardware just to stand that up. So you go to a bank and say give me 5 million bucks now go to jail or you. You want to go to an investor and say, Hey, investor, give me money. And now you're not paying interest on that they've given you money for your business. If I knew for sure that I was going to be able to make 14% a month on that hardware, like 100%, for sure. And the cost of borrowing the money was 8%, then I just borrow money. But how are you going to trust some 29 year old kid who says you're gonna make 14% of your investment? Probably not. Right, especially after the stock market has just crashed. So we want to do the business plan, the best way to do it was equity investment. I think a lot of founders don't understand the difference between debt and equity and when to deploy the two. And the concept of leverage, which is like, if you can make 1% more than your cost of borrowing money, borrow as much as you can. But that's a big F.
Andrew Stotz 25:52
Right? Right. Okay, so tell us, how would you summarize the lessons that you've learned from this experience?
Alistair Croll 26:03
Every startup that I've talked to fails, because it couldn't capture attention, or because it's scaled prematurely. The amazing thing about the world today is not the same as the world when we built gradient is that you can experiment for free, you can test market demand with a Kickstarter, or a Patreon. You can test community with a mailing list, you can test software with cloud computing, never pay a penny. So you are in a world now where you can experiment almost for free. And I think that that is the big lesson I taken away is I now, the one question I ask any startup when I'm asked to be on a board or advise them or whatever, is, when you're getting up and doing your pitch, all I care about is can you change the behavior of a lucrative target market? sustainably? That's it. I'll say those words again, can you change the behavior of a lucrative target market sustainably, you can change them once with some blowout sale. But can you Uber loses half a billion dollars a quarter? Why are they still worth billions of dollars, because investors have seen that they can change the behavior of a sustainable target market. Right. Everything else in your pitch deck is just noise trying to convince an investor that you can change the behavior of a lucrative target market. And if your pitch deck doesn't do that, it's not going to get you funding. And so for me, what I should have done is spent way more time using modern technology using things like cloud computing and crowdsourcing and mailing lists community platforms to get as close as I can to proof that I could change the behavior of a sustainable, lucrative target market. I think when your listeners talk about reducing risk, the best reduction of risk is figuring out proving that you can change the behavior of a lucrative target market sustainably. That's it.
Andrew Stotz 28:03
Maybe I'll just share a couple things that I took away. I mean, first of all, you got me thinking a lot about this? Well, first of all, you use the word sustainably. And that is an important thing, because for a lot of startups, you may have some short instant success. That could be even family and friends. And I've experienced that too, where you get excited about something but you really haven't sustainably kept people's attention and kept their focus on to what you're doing. And so I think that is a big lesson that I take away is to think about it from that perspective. And then I think, you know, you've got me thinking a lot more about the debt versus equity. I've definitely had some guests that have talked about the issue of just having growth. In fact, Episode 235, I had Rand Fishkin talking about, don't be afraid to stand up against the growth at all costs, venture capital model. That's not what you're talking about here so much, you're talking about some something about the structure of the way that you raised the money, and also the amount of money amount of percentage of the company, but it definitely gets me thinking about debt. And so I want to ask the next question and kind of frame it very specifically. And that is, let's imagine that young man or woman out there where they do have a pretty good idea. And it is capital intensive, to some extent, it's not, you know, it's not asset light, it is capital intensive. They want to raise, you know, 1020 $50 million to scale their idea, their ideas, not bad, it's pretty good. They've got enough of a traction that they're attracting investors. And those investors are coming to them and saying, we want 50% of your business. Tell me based upon what you learned from this story and what you continue to learn, how would you tell them that they should respond to that offer from the venture capital For the investors,
Alistair Croll 30:02
I think there are really three stages in the life of a startup. There's the founding stage, which is where you have a problem and a solution. You're like, oh, man, you know, people's hair grows. And I think they need to cut it. There's my problem and solution. You need to get to a business model, which is like, I will sit people in a chair and cut their hair, and they will pay me for it. That's a business model. I went from a problem solution. I love hairstyling because it's like the simplest business model there is. And by the way, being a hairstylist, or opening a hair salon makes you an entrepreneur, it does not make you a startup founder and startup founder, Steve Blank says, your job is to search for a sustainable repeatable business model. So if you said, I'm going to set up places in malls where people can use those flow bees, you know, the vacuum cleaner, air cutter things self serve, that's a new business model. Now you're a startup, you're just opening a hair salon, your job is 100% execution, right? It's when you start to disrupt and innovate that you become a startup. But let's say you're a startup founder, you got an idea. You got a problem you identified you think you got a solution, your first job is to get to a business model. Is this actually a business because you don't have a business model? That's great. But you have a hobby, right? Now I say, Okay, I've got a business model, it's kind of a business model hypothesis, got a few people, my mom puts money in whatever, you know, my friends have bought one, maybe it's real. Now you need to get to what startups called product market fit, have identified the right product for the right market. And Emily, and I would actually argue and just evil enough that its product market medium fit that we ignore the medium at our peril, that it's as important, you could have two people with the same product, targeting the same market, but one's got a medium advantage on a certain platform, whatever they will win the medium is like the platform you use to broadcast now. It's like what social media channels, what systems, what norms, all that kind of stuff, read the book, it's got much more on the medium. But your first goal is to go from problem solution to business model. Your next goal is to go from business model to product market fit. And then once you've got product market fit, now your job is to scale. And you can think about this as a restaurant. If I'm a good cook, I've got a business idea, right? Because like people like my food, and I can sell them my food. Once I've run a restaurant. Now I'm like, Hey, I got a business model, people pay me to get my food. Now if I run a second restaurant, and they both do the same thing, and they both run now I'm like, Oh, I can make a franchise, it's time to scale. Now I can take that and step and repeat my franchise, I wouldn't launch a franchise from day one, I'd launch a restaurant, then I'd launch a second one to learn what's not the same between the two of them, then I'd scale. So breaking your risks down so that you're de risking the highest and most uncertain thing first. And this is one of the big challenges that startup founders faces. How are you honest enough with yourself about what the risk is? The risk is often nobody will care. But nobody wants to admit that. That's a horrible thing, right. And so we tend to lie to ourselves about what the real risks are, if you can be brutally honest about what the risks are, and then find a way to de risk systematically using the least amount of capital at each stage. Then by the time you go to someone and say give me 20 million bucks, they'll be like, well, please take more, because you've proven to them that you can change behavior. And you've been judicious in the steps of going from I've identified a problem. I found a business model. I've got product market fit. Now I know how to scale?
Andrew Stotz 33:27
And is that what you felt like you weren't able to articulate that or you weren't through that process enough. And therefore they had more ability to say, well, we need 50% of this. There's just too much risk here. Is that what you're saying?
Alistair Croll 33:40
Oh, yeah, it was a hugely risky business. We were competing with cloud cloud, which was Marc Andreessen, his company, with site Smith with a bunch of people in that space and established vendors, we did the right thing, make no mistake, what we learned and what we built was great. We delivered value to our investors. It took way too long to do it. But it was an amazing experience. We genuinely built technology to change, like how the internet is run today. This stuff is, you know, and by the way, you should never underestimate the power of getting the phrasing, right. I used to do these complicated technology talks about why we were good. And then I finally learned how to explain what we did. I said, Hey, web analytics shows you what people did. We show you if they could do it. LinkedIn fidelity and Salesforce bought one of our biggest boxes that month. Like it just once you learn how to give people a Oh, yeah, that is pretty obvious. I do need that. Right. That was figuring out how to get people to care. All the technology was wonderful. We won Best of Show at interop the biggest trade show didn't matter. Figuring out how to get people to care. In simple words that seem obvious in hindsight, like, once you hear me say that you're like, Well, of course I need that. stupid not to I've got to buy one so I don't look stupid. And I'm gonna tell my friends. They're stupid. Now you've got people caring.
Andrew Stotz 34:53
Yeah. Fantastic. Well, what is a resource that you'd recommend of your own or any other
Alistair Croll 35:00
I'm a huge fan of Tim urban, who writes wheat, but why? And he has a post from 2015, called the tail end. And it's something that has been picked up lately and a lot of memes around things like 4000 weeks or whatever. But he does this fantastic job of laying out what does a human life look like? down to, literally, the days? And then he says, Well, you know, if you've got this kind of thinking, then you know, start asking yourself, what do you love? What do you really like doing? And as a result, how much time are you going to spend on those things, right? Like, there's how there's a presidential election every four years. So how many more elections you can have how often you go to a baseball game, if you love that, but you probably only go once every three years, I can tell you how many more baseball games you got in front of you, you could the good news about this is you can change it. And here's the point that he makes at the end of it. Living in the same place as the people you love matters. Like 95% of your time with your kids happens before they're 16 you spend 10 times as much time with the people who live in your city, as you do with the people of somewhere else. Priorities matter if you say this is the thing I love to do, do the math. I love to go sailing, I used to run a sailing school, I haven't been sailing in five years, I should probably fix that. Right. And if you sit down and look at stuff, you will lead a much better life. So this post is called the tail end. I'm sure you're gonna put it in here and on there. I'm looking at it right now. Yeah, but it is a very sobering and very hopeful thing. Because we can all change how we choose to spend our time going forward. And, you know, nobody knows why we're here. But we sure are hell as are we sure as hell are good at experiencing the world. And if that's our job, just to experience the world, maybe we should think about how to do that better.
Andrew Stotz 36:53
It's interesting, because you mentioned about how we spend, you know, most of the time with our kids, by the time that they're 16. When my father passed away, I bought my mother to live with me here in Thailand, and we've spent the last six years together every single day. And it has brought us, you know, a whole new level of relationship that, you know, I guess I wouldn't have gotten if I you know, maybe if I lived in America all my life, I probably would have had mom in a nursing home or something like that. But here, we're together every single day. And yeah, it's what matters. So it's a good reminder, it's a great resource that you've recommended. And for the listeners out there, what's the best place to for people to follow you? Is it in? Obviously, on Amazon, you've got your books, and I'll have links to that in the show notes. Is there any other place that people can follow you?
Alistair Croll 37:46
I have a substack a chrome.substack.com. I don't write on it much. Because honestly, these days writing anything that's on your mind. We have so little context that I know whatever I say I'm gonna yell that. So hopefully I'll start doing that. But there is a bunch of historical stuff there. And my blog was sulfur interesting, which is the name of my company. I'm trying to consolidate all stuff. So honestly, Addy, crawl on Twitter, where I speak too much my mind is probably the best way to find
Andrew Stotz 38:13
stuff. Oh, got it. I'll have that in the show notes. Last question. What's your number one goal for the next 12 months.
Alistair Croll 38:19
Uh, lean analytics did way better than I expected. It has been reprinted many, many times. It continues after like eight or nine years to be considered like the Bible of startup founding and stuff. Companion to Eric Ries is amazing. The Lean Startup that's a high bar and it's probably make me pull my punches. I'm just evil enough. So I got to finish just evil enough to prove I'm not a one hit wonder. I mean, it was my fourth book. But the other three aren't that interesting. So yeah, getting just evil enough. Awesome. And more importantly, using our own lessons like how do we subvert the publishing industry, get people to pay pay attention to it, because if we can't make you care about a book called just evil enough, you shouldn't read a book called just evil enough.
Andrew Stotz 39:04
Exciting, ladies and gentlemen, just go to the internet and type in the word subvert and you're going to think you're going to think differently about it and you're going to learn more about it from Allister in just evil enough when it comes out. Alright listeners, there you have it another story of laws to keep you winning. If you haven't yet taken the risk reduction assessment, I challenge you to go to my worst investment ever.com right now and start building wealth the easy way by reducing risk. As we conclude, Alastair, I want to thank you again for joining our mission. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?
Alistair Croll 39:47
Everybody wants to avoid risk, but taking risks is how we move the world forward. So you got to figure out what risks are worth it and then you got to just plunge headlong into them and don't pull your punches.
Andrew Stotz 39:58
Bam. And that's a wrap on it. Another great story to help us create grow and protect our well fellow risk takers this is your worst podcast host Andrew Stotz saying thank you for joining our mission and I'll see you on the upside.
Connect with Alistair Croll
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points