Neal Sales and Amos Schwartzfarb @ Techstars
Ascent Conference 2020
Neal Sales [00:00:02] And we’re live. Hey, everyone, my name is Neal Sales Griffin, I’m managing director of Texas. Chicago also involved in a number of other things, like teaching at Northwestern University here, entrepreneurship and engineering school. But I’m excited to be here today with Amos who go ahead, introduce yourself Amos.
Amos Schwartzfarb [00:00:19] Hey, what’s going on, everybody? And what’s up, Neil? I’m Amy Schwartz Farb. I’m the managing director of TechStars in Austin. Been a founder or founding team member several times, several different companies, and also wrote the best selling book, Sell More, Faster. And today, Neil and I thought it would be fun to have a conversation as the title of the talk is Building a business is greater than building a startup. So where did Neil and I are just going to sort of bounce and talk, talk to each other and hopefully all will find it interesting and feel free to reach out to either one of us or at least me. I will speak for Neal any time to chat further.
Neal Sales [00:01:02] Saying no, same deal and just clarify a few other things. I realized, like Amos is really awesome and I should I should mention why I even deserve to be having this conversation with this man. I had a few other things. I started some companies and like I started one of the first coding boot camps. I ran for mayor of Chicago. I did a few other things, but well, we’re here to talk to you about today is what I’ve been most excited about. So our goal is to make this as conversational as possible, because Amos and I have gotten to know each other as colleagues over the past year. He’s been a long time investor. He’s gone through, what, five different accelerator programs, at least so far. Yeah, so that’s 50 companies there. And you invest in other companies outside of that, too. So there’s so much that I’ve been able to learn from him in the past year. And then now he’s like a two time author. I’m just grateful and stoked to be here and hopefully to unpack some of his knowledge, to share with all of you. And maybe every now and then something cool will come out of my mouth, too.
Amos Schwartzfarb [00:01:57] Yeah, I’m going to say, y’all listening. This is going to be a mutual love fest, because when Neil and I met, I think like I listen to Neal shared his founder’s story and he is being very humble about it. And I don’t tweet all that often, but I felt compelled to just say I just met my my favorite new person in the world, which was Neal. And I have been so thankful for his his friendship and his tutelage over the past year that we’ve known one another.
Neal Sales [00:02:25] Thank you, man. Thank you. All right. All right. I got this is over. We promise we’ll get more on our own time.
Amos Schwartzfarb [00:02:33] So as the title of the of the talk is building a business is greater than building a startup. What does that mean to you? Maybe we just start talking about what it means to each of us.
Neal Sales [00:02:42] Sure. Yeah. And I’ll be honest with you, like, I actually spend less time these days, like immersing myself in splicing of language. Right. So startup versus business, like what does that even mean at the end of the day? What I mean what I mean when I say someone’s in business is, you know, are you on a path to earn more than you spend at some point? Right. Are you helping people and you’re helping the world become better by solving a meaningful problem of for yourself and otherwise? And are you in a position where you’re able to either sustain that or grow that? And I guess the distinction a lot of people make between startups and what they would call lifestyle businesses, I think is starting to blur more and more than ever. So this notion of a lifestyle business that is almost dismissive of of a traditional way of making money and sustaining oneself, I would like to challenge because it’s well known in the city that I’m from in Chicago, that many lifestyle, what are seen as lifestyle businesses can become very successful, very profitable and make millions, if not tens of millions of dollars. So I don’t know what kind of lifestyle that is, but it’s pretty damn good if you ask me.
Amos Schwartzfarb [00:03:46] Yeah, I completely agree. And I think when I think I do think about this, the specificity of words quite often, probably a little little too much to my detriment. But to me, there is something meaningfully different potentially around those two things. And I think for me, one of the big differences, building a startup, when I when I hear people saying that it’s the image they have in my mind is we’ve got a really cool idea and we want to get it out into the world and see what happens. Building a business in my mind is is precisely what Neil said. We have an idea. We want to get out into the world. We believe that we will be able to provide value to someone or some group of people. And in exchange for that value, we will make money so that one day we will make more money than we spend to create a meaningful business.
Neal Sales [00:04:40] Yes.
Amos Schwartzfarb [00:04:41] Yeah. And I think, you know, one of the things that that that I find I’ve found this topic particularly interesting lately because I we meet a lot of companies at TechStars. And I think one of the things that we all scan for is what are you trying to do? Because at the end of the day, what. We are investors and we want to be investing in people that we believe can build meaningful, long term, sustainable businesses and so, you know, kind of thing about it that way, and especially whether or not you’re applying to Texas or going out and trying to get funding from seed investor or an investor, I would encourage everyone to just think about it with that mindset, which is, you know, yes, you have a great idea. You may be able to touch every human being in the world and at some point you’re going to need to make more money than you spent.
Neal Sales [00:05:36] You know what, Amos? You just you triggered a thought on mine. So if it’s all right, I’ll jump in and add a couple, you know, a couple of times. That is so. One thing I’ve noticed, and it’s been bugging me a little bit because I’ve been murmuring it to myself at times and I don’t know how I even feel about this statement, but like sometimes it feels like some of the founders, not many, but but at least some are playing startup, meaning like they’ve read they’ve read the books, they’ve done the Google searches. They looked at the start of school, Y Combinator, whatever. And like here that and the other TechStars toolkit, not lot, but like, where’s the beef? Right. Where’s the substance where like like we have to get out of our desks and our presentations and our write ups in our in our in our documentation and focus on like, all right, am I going to get my first customer, my first 10, my first one hundred two. I have a plan and clarity and that that is metrics driven that’s going to force me to face the truth as to whether I have something real or not, or am I going to play this game where I’m convincing and persuading people that I might will maybe likely have something at some point soon, therefore, give me a chance. So it’s tough because on one hand, there are plenty of businesses that need early, very early capital in order to make progress. But there are so many more businesses that could do with so much less if they just focused on the things that mattered the most. Right. And I know you talk about this a lot. You’ve written about it a lot. But for me, as a as a relatively new investor the past few years, I’m starting to see the other side of that in a way that I hadn’t seen before. And I’m honestly trying to still figure out how to best support founders to transition from playing startup to building that business. So I guess that’s how I would distinguish it, too.
Amos Schwartzfarb [00:07:21] Yeah. Kagoshima my brain was like, it’s going in three different directions right now. But I think the thing that ties the directions together and is related to what you said, I have a close friend and former co-founder Russ Smith, who loves to say life is three part math and one part business. And and his belief is that most of us get it wrong. And so if you think about that, like in terms of a startup, especially early on, there’s a lot of storytelling. Right. So the question that I always pose on people is how do you use math as the basis for the story versus the story?And then you go figure out what the math might be. And it’s a little bit of a chicken in the egg when you’re really, really early at sort of one of my thought processes. And I’ll admit something. And when I ran my first program at TechStars, I remember one of the companies coming to me and they were that an investor that was really interested in them. And they said, you know, the investors asking us for a five year financial model. And I sort of dismissed it. I’m like, that investor doesn’t know what they’re doing. And I will tell you, Neal and everybody, fast forward five years. They knew exactly what they were doing. This isn’t about whether or not your math is right.This is how do you think about the math? In fact, we expect it to be wrong. It doesn’t really matter what the number says. You know, if you say you’re going to be a billion dollar company in two years, we’re going to question whether or not you’re grounded in reality. But more importantly, like, how do you believe the intricacies of your business will work? So that we can see the thinking behind how you might one day, if you are really fortunate and execute really well, can turn your business into something meaningful that makes more money than it spends. In other words, how do you how do you tell your story with three parts math and one part theater?
Neal Sales [00:09:14] Now, Amos, that speaks to, I think, a recent experience of mine, which in evaluating my most recent batch of companies that I’m interested in investing in for TechStars Chicago, I had them actually submit some financial information. And in going through that and giving them feedback and coordinating like the development of a financial model with my good friend and colleague Troy Winikoff from Venture Partners, who I know is also collaborating with you on your book. He’s the guy that flies around the world to teach people how to do financial modeling. Now he’s doing it all through, but he’s still doing a great job. But anyway, it’s interesting because I struggled with my request to them to ask for a year, one year, because I know how early stage they are and I know how difficult it might be to forecast the next two months. So you’re totally right. I settled on a year, but I clarified it to them and I said, look, I just want to understand how you think this is.We’re not going to hold you to it. Whenever I start my meeting to evaluate their models, I say the first thing I know about this is that it’s wrong. Thanks, Troy. But like, it’s all about having a thought process associated with that potential model. And even when you pivot, because you likely will in some way, shape or form and your model will significantly change and all of the assumptions within it, within it, it’s still meaningful to have gone through that exercise and it forced yourself to do it. So I had Founders’ that struggled with accounting and finances. They come into my program. I’m like, you need to build a financial model. You need to build a financial model. They eventually do it, but some of them didn’t actually do it well until they got through the whole thing. And they actually needed to raise money and they actually had to face the music and actually work with investors and to prove their worth and their value to be on just internally. And in doing so, so many of them were like, Neal, why didn’t you make me do this sooner? And I’m like, I tried. I tried to get you to do it sooner. So now we’re here. And I think the world needs to know how powerful it can be to use metrics to drive progress with your business, even if it feels weird, icky, incomplete, inaccurate. It’s OK to start.
Amos Schwartzfarb [00:11:19] Yeah, I totally agree. In fact, I’m I’m half embarrassed to admit this and half proud to admit this. And I don’t know that I may have told you this. I can remember I did. But so first of all, I’ll get to that. But I’ve learned so much from Troy as well. We can make this Troy. Look, that’s one of the things that he has that he has said over and over. And he’s come to all five of my programs to teach financial modeling is when you have a great financial model. It’s not about looking backwards. It’s about having a crystal ball to look forwards. And the crystal ball is going to be really foggy at first. And over time, as you get better and in in in building the model and using it to run your business, it gets more and more and more clarity. And partially because I have this this book coming out, which includes a chapter by Troy Financial Modeling. I went and decided that I was going to create a fictitious company and build a financial model from scratch. I’m not a finance guy. I’m an English major. And, you know, and I played around in theater a little bit. And I am not a financial guy at all. And it was really, really hard. I would say I’m ninety five percent done. It’s never really done. And I’ve worked maybe 50 to 60 hours, real hours over the course of a month on it. And now this fictitious business, I’m like, oh, I get how it works. Or it could work theoretically, but but it is hard work. And it reminds me of when you were earlier on when you were talking about what what it takes to build a business, whether it’s a bootstrap business or a lifestyle business, whatever that’s supposed to mean, or building a business is not a lifestyle or it is a lifestyle. Regardless, one of the things that that that strikes me and I think this is I think this goes back to like the building a business is greater than building a startup. It is hard work. And you and I know this, but the thing that I that I try to stress with founders all the time is you have to like, literally imagine yourself digging a hole that’s one hundred by one hundred by one hundred feet with your fingertips. That is what starting a business is. And there isn’t there are almost never growth hacks or hacks to do it faster. If you’re doing that, it means you’re probably skipping steps. That includes building a model. The model is about like, oh, I know how to do fancy math equations and excel. I actually think it excel. I’ve learned a lot in the last month and a half, but I’m not very good at it. But what it does is it forces you to go dig that ditch with your fingertips so you understand what the different layers are made of. When do you need are you going to need something heavier than your fingertips? Because there’s rock. What kind? Soileau, you’re dealing with are their roots, are their roots there? How hot is all of these things that makes you think deeply about how to go and solve the things you’re trying to solve the most?
Neal Sales [00:14:07] Yeah Amos Let’s see. It was, I think. Fourteen years ago, when I started my first company and a couple of my my co-founders, the guys that were building the business, I was building the business, what they knew more than I did. Right. They had both started little startups beforehand. And one of them was very, very savvy financially. So he had built this really fancy looking financial model and he showed it to me and we were building the business model. And I was so intimidated and overwhelmed colors and formulas and all these things. And I was an I was an education and social policy at Northwestern. So I wasn’t, again, like, you know, not a finance guy. However, in that startup, I didn’t touch the finances. I didn’t touch the financial model. I was a sales guy. But my second start up the next year when I was running to barbershops on the south side of Chicago, I had to learn accounting. I had to build a financial model. I had to understand how expensive it was in my assumptions to wash towels every day, like those line items started to click and make sense. And all of a sudden all that accounting B.S. lingo that I was bored by before I became really interesting because it was going to affect how much money I got to take home every day. So I guess the advice that I’m trying to layer in here is make it real for yourself and like, aim small, Miss Small. So don’t overwhelm yourself by building every possible scenario and every single item that you could for your business at once. Start with the basics, the high level. What do we take in this month? What are we sending out this month? How do we make sure that we know our assumptions for what that’s going to be next month? And once we build that out, everything else can kind of take form around it?
Amos Schwartzfarb [00:15:46] Yeah, I totally agree. And similarly, you said my brain in a couple of different paths. One of will, one of which is specific to building any business. This stuff is hard and there’s no way that you’re going to know everything. And I think I wonder but I think Neal will agree with me on this, which is that the best way to figure out how to do things and to get help is to be really honest with yourself and others and don’t think you’re going to solve everything right. If you want to build a business, especially if you want to build a big and meaningful long term sustaining business, there is almost no way you’re going to be able to or want to do everything. So how do you surround yourself with people, you know, advisors, friends, mentors, employees that are smarter than you that can help you build the business that you see in your mind? Yeah, and I lost the other train of thought, so we’ll we’ll come back to it.
Neal Sales [00:16:40] No worries. I know we’ve been talking about financial models for the past few minutes, so I’m sure there’s other components here that are more compelling and interesting. But I’ll be honest with you, when I woke up in the morning in those early days, it was like brushing my teeth and checking my financial model and like making sure I was guessing in my right assumptions. And I like playing games with myself about how accurate and how close I can get given the information I have available to me. So it’s been a real joy working with founders to do the same thing.
Amos Schwartzfarb [00:17:06] Yeah, it is interesting that we’re both sort of gravitating towards talking about financial model, especially since we’re not we’re not trained math guys or I don’t have an MBA. I barely have a college degree. So so maybe there is like something innate in that which is saying like, hey, we’re having this talk. Building a business is greater than building a startup, because one of the things that we both recognized is this is like it’s imperative, it is absolute. It has to be existent in the thing you’re trying to do.
Neal Sales [00:17:38] Totally. I mean, anyone anyone I’ve everyone I’ve talked to who is impressive to me. Right. Who have learned a lot from like a good example, you know, my good friend, Jason Free, CEO base camp. He’s somebody who you know, I don’t he was a designer. He was doing web design and stuff like that, and then eventually built a product that has some success in Chicago and beyond, which is great. But when you talk to someone like that, I was very surprised at how well he understood his numbers because he doesn’t strike me as like a numbers guy again. So there’s always people who aren’t numbers people and who don’t see themselves as numbers people, but they know their numbers because they matter to them. Right. And then whether it’s personal, it becomes more relevant. And that’s how human beings work, like in business, politics or otherwise. It’s always when it’s personally affecting you, you have a lot more much more heightened awareness about how it works.
Amos Schwartzfarb [00:18:30] There’s there’s there’s something interesting in that, too. And if I remember correctly, base camp Jason has never raised any capital for that business.
Neal Sales [00:18:38] One exception, I think they took some Jeff Bezos money very early on. OK, a little bit 2006.
Amos Schwartzfarb [00:18:44] Yeah, there is something to be said when it is mostly or entirely your own money and you literally will not be around. And unless you figure out how to make money, doesn’t matter if you’re a consumer app or B2B enterprise sales or or a barbershop or a dry cleaner, if you can’t make money, you don’t exist. And and there’s something about, I think to your point, like you you you feel the numbers, you own the numbers because they matter deeply to you. And, you know, if someone believes in your idea and wants to just hand you two and a grand 500 grand, a million dollars to go and try to figure out if you have something, it’s not that you and I don’t mean you. I mean the you of the people that are listening. It doesn’t mean that you’re irresponsible. But if there is a different level of responsibility when you realize you have to make a choice between making money and eating or paying your rent, I mean, that’s like an extreme example. But it’s meaningful.
Neal Sales [00:19:46] It’s true. It’s true because there’s a couple other parts. You sit me down now. I’m loving this conversation, by the way. I hope everyone else is. But for me, one is another thing that it does is it forces you to look at your own personal life situation and reflect to go, OK, like maybe I need this for my life. I need a financial model for my life just to make sure that’s all figured out and play. One of those is here to buy it. But there you go. So, like, you know, like, I hope people who it’s not everybody listening who’s running a company. Right. Some of you all just have other things going on in your life. And you’re at this conference, too. So hopefully all of you can take these lessons and apply them to yourselves. Because when I broke down in my life assumptions and like modeled that out, I was shocked to learn all the things that I was spending money on unnecessarily and how I can manage my own personal burn rate. Right. So that’s a lot of fun. But the other thing I wanted to add just back to the founder stuff is. Another wonderful outcome that I’ve experienced with focusing on prioritizing metrics in the early stages of building this business or any business is understanding the different scenarios. So one challenge I like to give to certain founders was certain business models show me the path without any outside capital. It create one if it doesn’t. So when they have to go through that exercise, even if it’s not the. These they thought through the moment when they get the know right, when someone loses confidence in themselves because they’re getting rejected after rejection, after rejection to all these investors, they need to always feel like when they go home, they have a plan to survive and make money with the dream. They have to build the business that they want. And that’s my way of kind of back dooring them into that realization through hard metrics to numbers, realize the path to profitability without anyone else’s help, so that when you get other people’s help, you know, you can always walk away if the terms aren’t fair to you.
Amos Schwartzfarb [00:21:41] Yeah. Gosh, you I think that, like, we got like a couple of minutes left. What an amazing thought to end on because it is extremely relevant to the world we live in now. And for a little frame of reference for everybody, including maybe yourself, the COVA has been going on for, what, seven months now. The TechStars Austin Demo Day was ten days before Austin went on lockdown and two weeks before TechStars went on lockdown. And and my six weeks after Demo Day was I’m glad we’ve talked about scenarios. We need to run the scenario where we’re not going to raise any outside capital and maybe get any new customers for 12 to 18 months. Can we do that? And it was like talk about a mega reinforcement of what is described as why it’s important because you can plan for the best. But the truth is, we really don’t know what’s going to happen in the next three six. And I don’t mean from the world. I mean even from a business perspective, like we don’t know what’s going to happen. And so we have to have these scenarios. That is math, the drive. What we believe the future will look like.
Neal Sales [00:22:48] Is just a final comment for m then, just to bring this to a close exactly the same. I took TechStars Chicago remote in light of covid on March 9th. I remember the day it was it was it was it was pretty dreadful because I took a lot of flak for for jumping the gun early. But I just wanted my Founders’ to be ready. I wanted them to start making those plans and and adjustments. And we had companies that lost 90 to one hundred percent of their revenue overnight when things shut down. So I can only imagine the people out there and what all of you all were going through when this all happened. But I saw all these founders have to really scramble and figure things out. But I’m happy to say, even though we were six weeks into our 12 week program, all of our companies are standing today. They’re all like in the process of raising their closing rounds. They’re profitable, sustainable for the most part. And if they’re not, they’re on a path to be. And that’s because of the resiliency and the grit and their hard work. And then maybe just a little bit of five to 10 percent sprinkle on top of, you know, folks like ourselves helping them plan properly and develop the right systems and scenarios for them to be sustainable and successful. So we hope the same to all of you. And I hope that everything that we’ve said so far is encouraging you to at very least learn about financial models. But hopefully a few other key business insights, too. And I’ll I’ll leave the last word to Amos here, but it’s been a real pleasure to take this conference off.
Amos Schwartzfarb [00:24:10] Yeah, man, I could I could talk to you for hours, as we all we do often. I think maybe the thing that will leave everyone is since we but we didn’t intend to talk about financial modeling the whole. So go, go. And if you want to learn more, Troy Resnikoff has a bunch of videos out there. Just Google his name. This turns out to be a big plug for Troy by accident.
Neal Sales [00:24:29] Yeah. Hey,.
Amos Schwartzfarb [00:24:30] Google and financial modeling you’ll find tons of videos on how to.
Neal Sales [00:24:36] Awesome.
Amos Schwartzfarb [00:24:37] Thank you, everybody. Neal.
Neal Sales [00:24:38] Thank you.
Amos Schwartzfarb [00:24:40] You’re always a pleasure, man.
Neal Sales [00:24:40] Always, brother.
Amos Schwartzfarb [00:24:41] Appreciate you. Bye