(Ep.90) The Acquirers Podcast: Chris Bakke – Startup Guru: Multiple Exit Entrepreneur On Raising And Investing Venture And Angel Capital

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In this episode of The Acquirers Podcast Tobias chats with Chris Bakke from Laskie. He’s a multiple startup founder. During the interview Chris provided some great insights into:

  • Value Hacking And The Pivot
  • Beware The Wantrepreneur
  • Starting And Scaling – Austen Allred, Co-Founder And CEO Of Lambda School
  • Developing An Opinionated Software Playbook
  • Invest In Kick-Ass Founders
  • From Real Estate Tech To Recruiting Tech
  • Safe Notes – A Simple Agreement For Future Equity
  • Startup Founders vs Operators
  • Massive Opportunities In Middle-Market Companies

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Full Transcript

Tobias: Hi, I’m Tobias Carlisle. This is The Acquirer’s Podcast. My special guest today is Chris Bakke from Laskie. He’s a multiple startup founder. He’s very familiar with the ins and outs of Silicon Valley, raising capital, starting businesses, running businesses, selling businesses, identifying what works and what doesn’t work, we’re going to talk to him right after this.

Tobias: What’s your background?

Chris: I’m a founder, and an operator occasionally. I differentiate those two a little bit. But I definitely do a lot of investing and stuff like that, but I think primarily day to day, the vast majority of my time over the last 10 years has been spent either starting companies, running my own companies, or running other people’s companies as an early employee. And so, really got started 10 years ago, out of college and joined as an early employee at a real estate startup here in San Francisco. And that just created this whole crazy whirlwind of three different startups, now on my fourth, over the last 10 or 11 years. And so, really spent probably the first five years in real estate tech, and then the last six years in HR tech and recruiting tech, with a whole lot of small company selling to big company, working at big company, going back starting or joining something else that’s small, and just repeating that process quite a bit over the last 11 years.

Tobias: So, real estate is the uniting factor?

Chris: Yeah. I love real estate. I spent, like I said, five years in real estate. When I was in real estate tech, started buying a lot of my own properties in like 2012. I’ve always been an investor in real estate. From a founder perspective, haven’t worked at or been running a real estate tech company since 2015. So, the last five and a half or six years has been super focused in recruiting tech. And then, now with my current company that started about a month ago, doing something totally different again. I think I just get really bored after five or six years in an industry. I find that once you’re in an industry, and you do really well, everybody wants you to help them, invest in them, advise them in that industry, so it’s hard to ever get out. So, I spent, again, six years in recruiting tech was absolutely exhausted and now every recruiting tech company wants to work with me and wants to have me as an investor, so it’s hard to ever leave. It gets these patterns of going deep into an industry for a few years. Again, if things work out well, and you meet lots of people, I want to support those people as an angel investor or LP or whatever. But certainly, real estate is definitely a passion of mine, but don’t consider myself a– [crosstalk]

Tobias: You’re not a real estate guy.

Chris: -sponsor. Yeah, not like through and through a real estate guy by any means, yeah.

Tobias: What’s the current project?

Chris: Yeah. Laskie is the company. It’s Laskie.co. I’m teaming back up with my previous cofounder and some of our early team from my last company interview. So, this team has worked together for seven years now across three companies. We are helping mostly mid-market companies as they go from like usually a few million dollars, up to like 10s of millions of dollars in revenue. Mid-market SaaS companies for the most part, but also working with a lot of marketplaces, really coming in and helping them from a strategy and sales perspective grow that revenue and build out the playbook and put the processes in place to make that happen. So, our team’s done this at several companies. And now we’re creating a model through consulting plus software that we’re building in-house to actually out a bunch of other companies do this.

Tobias: When you said earlier that you’d been both a founder and an operator, and sometimes you said that it was a distinction between those two. Let’s talk a little bit about that. What’s the distinction between the two? What sort of skills do you need?

Startup Founders vs Operators 

Chris: Yeah, I think founder is– it really is, I think distinct because the job is doing quite literally everything. I’ve spent hours trying to figure out this incorporation issue where one of our founding engineers is in Canada and we’re based in the US, and you’re wearing the part-time accountant and part-time state registration experts and part-time lawyer hat, and you’re dealing with kind of all these experts, and then you’re switching gears, and you’re writing code, or you’re selling the projects, you’re pitching clients. And so, it is this kind of shit show. I think in my experience and operator almost always, in my experience, it stays a much more streamlined process where you are in as a founder, you’re trying to find what works. As an operator, I think you’re taking what has been working and scaling that to the next level or putting the process in place to do that 100 times over or do it 10x better.

From my experience is, the two companies that I’ve started, it’s just like the first year, no matter how many times you do it, I have a lot of great mentors and investors and stuff who say the same and it’s always chaos, it doesn’t matter. There is no playbook, you’re entering a different industry, you’re hiring, you’re trying to figure shit out. It’s a mess. As an operator, my last role, I lead enterprise product for a division at Indeed, which is over 10,000 people, and hundreds of people on the enterprise team in engineering roles, and that was not chaos. There were billions of dollars in revenue there. And that was a story of how do we grow this already great machine and take that to the next level.

As a founder, it’s like, how do we consistently from a revenue perspective, how are we 10xing or 100xing for the first two or three years. Obviously, at a large company as an operator, I’ve worked at Zillow, right around the time that they went public and then Indeed, so both these fairly large publicly traded companies, and it’s a totally different beast. So, I like doing both, I certainly like starting companies more. But I think the nature of starting a company is that if things go really well, a lot of the times that ends up in an exit, and you end up working at the acquirer. And so, both of my experiences of working at an acquirer, post-acquisition have been great.

Tobias: How long did you last?

Chris: A little longer this last time.

Tobias: How long is that?

Chris: Yeah, the first time was selling real estate tech company, where I was an early employee to Zillow in 2012 and lasted about a year and a half at Zillow. And it was very fun, but it became it definitely became monotonous fairly quickly. I was a low middle manager, was probably like 24 at the time or something like that. And the company was growing really quickly. So, it created like a ton of untapped opportunity for me at pretty early age, which was awesome. But this last time was three years, when we sold to Indeed, and actually the founding team all left around the same time, about two months ago. But we were the first people on our team to go, which I think really speaks volumes to Indeed, as a company and as an acquirer that we were, I think one of the first companies that they had acquired. Like I said, this is a fairly sizable company of over 10,000 people now, and the fact that all of our team, from product people to engineers to UX to sales are still there, I think, is pretty powerful almost three and a half years in now.

Tobias: You favor the standing desk?

Chris: Yeah. I got both. I switch back and forth. I just got this set up and it works pretty well. I’ve got the books behind me so that people know that I’m smart. And we’ve got the plants, so people know that I’m cultured with artwork and it’s important to convey that to clients for sure.

Tobias: Yeah, I feel the same way. I’ve got the standing desk with a walking treadmill just there because I’ve got ADHD or something. I’ve got to be doing 10 different things at once. Where are you based in San Francisco?

Chris: I’ve been in San Francisco for, I guess 11 years. And so, my now wife and I, we were dating. We were dating and living in the city in San Francisco. We were there for about eight years together. Now, for the last, I guess almost three years, about two and a half years we’ve been out in Danville in the East Bay where we can hear cows in our backyard [crosstalk] and you pass horses on the way to our house, so it’s very different than passing car break-ins and piles of shit on the street, but it’s a whole different vibe here, but we’re only 45 minutes to the city.

Tobias: It’s cow shit rather than human shit.

Chris: Yeah, exactly. A different a kind of shit you’re dealing with for sure.

Tobias: Yeah, I lived in San Fran for a few years with my girlfriend, now my wife. And we had this nice view of the Bay Bridge. We were on Clay & Jones, which is where– it’s got the famous bullet bodega where they filmed the scene where the car losses six hubcaps through the course of the car chase, which is hilarious because it’s four wheels on the car. It was really beautiful. I had the shot of the– this angle on the Bay Bridge because you’re rent-controlled, you’re fine when you’re there, but I don’t think I can afford it anymore. I think it’s gone bananas there, right?

Chris: Totally. Yeah, it’s out of control. When were you there?

Tobias: 2004, 2005, 2006.

Chris: Okay, yeah.

Tobias: Also, there’s nothing going on. There’s nothing happening here. So, it’s all over. I missed it.

Chris: You’re right. Yeah. When I first moved back to the Bay Area. I was born in San Jose, and then left when I was growing up in Colorado, and then went to college in Los Angeles and came back. And I moved to San Mateo in Burlingame area in the South Bay and had a roommate, and we were in three-bedroom house that was two bath, but it had a one-car garage and a yard and everything. And we were paying, I don’t know, like $2300 a month or something. Last year, I’ve tracked that property and I know that it’s at some point, I think, at the peak of the market, that $2300 a month place was going for $6700 a month, nine and a half years after we left. I mean, that’s in certainly non-central business district, 45 minutes South of the financial district in San Francisco. So, yeah, it’s gotten crazy.

Tobias: You were schooled in LA?

Chris: Yeah, I went to school at Pepperdine.

Massive Opportunities In Middle-Market Companies

Tobias: Yeah, that’s a really nice area right there. When you’re thinking about opportunities that you want to– if you’re going to do one of these things, you know how hard it is to get something going to run at once it’s up and going and then to exit it. So, you know that there’s this all-in commitment for some years at least. How do you think about these opportunities? How do you find something that’s kind of big enough and interesting enough, that you’re not going to get six months into it and say, “There’s something else that’s more interesting out there that I should be doing?”

Chris: I invest in a lot of companies and I work with a lot of founders. I’m personally because it’s my own capital when I’m investing. I’m actually a big fan of these, like, middle-market opportunities. There’s the stuff that you like, that you bootstrap, or maybe you work on the side for a few months, or a couple years, and really the goal there in a lot of cases, it’s like how do I get this thing to $1,000 a month in extra income, or $10,000 a month and extra income so that I can go work on it full time. And then you have the opposite side, which is VC, which is largely if you’re not talking about– When we sold our last company to all of our early investors, we returned about 15x their money in two years. And I think we had 20 investors and we probably got three great job emails. Nobody gives a shit about 10, 15, 20 extra trends in VC. Most of them great people, and so super friendly with all of them today. That’s the gist of it. If you’re not the true outlier in a portfolio, it’s a challenge.

I think that there’s massive opportunity somewhere in the middle there, where it’s like, I don’t care about making $10,000 a month, and I don’t want to just do this kind of like solo entrepreneur thing. To be honest, I also don’t care about building a $10 or $100 billion company. And so I think that whether you measure it from a revenue perspective or an exit perspective, both as an angel investor, but also as a founder, it’s an amazing deal to raise like a million or $2 million from angels who are happy about getting a 10x return in two years. And build that business for a couple years and sell it for– our first company, we sold for 45 million. Our last company, we sold for a bit more than that. Both companies had not raised a ton of money. And so, for the founders, and for the early team, these are amazing exits. Investors, they’re not getting out of bed and writing blog posts about those types of returns. [crosstalk]

Tobias: That’s ideal, right?

Chris: -super happy and they’ll work with you again. Yeah, exactly.

Tobias: The idea is, you started up, and then you can sort of fund the initial stage from your own capital. And then you get to some point where you need to scale and you go to an angel, what sort of terms do angels look for, because but I’ve done a little– as a lawyer, I did some VC and the documents that we used– and I was always on the side of the VC, not on the side of the entrepreneur. The terms that we would hand across, I’d always be like, the only way that someone’s going to sign this stuff is if they are so focused on just getting the pat on the back from the VC, this is the stamp of approval, that you’ve got the money from this guy. But if you look at the terms, it’s like, you got 25% compound in this press, for the VC to get paid before you get paid. So, if you don’t get over that hurdle, there’s not going to be much left here for you, as a founder. You got to be confident that you’re going to smash this out of the park. So, what do you get from an angel? What’s different?

Chris: I mean, I think one way that the industry has really transformed, the first startup that I worked at in 2010, as an early employee, the terms were largely up until probably like 2012-2013. I think it was very common that you would have these wildly different terms from different investors, and you would have most favored nation. And so, you had to be like really careful about– I think sequencing capital in. Even as a small startup, at first startup that I worked at, I think the seed was around like a million or a million and a half dollars. And was the company was founded in Boston, I think two years before I joined. It was largely Boston VCs, and I think probably every one of those VCs had their own paperwork.

Also, you know as a lawyer, when you’re raising a million or a million and a half dollars, and you’re dealing with even just like 4, 6, 8 people on the cap table coming in with wildly different terms. I mean, I think very commonly, companies who are raising a million bucks, were immediately turning around and spending 50,000 to 75,000 on that [crosstalk] players.

Tobias: On legal fees. [laughs]

Chris: Right. This is the thing where it’s like, yeah, I think in that 2002 to probably 2012 range. This is where it’s a great time to be a service provider, you want to be doing a back-office services, accounting, law firm for these companies. VCs are making a ton of money, founders may not be making a ton of money, but over the last 10 years, it’s certainly been landlords.

Safe Notes – A Simple Agreement For Future Equity

Chris: Now I think, really, what’s transformed, at least the early-stage industry, and I think this is fairly specific to the US, although I think it’s growing pretty rapidly outside of the US is this concept, at least for early-stage financing of a safe. With safe notes, which were standardized by Y Combinator probably starting eight-plus years ago, but really became– you started to become ubiquitous with almost all YC companies shortly after the fact. But now, I mean, I don’t even know if I see, it’s hard to track the numbers because these are just available on Y Combinator site, but there are these very simple, standardized documents. A lot of VCs– [crosstalk]

Tobias: Do you want to just explain what a safe is?

Chris: Yeah. Safe, it’s basically, it’s a form of a convertible note that converts to future equity. So, I think, largely the way that these are structured is trying to do convertible note where you’re not actually having to go through the process of selling equity in a deal. And the deal is a little bit more flexible. But doing so in a two or three-page document, whatever it is, where these are, I think, ambitiously founder-friendly. There’s a couple different forms of the safe note and so you can do things like giving a discount with that note to early investors, you cannot give a discount. I think that there’s one where you can actually pay interest through safe notes. So, there’s a couple different versions and occasionally, companies will do side letters. I would never advise that. It’s super easy to get 20 people on your cap table with $50,000 or $100,000 checks that all sign the exact same safe note, you pay zero in lawyer fees, you pay zero to get that funding. And then when you go convert it, and you’re converting into equity in a series A or at a later round, these are all kind of commonly recognized by lawyers and lawyers, I think largely, and accountants largely have a pretty streamlined process. They’ve dealt now with companies that use this form of a convertible note, to convert that into future equity.

It’s a great tool for founders, but it also works super well for VCs, because, look, I don’t think that VCs 10 or 15 years ago, enjoyed the process of having to explain to founders where the founders needed to pay $50,000 out of pocket immediately. And now that $50,000 can go to an early sales hire or half of an engineer or something. So, it’s a much more capital-efficient way to get the first– usually like million or $2 or $3 million into the company and then it has– [crosstalk]

Tobias: Do VCs use safes or angels?

Chris: Yeah, I think angles use safes. Definitely early-stage VCs will sign safes, I don’t know if it’s their preference, but I think what we’ve seen is like, from VCs, there has been this rush to go down market. And so, by that, I mean, a lot of these companies– a lot of these VC firms who are focused on middle or late-stage venture capital, they were doing like Series B, Series C. Generally, we’re talking like $10 million, plus in terms of cheque size. Certainly a trend in the last, I would say, five to seven years where a lot of these firms have come down and started writing, at first like million-dollar checks to lead a seed round or to co-lead a Series A. And now I mean, you see through different scout programs and different ways of introducing very small checks, I think VCs realized, it’s highly advantageous to, A, build that relationship on day one. B, just as importantly, you’re getting data points, you’re getting the investor update, whether you have a $10,000 check or a $10 million check. You get access to the founder.

Our minimum check size, in our last round at my company was probably $20,000. But whether you were putting in $20,000, as a VC, a seed-stage VC or as an angel, we were sending you the same update, we were meeting with you, taking your calls. And so it’s such a great way, even for these $300 million, $600 million, like multi-billion dollar funds to get access and buy them access for $25,000 $50,000 pop, you’ve seen this– in some cases, it’s super focused, in some cases, it’s much more of a spray and pray approach just like invest in every early-stage company that we can, and we’ll just like see, and $25,000 isn’t the end of the world one way or another. But it gives us the leverage and the face time with the founder to put in a much larger check down the road.

Tobias: That’s interesting. So, they’re using like an information-gathering exercise, like a min-raise in poker or something like that, just to see who else wants to stay in the pot.

Chris: Yeah, exactly.

Tobias: I’m familiar with the safes because I’ve just read them. I’ve never negotiated one, but I’m a little bit pre-safe. Just for folks at home, the reason that the money goes in as a convertible note is so that you’re not immediately– if you’re the investor, and you put a million dollars into a company, and you get a third of the equity and there’s nothing in there, but an idea. If the founders didn’t turn around and liquidate, they get two-thirds of the million dollars that you’ve put in. So, you put the money in as a convertible note before you wait and see if there’s something that’s going to happen in there. And then you convert when you’re confident that they’re not just trying to squeeze you for some portion of your money.

The safes that I have seen, the idea was that we’re so early on, it’s so hard to fix a value here, what we’re going to do is we’re going to put the money in, when the next round occurs, when it’s easier to fix a value, we’re going to then renegotiate, we not renegotiate, we’re going to know what your shareholding is, so you might be getting a discount, you don’t necessarily get a discount, you might get some interest, might get something else. And that’s kind of how it works. When it’s progressed a little bit more and you get some more formal VC or just a bigger round, that’s when we’re going to fix it. When you do these investments as the angel, how do you like to structure and what are you looking for?

Chris: So, I’m an LP in Y Combinator, so I get a tiny fractional percentage of every of most companies or every company that goes through, plus some of their like later stage deals where now I see is leading these Series B, Series C’s through their continuity fund. But I also really like to double down on founders and I would say sectors that I know well. Historically, that’s been real estate tech companies. It’s increasingly becoming kind of people operations and HR tech and recruiting tech. And then there’s always some big wild swing bets that I’ll do where it’s like, I don’t know if you can build a supersonic jet. But let’s spend 50 grand and find out– [crosstalk]

Tobias: Cold fusion.

Chris: Yeah, exactly. Pets.com 2.0. In almost every case, I am never negotiating the– [crosstalk]

Tobias: You don’t negotiate the terms, right?

Chris: Yeah, they’re pretty much set by the founders. And I think there is a rush to get into these hot deals. And I think historically, depending on who you ask, there are these very hot deals where you’re just fighting and throwing elbows, like trying to get into the deals. It’s very hard to say if the cap, which is basically the implied valuation without actually structuring it as an equity deal, but if the cap on a two-week old company, is an $18 million cap, and that company is raising $2 million, it’s not an actual valuation, but the implied valuation is that like, all of this money will basically convert at a $20 million valuation into the next round. I mean, 18 cap is not crazy, right? There’s plenty of extremely credible second and third-time founders, now they’re raising on these. There’s a joke, if you’re any employee, at any level, who’s ever worked at Stripe, and you go out and start a company, you will find hundreds of investors who want to invest at 15 or an 18 cap into your company.

Invest In Kick-Ass Founders

Chris: A lot of times, I think, to your point, I think very rarely, I’m investing pre-idea. I like to see some confidence in a direction, but I think in many cases, I’ve invested very much pre-revenue. On paper, and now a couple times through actual liquidity events that has worked out. It’s also not worked out. I think these conversations in these podcasts are often about strategy. The strategy for me is trying to find, like, who’s a founder who I know will just fucking kick-ass? In many cases, the companies end up pivoting a little bit. It’s very hard and very rare that I think– I’ve certainly seen it, but I think it’s very rare that you have a founder or set of founders where they are a month or two into their idea. And that company, or that idea looks the same at year three that it did on week three. And so, you’re always learning, you’re always adapting. And actually, if it is the same, it’s almost in some cases, it can be concerning, because it’s like, “Wait, you went out, spoke to hundreds of customers, talk to all of these VCs, hired experts from the industry and you just nailed the idea perfectly the first time?”

There’s certainly a strategy in doing that, which is kind of like, I think you have to be careful in the other direction about not asking everybody in the world what they want because everybody’s going to want different things. And so, it’s really hard to build a company going around and saying, “Hey, how can we help you?” There has to be a thesis there. But I think largely, there’s always this idea of, “Do you invest in the industry? Is it about getting timing right? Is it about getting the total addressable market right?” I think certainly for me, it’s some crossover of, is this right time for this? What does the TAM look like? It’s probably to a lesser extent, but much more so, who are the founders? Are they awesome? Do they have the grit and intelligence and wherewithal to just like, brute force this thing to success? Because we’ve all seen so many great ideas fail, like ideas are shit. For the right companies, if you’re going after cold fusion, or if you’re going after building a new supersonic jet, yeah, you should have like a pretty clear idea of–

Tobias: You need an aerospace engineer.

Chris: Right. Yeah, we hope. We hope it’s not–

Tobias: Trevor Milton.

Chris: [crosstalk] –couple of philosophy kids from Stanford or something. But you never know.

Tobias: I’ve been joking about setting up a cold fusion company, that’s pre-technology. And so you can invest while we just figure out– we know that nobody’s ever figured it out before, but with enough money, I’m prepared to, like– I’ll just stand in the front like Trevor Milton, and I’ll roll the truck down the hill.

Chris: Yeah, this is a $400 million SPAC right here. I mean, these are the days to be chasing that. And then you put that pre-technology idea “on the blockchain,” throw Bitcoin in there or something and you got a billion-dollar company.

Tobias: [crosstalk]

Chris: Right, exactly. Yeah, that’s all worked out super well.

Developing An Opinionated Software Playbook

Tobias: You’re now an experienced founder, startup, manager, operator. The current thing that you’re doing, you’re using some strategies a little bit like consult to build some software, so you’re getting paid to figure out what these guys are going to need. And then you’re going to standardize that formalize that into some form of software that then that will eventually become the product. Is that the strategy that you’re pursuing there?

Chris: Yeah, the current company Laskie is, it’s certainly a different strategy from anything that we’ve done before. And to be honest, I think it’s a less aggressive, but a really fun strategy, which is something that I’m certainly excited about. It’s like, I get to work with some of my best friends, and we get to very much pick and choose our customers. It’s all funded by us, we haven’t raised any outside capital. There’s zero pressure. I don’t have to write investor updates, we’re not out there pitching. It’s simply a mix of– I think, a few ideas that we’ve always wanted to build of taking consulting and taking agency work. And really, truly seeing how far we can actually automate that and productize it. And so, there’s a few different ways there. But I think we’re really starting and focusing with helping companies get their sales and marketing in order, because a lot of times, I think it’s a hybrid.

In some cases, companies have no idea what they’re doing and so we can come in and actually write that playbook. I really liked the idea of opinionated software. So, opinionated software is, I don’t think it’s a new thing. It’s been around for a while, but a really good example of opinionated software is like goal setting, or maybe one on ones with your employees, which is there were always ways of documenting and writing notes around one on ones or writing down your OKRs or your KPIs or your goals for your business. There have been a number of companies that have done extremely well saying, like, don’t just give people a blank canvas and give them a place to type the shit. Actually, tell them and direct them and handhold them, occasionally with very integrated professional services who are in the business running, coaching seminars around how to do great one on ones with your team? How to hire well? How to set grade OKRs.

When you look at companies, like, I think that there’s great up and coming companies here, like Lattice, there are super established companies like Workday, but these companies generally have a thesis, it’s not this blank slate of note-taking software, it looked like 10 years ago, in a lot of these cases, it is like, do this step, then do this, and we will take care of the rest. And so starting to do that with sales and marketing, but starting with an approach of like, I think we’ve built as a team, we’ve built businesses that are profitable and we’ve sold a company together, and we’ve worked at a huge company. And I think we know a lot about sales and marketing, but we’re also trying to learn. And so, part of the consulting aspect is that currently we’re a month in, we have eight clients that are usually early to mid-stage, but with an enterprise thrown in there as well. And we see all of these different ways that companies are doing things around their go to market strategy around sales strategy.

We also work with a lot of external sales coaches and consultants and stuff. So, a lot of this is just like, it’s pure, intelligence gathering, it’s information gathering. It’s trying to figure out what’s working at what stage, and then through that on the back end, it’s very easy to say, if I’ve done this thing manually, it’s not a month, it’s probably not six months, it might be a year or many years. We have a really good sense of what sales expert or sales consultant, or sales coach, or somebody who’s doing this back-office automation actually does when they go into the company. And through software, I think that there’s a lot of ways to actually make that process more objective, standardize it, and also just bring the cost down.

At the end of the day, we’re sending cold emails here, folks. This isn’t the end of the world. You shouldn’t be spending $100,000 a month on your cold email strategy. And yet tons and tons of mid-market companies are doing that. And so, there’s a lot of things that we’re excited about. And then I think in the future, transferring that and copy and pasting and templatized that into other things. It’s something that we’re super excited about doing that for research and marketing and some other areas in the business.

Tobias: So, you use the consulting to go in and just look at how lots of different folks are doing it. And you can, because you’ve had some experience doing it and you know what the current state of the art is in the market, what other people are doing, you can say, “Have you considered this.” But the objective of eventually building this software, that it prompts you through the process. it’s not just record a note, it’s like, this is best in class, or this is what you should be doing at this stage, do this, record that and then you can have some backend that collects all of the data and statistics and gives you some sort of report out of that?

Chris: Yep, exactly, right. VCs don’t like this idea, which is totally fine with me. It’s a business, we’re a month in, we have a small team, we are profitable today. This is an agency business that becomes a software business. If you look at from, does this ever become a big business? The answer is, I don’t know. I think I would be bullshitting you and everybody, if I was like, “Yeah, this is our very clear path to like, a billion dollars.” This idea of taking a breath and just not coming in like hard-headed and saying, like, “This is the way that you should do everything. We’re three weeks old and we know our shit.” I think that there’s mutual learning on both sides.

One thing that inspires me is when I look at companies, like, I mentioned Workday, I think Shopify is another classic example. The team at Shopify, lest we forget, I think spent three years with a single customer, which was basically themselves trying to sell snowboards online. Before they ever thought like, “Hey, man, maybe we should go repeat this process and see if we can make this into a platform.” Three years is a long time. And so, doing that, I think we’re super comfortable just doing like the agency and consulting piece for a while. I don’t know, if it’s three years, I don’t know, if it’s six months. You look at Workday, at the time that Workday when public, I don’t remember exactly, but I think close to half of their total revenue at the point of filing their S1 one came from professional services. Workday was a company with extremely legit founders who came from PeopleSoft, they knew software, they knew what it took. But I think the differentiated approach is that, in our case, there’s a million things to help you with sales. There’s a million ebooks that you can go by on sales. There’s a million coaches and consultants that you can bring in, you know how all of this shit actually fits together.

In a lot of cases, you have the software, but you don’t even have time to use it because you’re an early-stage company and it’s crazy. And so, if we can come in and say like, “What are your goals? Your goals are to sell an extra $200,000 a month of software by X day. Let’s back that up and actually talk about how you could do that in a more kind of sustainable automated way.” And so just doing that with companies is really with on the financial side, and the HR side is really how Workday got their start. And I think that there’s certainly a path there for sales and for marketing and for engineering, which is just everybody’s so focused on getting in the product out. I think in a lot of cases, that’s premature. You want a product so that you can go raise capital, and then all the time you’re like, “Well, shit, is this the right product to go build?”

I’ve always been a fan. We certainly don’t want to be in the business of selling our time forever. But it’s a great way to make to build the business and sell fund the business and then see, I think we’re open. It’s in a year, we could say, “Holy shit, we have a thing here that we will become a billion-dollar company and we need capital to go double down on it and scale it.” Or, “I think in a year, we could go– we’re running a $2 million a year revenue business with decent profit margins, and we can hire whoever we want.” And that’s a good life. We’re keeping options open.

Value Hacking And The Pivot

Tobias: I love the idea of the pivot. I’m not in the startup VC San Francisco world. So, it might be me describing Goodnight Moon to you, but I’m going to give you my impression of what happens. This is just me listening to other podcasts and trying to figure it out. But I’ve listened to this one way, so the value hacking period is like you’re going through and you’re trying to work out, how are we actually going to make money? Or what is the problem that we’re actually going to solve? And I think that I find it, the most hilarious example of it is, a successful example of it, is Stewart Butterfield with Slack where they’re basically trying to build a game and they built this tool for coordinating all of their other sales– software engineers, and that tool that they’re building for the game eventually becomes the product of the company. Somewhat in the same way that Shopify did it. And they contacted Marc Andreessen. And they said, “Guess what? The game’s dead. We’ve got this tool–” Andreessen, I think there’s a pretty famous email or something where Andreessen is just like, “What are you going to do?” That’s why this business goes.

What’s your view on the value hacking and the pivot? I’d be terrified if a business that I was invested in just changed course all of a sudden, like midstream from a game to a tool like that.

Chris: Yeah, the answer is that everybody, I think, on Twitter and on podcasts, and maybe this makes me a bad guest because everybody has their thing and they’re really trying to sell you on it. So, you end up with these people who are extremely intelligent, like I said, on both sides where you have DHH, who’s building bootstrap software, and I think their company that now includes like, “Hey, the premium email tool and stuff.” They’re doing, like $30 million a year with a relatively small team. And so, he does really well, like going around the world and saying, like, “You’re an idiot, if you raise VC. I make $30 million a year and I drive awesome cars, and I hire almost all great people, and we work 30 hours a week.” This very amazing lifestyle. And it’s like, “That’s awesome, dude.” Not many people can get there.

And then there’s other people where it’s like, this is super simple. All you have to do is just pick an idea and stick to it. And that’s how you build billion-dollar companies. Cool. There’s a couple of those built every year too. For everybody else in the middle, I think that the actual truth is, I think Slack is a great example. Twitter was created out of this, basically ideation lab and it started, I think they’re doing a podcast app or something. And then they put this out there, and it became wildly successful. There’s no one path, I think is the answer. Palantir, another extreme example, spent their first six years working with one customer. So, very contrary to the advice of like, “Go out and just watch that line grow and see how fast you can get customers.” They spent six years embedded with single customer before they went out and they try to get their– [crosstalk]

Tobias: [crosstalk] –CIA or something like that.

Chris: CIA. Yeah. I don’t remember exactly, but how do you look at a business that is doing pure software consulting for the CIA over six years ago? Shit, right. This is a great venture bankable business. [crosstalk]

Tobias: Customer concentration makes me a little nervous.

Chris: Right, exactly. To your question, the answer, I mean, I think really is, as an investor, the scary thing in VC is, you don’t know. A lot of it is luck. I think every narrative that I’ve personally experienced around VC is, there’s some violation to that narrative, like, somewhere in my own portfolio, and I look at– that’s a relatively small number of companies. As an LP, there’s probably exposure to hundreds and hundreds of companies, but as a direct investor, I’ve put money into somewhere in the range of 30 to 40 individual companies. And you look at like, being a solo founder is a terrible idea. You should never invest in solid founders. One of my top companies is run by a solo founder. You should go out and do a lot of customer development first. One company was created literally overnight and became a huge success and had a big exit last year. It’s hard to ever know. And so that’s why so much of this business, too, I think like anything in investment is relationship-based. I always view it as play long term games with long term people.

If I invest in somebody who I really like, and I think that they’re super sharp, like of those 30, or 40, companies are there, I’ve only been serious about investing for three or four years into VC backed companies, but three or five of those companies have already sold, and I regularly– or I have already failed rather, and probably know that three or five have sold, and I treat all of those founders the same. And I think that they treat me the same. The companies that failed, the founders go off, and they get jobs. And then they work in those jobs for three years. And I think that they improve, and they may meet people and they get ideas, and then they go off and do it the second or third time, maybe something works there.

And I think your example, too, with Slack is like, this is why I think classically, ideas can be overrated, they’re certainly not all overrated. They’re definitely good ideas and bad, but a lot of times something sounds like a good idea and you go and try it, and there’s nothing there. And so going back to the grit and the ability for a founder to go like, what is the last drop of juice we can squeeze out of this lemon before we give up? It’s a very obvious quality to look for in founders, that’s why it’s important. There’s a ton of other people who would have been like, “Well, shit, my game sucks. Nobody wants it, time to move on and go get a job at Microsoft,” or something. And there’s nothing wrong with that, but I think if you find the right founders, you can like, just are great are highly efficient at using that last bit of capital in ways that you can throw that Hail Mary. There’s tons of stories and tons of cases where that’s turned out to be a great thing.

Beware The Wantrepreneur

Tobias: There was this idea in San Francisco, and I was there, and I think it’s still– the wantrepreneur. What’s a wantrepreneur? How do you distinguish the real thing from these guys?

Chris: Well, I think everybody’s definitions a little bit different. There’s two ways that I’ve heard and that I probably used wantrepreneur. There’s the derogatory version, which I think is, there’s this idea of a sitcom startup. And a sitcom startup is like, if you’re watching– pick any wildly popular show, if you’re watching Seinfeld, or you’re watching Friends, you’re watching Cheers or something. There’s always the one character who’s always working on a business. And the business in the sitcom, it always seems plausible and then actually think about it. And you’re like, “Shit, that is a terrible idea.” Like, oh, like Ross in Friends is off building like a bakery for dogs or something, and you’re like, “Ha, ha, that’s funny.” Then you’re like, “Wait, if he actually did that, that’d probably be a disaster.” There’s people that build those, which is like, they just want to build something, and so the idea of sucks and their execution sucks, or whatever.

In a lot of cases, that the derogatory nature of that is like, you’re just going through the steps, you’re raising capital, say that you’ve raised capital, there’s no momentum there with that capital. There’s no ROI. There’s no chance of $1 in, $2 out with this business. And often, I think the ways that wantrepreneurs in the derogatory sense get caught up in the game is around hiring. Hiring is a fucking mess for so many companies because once you have capital, it’s very easy to feel like you need to go use that capital on something. And I think that there is this danger, which is for better or for worse for popular companies, 10 years ago, raising a million-dollar seed was like a huge milestone. When I raised for my last company in 2015, great companies were raising 2 to 3 million. Now we’re seeing a lot of companies raise $3 to $5 million out of the gate, literally as like, a month old, two months old. They may have an idea, they may already have an amazing founding team. But if you are a month in and I, plus other people give you $5 million, there is a massive danger in sprinting in the wrong direction really fucking fast with that money. And so that’s something to avoid. If you have a great founder, and you have a great market, and there’s a great addressable opportunity there, then throwing $5 million, if they fail a little bit and hit the wrong direction, there’s capital to go, readjust into the right direction.

Wantrepreneurs, you are going and you’re just raising money because your friends raised money. And for whatever reason, you’re just going through the motions and you end up hiring people. And hiring people is fun, because a lot of times it’s like one of these bullshit vanity metric milestones that go, “How many people work for you?” “Oh, we had five last month and we’ve grown really fast and now we have 10.” It’s like, “Oh, my God, you must be–”

Tobias: 100% month on month.

Chris: Quibi had 400 people. I guess they’re doing super well. This means nothing. And there’s extremely successful. Craigslist, I love because Craigslist did over a billion dollars, I think it was about $1.05 billion last year, in 2018, they gave a team of about 35 people. And those companies do exist. I mean, plenty of fish, like the dating company was kind of on a similar trajectory, they have like four employees and were doing over 100 million dollars in revenue. None of these things match up. So, that’s like the derogatory sense.

The more interesting outlook for wantrepreneurs is actually the concept of like, I’ve worked at now to pretty sizable companies and there’s tons of people within those companies, within those companies who are extremely intelligent, extremely driven, have never started a company or really want to start a company. I actually view that as like, massive untapped potential, from a business standpoint, from a media standpoint, from a content standpoint. These are the people who you are very interested in. 15 years ago, you were subscribing to like Inc Magazine and Entrepreneur Magazine and all this shit. You may have been working at a big company or working at a startup. That was me, like, when I joined my first startup, as an employee, I was just like, “Give me all the information about how to be a founder.” There’s a number of companies that have gone after these wantrepreneurs in a very ambitious non-derogatory sense of the word.

There’s huge value to be– I think still extracted in helping people go from like– I’m a successful engineer, successful salesperson, successful product manager at big companies, small company, doesn’t matter. How do I go from seeing what I do in this machine to going off and creating my own machine? And that’s why I think like Twitter’s hugely valuable. There’s incredible people on YouTube now, like, show your work that I think this is why it’s so valuable on Twitter, at least for with founders and like tech Twitter, which is like, if you show your work, it’s like, I get this snapshot or this movie that probably, it’s a lot of like revisionist history, it’s a lot of bullshit. I somewhat see the ups and downs of, all these different founders on Twitter talking about a bad investor experience, you’re talking about how they had to bootstrap their business for the first years, because they couldn’t raise capital, talking about how they got their first 10 customers. And I think that’s one of the reasons that I try to do this.

I think very few people fall into this myth of Mark Zuckerberg and Facebook, which is like, entrepreneurs are all like, 18 and 19, they get a great idea and they just execute for years. It’s so rarely happens, it’s pointless. And so, creating content, creating resources for, like, people who want to be entrepreneurs who are not, I think is an awesome thing.

Lessons From Austen Allred, co-founder and CEO of Lambda School

Tobias: Last question, how do you distinguish between the folks who make that successful leap from employee gifted in some specific vertical to being the person who’s running the whole show? Is it possible to know or you have no idea beforehand until they’re tested? Or, do you have some things that you look for in particular?

Chris: Again, I don’t actually know if this is true. I think it’s easy to have a thesis here that might be very wrong. Personally, I like to see that you are not good because you inherited this amazing process. There’s this concept in sales, it’s a joke, but people took it as true for a long time, which is like, when you’re hiring a sales rep and you have two candidates that are coming into the office today, back when offices were a thing, remember that?

Chris: Now on Skype, run Zoom, you have two candidates that are coming in. One of these candidates, she worked at Google and she was selling YouTube ads. And she’s like, showing you like, “Look at all these amazing things that I did. I consistently hit my quota. I did all this shit.” And then the second person, here she comes in, and it’s like, “I sold fax machines in Baltimore for the last 10 years, and I hit my quota.” Hire the second person. These products are amazing.

They sell themselves like, go find the person who actually had an uphill battle and has the like grit and tenacity to go, figure out how to sell those things in 2020. It sounds like a joke. But I mean, there’s people out there today that are literally selling vacuum cleaners and fax machines and copiers and stuff. That doesn’t always translate into a great founder. Certainly not. But I think that idea of like, at any level, if they’re an engineer, if they’re a salesperson, if they’re a product person, it’s easy for anybody to look good on paper. One of the things that I try to distinguish is, like, has there been any bad days in that process? Did you actually have to fight to get there? And figure shit out and get creative and get in the weeds with your pricing and your positioning and your go-to market. Not everybody has that, but when I look at a lot of great founders today, whether they’re first company or second company or whatever, like worked out, or it didn’t work out. The ability to take that and copy and paste it into a company is amazing.

I mean, there’s founders Austen at Lambda School. He was in the Ukraine or something and he was knocking on doors, he was a Mormon missionary, trying to convert people to Mormon faith and like– [crosstalk]

Tobias: They will teach you sales.

Chris: –barely spoke the language, whatever. Now applying that same, like, we’re just going to go out and figure shit out and do whatever it takes to an actual product and finding product-market fit and hiring people and convincing amazing people to join. I mean, there’s so many other entrepreneurs. I’m not saying that that is the one and only thing, but I think a lot of times you do find that level of hustle. With people who come from non-desirable, not great companies and they end up being like fantastic entrepreneurs. And certainly the other can be true but lot of times, I think I end up betting on the underdog from you’re an engineer, like the world’s worst company, but you seem uniquely gifted and I don’t know how you ended up there. But I think if you’re running your own thing, you can make it successful.

Tobias: What you’re saying is my pre-technology cold fusion startup needs the page king of Glendale to come in as my first hire?

Chris: That’s right. Yeah. Find that last person who’s at the Auto Body Shop who’s still selling spinners in 2020. And get that person moving cold fusion immediately.

Tobias: That’s awesome. Chris, if folks are looking to follow along with what you’re doing, or get in contact with you, how do they go about doing that?

Chris: Yeah, definitely. Twitter’s fun. I like Twitter. You can find me at my handles @ChrisJBakke on Twitter. You can also email me, I’m chris@laskie.com. Last thing is, I love just helping founders, people who are looking to become angel investors, people who are looking to become early employees at companies, all for free. I think that we are very big believers in the power of karma. The story that I just told somebody right before this over email, is that in my last company, we worked with a handful of founders when they were 8 or 10 people. And we were selling a product that should have been to everybody else who are selling it for $2,000 $3,000 a month. And I remember giving it to Tony at a company called DoorDash for like $200 a month.

He’s few months out of YC and that turned out super well. We took a bet on a couple of co-founders in Los Angeles when they were fairly early today, they have 15,000 employees. You just never know like. I think with both of these cases, it’s like we probably saw some handwriting on the walls early on. There would be these kind of successful companies. But ultimately, I love getting emails and just like chatting and shooting the shit with people. It’s what I spend like a lot of nights doing. And so, if you ever have like a question about starting a company, investing in one or growing sales, just feel free to shoot me a note or follow me on Twitter.

Tobias: That’s fantastic. I’ll put all of that in the show notes. Chris Bakke, Laskie, thank you very much.

Chris: Cool. Thanks so much.

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