Ep 38 - Entrepreneur Experience: Charles Fred, Co-Founder of TrueSpace

EPISODE 38 

Entrepreneur Experience: Charles Fred, Co-Founder of TrueSpace

In this episode, we are joined by Charles Fred, serial entrepreneur and co-founder of TrueSpace. Charles delves deep into the data his company has uncovered, with a partnership through Gallup, about the challenges of scaling a company, the mistakes entrepreneurs and investors make that impacts their company’s growth, and how to avoid making those mistakes yourself. There’s a ton of meaningful (and sometimes shocking!) data in this episode that will have you looking at your own venture in a whole new way. (We at Precursa sure are!)

This episode is chock FULL of nuggets and pearls of wisdom that will absolutely blow your socks off. We are joined by Charles Fred, co-founder of TrueSpace, researcher extraordinaire, and serial entrepreneur, who has delved deep into the pitfalls, mistakes, and realities of entrepreneurs and investors through a research partnership with Gallup. TrueSpace is his latest venture, working with companies to grow into the middle-market space and hit the $10M mark, and the insights he has from his work and his research are invaluable to founders of companies that want to scale and grow their companies.

Our conversation with Charles starts out with how much the job-creation pool has changed in the last 4 decades, from “big business” being responsible for most job creation in the ‘80s, to entrepreneurs creating 7 out of 10 jobs today. We go deep into the types of customers in any business (spoiler alert: there are only 2 and they have very different impacts on your business), the distinction between capacity and capability, and the difference between an entrepreneur and an employee. 

Charles also lays out the statistics around getting to $10M in annual revenue, how long it takes on average and how many companies make it there. You’ll want to brace yourself, because the reality is shocking. Charles shares why he believes CRMs are making entrepreneurs dumber and worse at their jobs, and he talks about how you’re probably spending your time as a CEO (and why it’s actually hurting your business in ways you don’t even realize). He also offers advice and insight for entrepreneurs looking for investors and investors looking for better, more predictable returns from their portfolio companies.

There’s a ton of data, insight, and wisdom in this episode that will have you thinking hard about your priorities in your company, and if applied with smarts and intentionality, can have you back on a growth path in no time! 

Get in touch with Charles via email at cfred@truespace.com and get more support and insight at TrueSpace.

Check out Charles’s recommended resources:
“Limits to Growth” by Donnella H. Meadows
“The Infinite Game” by Simon Sinek
“Thinking, Fast and Slow” by Daniel Kahneman
“The Black Swan” by Nassim Nicholas Taleb
TrueSpace Five Conditions Report

And remember: There are no breaks as an entrepreneur, so always be learning!

Be sure to like, share, and subscribe to Precursa: The Startup Journey on your favorite podcasting platform and tune in for the next episode! 

Email us with any questions or comments (startup@precursa.com). Check out our website (https://www.precursa.com) for more information on getting your startup rolling.

Straight to you from Denver, Colorado, this is Precursa: The Startup Journey. We share the ins and outs of building a tech startup from inception, to launch, to revenue and beyond. If you’ve ever wondered what building a startup from scratch really looks like, you’re in the right place. With full transparency and honesty, we reveal it all about Precursa on our ride from idea to exit: the wins, the lessons learned, and the unexpected twists and turns.

(00:37): Hello everybody. And welcome back. This is Precursa: The Startup Journey. And if you are joining us for the first time, our conversation today is going to be awesome, but make sure that you go back and listen to some of the earlier episodes, because this podcast is really about Precursa our journey and the journey of an entrepreneur starting a startup. Like how do you go from idea to turning that into a thing, to getting your first customer, to turning it into a business, to potentially an exit or, or just a really great business that can become a legacy business or whatever it is you’re up to. Right? So make sure you go back, listen to the previous episodes, get yourself caught up. But today I’m so excited because we are joined by Charles Fred, who is an American entrepreneur and researcher who’s best known for his body of work positively influencing the success of small businesses in 2014. He and his daughter co-founded true space, which is a firm that helps entrepreneurs move from the startup phase to the middle market. And over here’s nearly 40 year career, Charles has founded and led three companies into that middle market space generating over $220 million in enterprise value. Needless to say his wisdom experience and heart for entrepreneurs is a fantastic addition to this segment. So without further ado, welcome to the show, Charles.

(01:55): Thanks for having me, Cynthia. This is gonna be a fun conversation today, I think.

(01:59): Yeah, I’m super, super, super excited. So why don’t you just start telling, telling everyone a little bit about yourself, how you became an entrepreneur and then what you’re working on today in true space, which is like so exciting.

(02:12): Well, how I became an entrepreneur is probably very similar to people that are listening to, to you and me today. You know, I fall, I started my career back in the early eighties, which dates me, you know, this people, the

(02:23): Least

(02:24): Egg out how old I am today, but I was you’re

(02:27): In very good company.

(02:29): I was unemployable at, uh, when I really think about, um, I, I did have a good career at the Boeing company early on, but I always wanted to start something. I wanted to do something on this earth that hadn’t been done before. Uh, the businesses that you and I will speak up today and all of our listeners are building novel businesses. That’ve never been built. There’s no pattern other than get going and try it and get it get started. So when you get out in that, in that journey, you, you can’t, you can’t really turn back and, you know, 40 plus years later, I’m here, I am, you know, doing kind of the same kind of thing. So, so I think, you know, whether we get in there accidentally or not, I think those of us that build businesses and lead people within those businesses are special.

(03:14): And it’s what I have dedicated my life to do now is to help those people figure out how to do that and possibly in what we call a predictable way. And that’s part of my message probably to you today, but, but I would never look back. I wouldn’t change a thing. Um, I think, uh, you know, you can, you can be happy when maybe you win, but you can be wise when you lose. And so part of the cycle of this is how much can we learn and collectively how much can we, maybe that’s the whole thing. Yeah. Um, one thing I wanted to, to discuss today, just, uh, just to get a, kind of a framework of what this, this might feel like, you know, today, if you think about 20, 22 and businesses that are, are, are creating jobs today, what I started my career just to put a framework out there in the early, the largest 500 companies in the United States known as the fortune 500 employed, eight outta 10 people either directly or indirect, either directly working for them or the suppliers that supported them. Wow. And today the top 500 support basically on a comparative basis, uh, uh, employ about 30%. Wow. So the job creators are us. We have to step up and create the jobs it’s changed that much in that period of time. So, so it’s time for us to talk about job growth. In addition to building businesses, we have to build businesses that create jobs, great jobs.

(04:35): And what, what is the impetus for that switch? I mean, that’s a, that’s a dramatic change.

(04:41): I don’t know the exact pivot that, that, that has been taking place, but a lot has to do with, uh, the consumer. Oh, um, and the ability for these large businesses, if we think back into the, the, again, that timeframe I talked about, the big businesses were like an IBM, uh, general motors. Sure. Uh, DuPont, uh, businesses, they’re still big businesses. But if you think about what’s happened with the, uh, you know, just the body of, of people that have grown now, cuz the population of the world has changed a lot in that period of time too. Yeah. That we’ve gotta be able to support a whole different ecosystem of businesses, consumerism, all those things that have taken place since then, and then overlay, uh, us to technology. You know, when I started also to build a tech business, you needed millions of dollars. You needed a facility with server farms and all kinds of things today as your AWS, you can get a business started pretty quick.

(05:34): Yeah. And so I think it’s all at play. And the only reason I’m bringing this up is that I, I wanna make certain that the message from me, my mission in life. And so is Jamie, my, my co-founder and my daughter is really to help companies expand and create more jobs because that with the jobs and the businesses of the size that we’re speaking to today, yeah. People can build lives and careers and families. And that’s what it’s all about at the end of the day. There’s no better way to give back as an entrepreneur than to create a job. Yeah. There’s no

(06:03): Better way. I love that. I love that. And talk to me a little bit. So there’s this phrase we hear oftentimes, and it’s kind of met with, particularly when you’re talking to like investors, it’s sort of met with like a oh yes. That, but there’s something in here that I think we could reframe for people. And, and what I’m speaking about is the term lifestyle business or legacy business, right? There’s this, there’s this perception that if you’re not building something for this enormous exit, it doesn’t have value. And mostly the re mostly, like I said, that comes from investors. And so we, we kind of wonder like how does a company that could be a great business and to your point, make, create a lot of jobs and create value in the economy and like, you know, innovate and create new technologies. How do you reframe life’s style business or legacy business so that people get excited about it?

(07:04): Yeah. So let me see if I can and start with some reframing, um, true space. The, the name of the firm that Jamie and I lead is the space between 1 million and 10 million. It’s basically following up from a startup and trying to reach the early middle markets. And there’s 2.1 million businesses in the us in that space. Wow. We validated that with our work at Gallup, um, over the last 10 years. Um, and there’s been about 2.1 million, uh, businesses, Cynthia, in that space for 44 years that hasn’t changed a lot. Just think about that for a second four decades plus, right? Yeah. So what’s happening within that space? Um, that true space is that we think there’s about 360 to 380,000 of the 2.1 million that have entrepreneurs that are still aspire to grow.

(07:50): Yeah.

(07:50): So what this stems from is that building a business is different than starting one. (07:55): Yeah. And

(07:56): We as a nation have a very, very loud voice around start art start, right. Um, we need to start a lot of businesses. Don’t get me wrong, but we’re kind of drunk on the startup and yeah, the building one is, is the party’s over and now you gotta go change what you’re doing and get it built. So a lot of entrepreneurs do that. They, they get into the build stage. They have customers and employees. It’s a different job at a different risk profile. You’ve gotta go potentially raise more capital. You’ve gotta do a bunch of different things. And if they get to a place that where you can metaphorically reach the side of the pool and they don’t have to swim anymore, they’re like, you know, this isn’t a bad spot. I can pay myself. I don’t need a job. I can golf three days a week.

(08:37): Whatever those things are, that’s become a lifestyle. Um, believe that our, our assessment that we’ve built with Gallup, which is a capability assessment, which show people, they have great capability for growth. They’re just not using it. Yeah. And that’s what I wanna be able to do because that’s the there’s 17 million jobs locked up in that space between one and million, uh, one and 10 million, really 17 million jobs potential there. If we just started growing a little bit in, in, in businesses that have kind of reached that lifestyle. So, um, now I don’t have any negative things to say about lifestyle businesses cuz they’re also great employers. Yeah. But my mission in life good or bad is job growth. Yeah. So if I can get somebody who’s kind of at the side of the pool to get back in and swim again and grow at maybe 15 to 30% a year for three years.

(09:25): Yeah. And they had 50 employees and they now have a hundred. This is a huge win. Yeah. Uh, for everybody, hopefully for everybody. But so however to do that, we’ve got to be able to put some resources and some help into businesses that don’t know how to build it. They got there, but they don’t know what to do now. Yeah. That’s true space. That’s what we do. Um, so, so I’m glad you asked the question because I, I think the collective group of businesses across the country with people that are running them and entrepreneurs, that’s where my of heart is. Yeah. So whether you choose to grow or not is really not my, that’s not my, my call to make, but I, I would love to have people say, what if, yeah. What if we found a way to grow yeah.

(10:07): As an entrepreneur yourself, but also now you have a, you know, you have a business where you are helping entrepreneurs get to that next level. What would you say is the, the difference between the traits and qualities of a founder in that, in that beginning phase where we really are starting up and we’re building something new versus when you, when you get to that point where you say, okay, now, now we gotta do something different in order to grow this into that middle market space. What’s the difference between those two founders and can the same person be those two?

(10:38): Let me ask, answer your last question first. Absolutely. In fact, the data suggests that, you know, we now have well over 3000 businesses we’ve been studying with Gallop’s help for over seven years. Wow. Do not change the founder. That has been one of the biggest mistakes being made across this country that people will say, well, the person that started it is not the person that can grow it or build it. And you know, we, we push this person aside that has all of the passion and, and, and, uh, institutional know how relationships with customers with a professional manager, whatever in the world. That means I’d, haven’t figured that out yet. And what we’ve been able to do is track the businesses that did change out the founder. And I just want to put the statistics out there less than 1% chance of making that change. I want you to think about that a hundred companies, let’s just put the tech, let’s just put the data out there. 100 companies that would make that change. Only one of them was successful 99, either stalled or failed. Whoa, I should let let’s talk about why that is. Let’s just talk about let’s let’s put context to why. Yeah.

(11:45): When you bring somebody new in following startup, a startup is still testing. Even in the build phase, you’re still testing the market fit. Sure. You’re still testing people’s everything from pricing to product, to supply chain, you’re testing everything. Yeah. And until you really get to the middle markets, you don’t have that flywheel effect. You you’re still testing, testing, testing. Yeah. When you pull out the person that built that model that constructed it, that led it, that brought in the talent for it. And you push ’em aside and bring a new person in no matter how brilliant the new person is, they still will need six months to eight months to 10 months to 12 months to learn even fractionally. What the da, what the build is. Secondly, is they will shift things because that’s what good leaders do. Sure. And there’s three resources that we are are short of at that period of time.

(12:32): The time in the day, the capital we have and the talent we have. Yeah. And what you do is you exhaust that while that person, that new person’s trying to figure it out. And what you do is you run outta resources before you have a chance to actually make the change. Yeah. Now there are exceptions outside of our model. I want you to know that and your, and your listeners, the exceptions are to go to Silicon valley and raise 50 to 200 million in capital. Okay. That will buy you enough time to do all kinds of things, but mathematically, just think about how many businesses don’t have that chance. No. Um, most of the people that are listening to us today have not, do not have the ability to go into Silicon valley and raise some huge amount of money. Yeah. So the rest of us have to figure this out.

(13:13): And, and, and so where does the source come from? It comes from investors or people wildly impatient with natural growth. Yeah. And so the impatience is push Cynthia aside, bring in Charles and Charles is gonna figure it all out or vice versa. Right. Um, and I will tell you, one out of 100, one out of 100 is the number I want people to remember. So what’s, what’s the alternative. What’s the alternative. Yeah. Is that the founder can learn how to build the founder can learn how to build starting a business is not simple, but building one is complex. Yeah. And we can figure this out. We can show the data. There’s 12 systems. We can show within a company that you can see where the capability is. And you can see where to spend on your time, where to deploy your capital and where to put your people and start building.

(13:59): And my last message on this whole thing is I am always in a hurry. I, you know, I’m but when outsiders come in and tell you, Cynthia, you need to grow at least a hundred percent this year. And the capability of the business is only 20% and you miss it by 80%, everything kind of fall starts falling. Apart from that one bad push, we want to build the capability for growth and then figure out how you can grow. So rapid growth is, uh, as you know, from probably from the ING 5,000, uh, Gary Conkle is a word that most or a person, many people on your, on your, uh, listening group should, should look up. Okay. He was the chief economist at the Inc 5,000, um, started building something called the build 100, which was to say, how many people on the Inc 5,000 are retained on the top end?

(14:46): And the sad part is very few, actually make it to their third year. And so why is that? His conclusion is that we grew, we grew fast enough. We didn’t learn why, why we grew and we can’t replicate it. So rapid growth, isn’t gonna help us rapid, rapid, fast, fast, fast. Isn’t gonna help us. Yeah. What’s gonna help us is understanding the capability within the firm across 12 systems that we can see and, and building it up and sorry for such a long answer to this. No, but don’t change out the person that started the business.

(15:17): Yeah.

(15:17): That’s unless they are, unless they’re really flawed leaders or something. So there’s always an exception. Sure. But that is just such a, such a, a bad move. Yeah. Um, for so many reasons,

(15:28): I, I love what you’re saying and I, I wonder I have two different questions. I’ll start with the first one, which is, are you ever done with product market fit? Like, does there come a time when you go, oh, we’re good. We’re moving along. Like we never have to talk to customers or ask those kinds of questions again. Or is that something that in order to be a successful business over any period of time, you’re, you constantly have to, like, I just wonder, are you are done with product market fit?

(15:54): You know, I only go to businesses that have maybe, you know, I think our, our top are in the 30 million range, so this doesn’t speak to bigger businesses. Sure. So I just wanna make sure I qualify my answer. Sure. The fact of the matter is you have to test it continuously. And we have two places that we look at. One is this, this are iCal. So it’s hard sometimes to think through, but the more you focus, your service or your product at the earlier stages of the company, the more you will grow. Okay. So I want the data that we have with Gallop. Again, thousands of companies, uh, that are between one and 10 million, but in a service business, let’s talk about service market fit versus product, right? The service offering that you have. Yeah.

(16:36): The businesses that make it to the middle markets, um, somehow figure out how to have a tight enough market with their offer that they’re winning 85% of their deals. I want you just to think about that for a minute, because most of CRM systems that we have today make us feel really good, about 15% and wow. And so when you have an 85% waste in your product market connection, in other words, you’re offered to connect, offer to close, and you’re okay with that. It takes an enormous amount of time and capital to, to feed that funnel. So what you wanna be able to do is tighten that up, get to a place where you stand out, you can win a huge percentage of your deals with your time, your cap, when your talent, and then you start growing. And now when you get bigger, you can widen it out. I’m, I’m convinced of it. So that’s, that has to do with products as well. It has to do with tech as well. So the more you focus, the actually the more initially that you’re gonna grow. And then when you get to a position where you actually now have some authority or a position you can expand, but if you do it too quickly, you just exhaust all of your resources. You just run, it, run out of runway for every, every resource you have. Yeah. That’s why it’s so darn important.

(17:41): And that’s so interesting because you said, you know, it TA and, and you’re right. You bring in a different founder and it takes them up to a year, maybe even more sometimes. And that is wasted time. It’s time that you’re not spending tweaking and pouring gas on the fire. It’s time that you’re spending like, like re ramping up or, or relearning what you already knew. Right.

(18:05): Let me give you something else on that same topic. It didn’t ask, but it’s affiliated it in the question set. Um, so remember I have all this data. That’s, that’s, dispasionate, I’m not, that’s not my opinion or my judgment. It’s just the data. Yeah. Um, so companies that were struggling on a year, over year basis to meet sales forecasts, um, on average, uh, we’re, we’re changing out their sales leadership every two years. Wow. Basically every two, two fiscal cycles for two annual cycle. Um, and when they would change them out, they actually had a regression in revenues for at least the next year. And then that person would last a year. They changed them out. It’s this constant cycle of thinking that you can go manipulate the way you sell something. Um, and yet back to your market fit and your, a product and your service and where you’re at, you have to fix that problem before any great salesperson can be successful.

(18:55): Yeah. But for some reason, we keep thinking that we can hire that we can hire a fix, just like hiring a CEO, to place the founder or hiring a new salesperson to replace a bad sales process. None of the data supports it. And yet we keep doing it as a practice across the country, because it’s like, it’s this reaction I could see, for example, a, you know, a board meeting or advisory meeting and, and somebody comes to you, Cynthia, you’ve only grown 30% this year. And you said you were gonna grow a hundred and you’re going, what’s going on? When are you gonna become a hundred percent growth company? Right. And, and they’re thinking, well, maybe we need to replace Cynthia, or maybe we need to replace their salesperson cuz it just not working. Well, think about the lunacy of that chain of thinking, because the cause and effect of that is that you gotta go back all the way back and say, do we know why we exist as a firm? Are we in a market where we can win? Do we know our high value customers and work there work in that part of the strategy don’t work in the symptomatic part cuz it never, it never turns good. Yeah. Then you run that offense, like you said for two years and pretty soon you’ve got no credibility. Nobody have confidence in you anymore. And then they’re gonna replace you thinking that’s gonna work. And then one out of 100.

(20:02): Oh my gosh.

(20:03): So, you know, I think, I think Jim Collins calls that the doom loop or something like

(20:07): That, but

(20:08): It’s not, it’s not where we want to go, but we’re, we have a lot of companies in four, unfortunately in that space. So there’s a much better way to do this

(20:14): And it, it almost, it almost seems like we’re forgetting, we did grow 30%. And what, what is a reasonable expectation for growth, especially for the companies that, you know, you have all the data on and that you work with in, in your organization. Like if I came to you and said, we grew 20% last year, are we cheering about that? Or should we be aiming for 70% or is it really dependent on the business? I mean, how do you even know what the right growth target is for where you are and what you’re doing in your company?

(20:51): Um, it’s actually, uh, more fundamental than you might think. We just have to go to that live questioning that you just asked. So, um, I think you’ve seen our framework. Um, I know that you’ve seen that we have five conditions. We we’ve identified 12 systems. We can measure predictably in your company. So if you, if you’re in the building stage, in other words, you have a product or service that’s ready to replicate or not replicating yet, but it’s ready to go. Yeah. Uh, you have 12 systems that we can see. You have 11 systems in your body, by the way, nervous system, digestive system, endocrine system. So forth, there’s 12 in a business we’ve proved. We, we we’ve proved this with our, how help at, you know, our, our, uh, our research friends, uh, out there. So, so when the first thing and we want to do is ask the right Socratic question.

(21:35): And the one that never gets asked, unfortunately, is are we capable of growing? Huh? Not, not 30, 150, but are we actually capable of growing? And we believe that there’s, there’s three systems that will actually figure that out. The first part of that capability has to be around the focus of a reset of resources. If you have limited resources of the amount of time you have each day collectively with you and your team, limited capital and limited, talented talent, we need to know what their capability is be. Before we go jump and say, we’re gonna grow a hundred percent. We need to know back to your testing part are, do we really have identified a customer that will help us grow? There’s only two types of customers as, as you know, our, our thesis ones that help you grow and ones that tear your business apart.

(22:23): Yes. So you’ve got, you can only grow with a high value customer that’s gonna retain per mode or, or move forward with you. How do we get those? What are the basic assumptions that we have around capturing that customer? What’s it taking time? What’s it take taking money and what do they contribute to the organization? So fundamentally that’s actually fairly simple to figure out, and then we can come back and say, we are capable of growing, but unless we change something this year, we can only grow at X percent and at least start at this baseline of saying good. Got it. It’s kind of like, let’s say you and I, you know, we, we are we’re someplace and we had a little too much to drink and we decide that what we really wanna do is run a marathon, um, in June, even though we’re, you know, we’ve because it’s, it’s our cure of, of what we’re doing and where would do we really just go start running or do we actually go figure out, are we capable of doing these things?

(23:16): What do we have to do? Our businesses? Aren’t, aren’t dissimilar. We have to go figure out what we’re actually capable, capable of doing. And so if we start there, then the next place is the cost of, of can we really replicate our service? The only way to reach the middle market is to take the product that you’re or service that you’re putting in the hands of a high value customer and replicating that time. And again, and that’s what, that’s, what scale is. Scale is actually not larger, bigger or more like so many people think, yeah, it’s actually unity, economic performance, one over the other, over the other, you know that from your experience. Yeah. But some of the best businesses we work with are boring.

(23:56): Yeah.

(23:57): They’ve built this engine that provides, provides, provides, produces, produces, produces at a, at a predictable rate. Yeah. That’s how you get there. So,

(24:06): And so the, the, what I’m hearing is the message to founders, to entrepreneurs, to CEOs, to, you know, business owners is you gotta kind of listen to yourself. Like, there’s, there’s a, you know, there’s all this, this information that’s coming at you all the time. And, and my, I have a follow up question to this, but it, but it’s like you, as the person who’s doing this ideating who has created this thing, you know, more about it, you understand more about, you know, to your point as if you started to dig into the systems, you know, that Charles and his company are, are sort of layout for you. You would be able to see faster than anyone else, where you have opportunity to make improvement and, and increase your, you know, increase the, the likelihood and in your ability to grow. Right. And, and I feel like, especially in the startup world, one of the things that happens in is we think we need to go raise capital.

(25:10): We need money in order to get this done. And now you have the outside pressure of investors telling you what they expect, 10 X and five years, 10 X, and five years, 10 X, and five years. We hear that all the time, all the time, all the time. And what would be your advice to entrepreneur or to a founder? Maybe they’re somebody who’s, pre-product, pre-revenue maybe they’ve gotten a product in revenue and they’re thinking about growing, but all the investors are talking to are sort of putting that pressure and they can feel that it’s not right, but they’re not sure how to get that next stage of growth without taking capital. Like, what’s your advice to them and how, how do sort of, you know, thread that needle?

(25:52): Yeah. Let’s, let’s go back to the resources that we need, right. To grow. Um, we need time is the number one resource. And it’s, by the way, the number one competitor, you didn’t, you don’t need capital. If you had an endless amount of time to get things done, that’s

(26:05): True.

(26:06): You need capital because what separates, by the way, I was asked this question a couple weeks ago and, and in no way do I mean it to offend anybody, but it is con it might be controversial, but I was asked in a similar format than you and I are having today. What’s the difference between an entrepreneur and an employee.

(26:23): Yeah.

(26:23): And the context was that you’ve gotta build your company with people and all that stuff. And of course you do. Yeah. But an entrepreneur wakes up each day and he, or she has one major responsibility I have to pay when I get up in the morning for every minute of every hour, of every day, of every week, of every month throughout the year. Yeah. That’s payroll payables. I am responsible to pay for those things. Yeah. When I choose to start a business, I have to pay for those. Yeah. You felt this, I know in building your business today, what’s an employee. Do they get up? And they get paid for every minute of every hour, of every week of every month. Right. So there’s a dramatic change in this process. And then you throw an investor into that triad. Um, and what are they trying to do?

(27:12): They’re basically trying to get a return for that period of time. And they’re trying to force you to do it faster. Yeah. They’re trying to get faster returns on their money. That’s what they do. So it’s in that really weird category that the loneliest job in the world is the entrepreneur that’s going. If I don’t raise capital, I can’t make my payments. I can’t make payroll. I can’t do this. I can’t sell I can’t whatever. Yeah. So we get ourselves into these really, really strange contrived situations with investors. So my first, my first thing to tell you is from our experience is you have to be very intentional with who invests in your business. Yes. And I don’t think we are. I don’t think we are as a body, including myself and my past of finding people that first of all, understand our mission of what we’re really trying to do.

(28:01): Um, understanding what we are our trying to accomplish and, and really can help that pro that, that business build the best investment is in a business that, you know, well that, you know, the people, if you’re an investor, you know, the market and you can actually help with more than money, the best investment is I could put a million dollars into your business, Cynthia, but I can also open a hundred doors for yeah. And then I do get a return and then I see it. Yeah. But if I’m a passive investor, I’m just throwing money into the, into the bucket. Yeah. And I want 10 X and somebody told me 10 X, my expectations are there. I’m gonna do nothing, but just, I’m just gonna squeeze you and tell you top. Right? Yeah. So, um, one piece of data, I I’m a data person, as you know, from

(28:44): I, which I love, I love it. It’s like bring the data, not the drama. Um,

(28:49): This is gonna be difficult if you’re listening to this as you’re driving, hang onto the steering wheel for just a minute. Um, the average business in the United States of America that makes it to 10 million in revenue. It that finally reaches 10 million in revenue. It doesn’t matter what model. Yeah. It’s been operating for 12 years. Just swallow that one for just a second.

(29:12): So not the overnight success.

(29:14): Think about your models that you’re building, the pressure you’re putting on yourself. Other people putting pressure on you to double triple 10 X, all that we hear from, from, from, from our friends in Silicon valley. Yeah. Um, because it takes time to figure out the fit. It takes time to find the body of customers. It takes time to get the talent that you need to grow the business. Yeah. What’s interesting is the small percentage that finally do make it 3% of all businesses formed finally make it to 10 million. So 97% of us don’t. Wow. So the 3% that do getting to 20 million actually only takes an average of three more years. Wow. So if we can figure out how to build, if we can get the base built, the, the foundation built the, the sky’s the limit. We can really then grow. We can we and figure this out. And so I, I just wish we could change the narrative San across the country to have a little bit more of a infinite mindset. You know, Simon Sinek’s new book is, is dynamite for this, the, you know, the infinite game, cuz we have such finite thinking. Yeah. And

(30:17): If we really do,

(30:18): If you go back and look at other great research around growth versus fixed mindsets, a growth mindset is thinking 10 years. Yeah. They’re not thinking too in an exit. Yeah. They’re thinking 10 years. Yeah. Um, so anyway, it’s granted think about that. So the 3% that do make it to 10 half of them made it in less than 12. So you gotta, you had to, you know, take the whole mathematical story here. Yep. But a huge percentage of us are gonna take a long, long path to get there. And I think by the time we get there, we’re, we’re great businesses. They’re solid foundational businesses when they finally reach there.

(30:53): So yeah, because think, think about the amount of learning, the amount of input, the, the amount of times you’ve been able to make a mistake, figure out why the mistake was made, correct it and do something different that was more effective in 12 years where we’re trying to compress that down, you know, the, the we’re called the startup journey. Right. And, and all, so much of what you hear about startups is that overnight success myth. Right. And you know, oh, in, in a, in a 30 minute segment on NP ERs, how I build this or whatever, they’re talking about this whole journey and you don’t even see the 10 or 12 or 15 years, a lot of times that it takes to get there. I mean, uh, Sarah Blakely, she just exited part of spans, you know, and it was the first time she ever took, uh, investor money. That was 20 years in the making. And yet way they make it sound it’s as if she just showed up on the scene, you know, two years ago. And here she is a billion dollar company later. Right.

(31:52): I just heard on a podcast right before Christmas. Um, the speaker was talking about the overnight success of Amazon.

(31:59): Oh my gosh. The 30 year, overnight success of,

(32:04): You know, everybody thought he was a complete wing nut back in the early nines when he was working on this thing. So it’s a, the, I think time passes and we don’t, we don’t have a clock and we don’t figure it out sometimes. But I think this conversation is around the, the false pressures that we put in our business. So for example, if you could take the capital the time that you have in the talent you have off today and build something around capability of growing and then fund it and then fund a, you know, in other words, understand it. Yeah. You’re much better off than raising capital and then spending that capital. Um, we got, we, we, we do some Infor really in interesting information and gathering with Yelp’s panel, which is the 2,500 companies that we have. And one of the things that’s kind of fascinating is when we looked at, um, kind of using a natural language processing, you know, where we can, we can take like literally hundreds of PowerPoint decks and, and suck words and phrases out of them for pitches. Wow.

(32:58): I tell you this, cuz it’s kind of an interesting factoid, but um, the number one reason for raising capital in businesses that are trying to build which fall into true space. Yeah. Out of everything, it’s the last page it’s use of proceeds. You you’ve seen this before, right? Totally. The capital pitch use of proceeds. Yep. I always love that third proceeds. That’s like the really, okay. That’s what they are. Um, is sales and marketing expansion. So I wanna put that. I want, I wanna give context to why that’s such an important piece of information. Yeah. Um, sales and marketing. Isn’t the way you grow. It’s actually the, it’s the symptom of growth from the capability to do so it’s the expansion of your product set. It’s the it’s, it’s bringing in more talent, it’s all those things. So what we, the reason we, we looked for this information is that if that is the number one reason for using new capital, more than likely you will exhaust all of it and you’ll be back raising money in a year or two, really it’s gonna be more use of pro that the proceeds is gonna be more marketing in sales.

(34:03): So, but so the reason you’re raising capital is you’re having trouble growing at the rate that you said you were gonna grow, which means you’re not capturing customers at the rate that you said you’re capturing customers, right? So what are you gonna do? You’re gonna go juice that up and put more salespeople out there, more marketing. And you never went back and fix the sentimental reason. You’re not growing in the first place,

(34:22): Which is, you’re not, you’re not either messaging correctly. You’re not reaching the right customers. So you’re pouring gasoline on a fire. That’s not, not right.

(34:31): Yeah. This will be controversial too. Since you need some of these controversial nuggets,

(34:35): I love controversial

(34:36): Nuggets. I really think that the invention of the CRM has made us all stupid. It like made really smart entrepreneurs. Stupid. I want you to think about this just for a minute in, in our, so back to that sales and marketing push, right? Yeah. So let’s assume that we, we have a close ratio, product or service yeah. Of 15%. Yeah. So it, whatever starts at the lead flow drops out 15%. What, what is a CRM telling us it, it’s telling us all, we have this massive opportunity at the top of the funnel, right. And all we have to do is increase the size of the opportunities, get more leads, stuff, more stuff at the top. And if 15% drops out of a bigger number than you grow, right. What it’s really telling you that you’re not paying attention to is you have 85% waste in your sales and marketing process. Yeah. And all you’re doing is increasing waste of capital time and talent that you’re just increasing it

(35:32): Because you’re just losing more leads.

(35:34): Because what it does is it gives us all these fancy charts that says, if you do more there, if you have more sales leads, if you have more sales people capacity, right. Not cap, not capability, but capacity. That’s the problem. You know, we, we really focus on this word capability. If you have the capability of growing, not the capacity to grow, but the capability. Yeah. Think about the metaphor of a hospital. Its capacity is the number of beds it has. Yeah. All many people it can bring in. Yeah. Its capability is actually the people that can provide care. Yes. And as businesses, we just increase capacity, capacity, capacity, capacity more, more and more. And do we actually have the capability? No, we haven’t built the capability yet. So that’s why it’s so crucial for us to go back and look these things. And I’d much rather see in a pitch deck, really building the infrastructure potentially to acquire, uh, at a, at a more accurate rate.

(36:26): Yeah. Bringing talent in that can keep more customers. We, we, the three structures we call Captur, keep and compete a true space. So the capture process actually has to be capable of capturing at a predictable rate. Yeah. Right. Yeah. Hopefully not 15%. Yeah. The keep is then the best way to grow your business is to keep the ones that you have not continue to look for more. Yep. Keep ’em for another year. Have ’em promote, have ’em renew have ’em whatever. Yep. And oh, by the way, that’s another fact toy. Since I know you, I’m just throwing them. I’m throwing ’em at the wall for you today.

(36:55): I love it. I love it.

(36:56): Of the CEOs, 2,500 CEOs across the country between one and 10 million. We really believe the use of your time is the most strategic decision you can make. So this, this that’s the context, less than 5% of the total time of a CEO on in that panel of 2,500 is spent on keeping customers in contrast, in contrast,

(37:16): My face has a look of disbelief it right now.

(37:19): Yeah. Nearly 30% of their time is on acquiring new. It’s all new, new, new, more, more, more. So that’s again, data of are you really spending time as a CEO on the installed base of customers, the ones you already have making certain they stay, they’re happy. They’re promoting they’re renewing. Are you really? No, you’re spending less, basically less than 5% of your time there.

(37:43): Wow. And that’s the business you’ve already closed

(37:47): That. Well, it’s the one that, that’s the one you, that’s the base you build from every, every month of every quarter of every year is you gotta build from there. If that’s washing out the bottom, you’re just dropping more on the top. So you’re spending a whole bunch of time on new stuff, closing things. And part of it is I think we get excited about new. I do. Sure. I’m I get really excited about new customers. Sure.

(38:05): Of course.

(38:06): You know, those tired, old ones that are just paying me every month, you know? Ah, I’m not gonna spend any time there.

(38:12): That is fascinating to me. And it you’re right. You’re absolutely right in that. If we spent less time trying to just pump more leads that know we’re still gonna close at that same 15% versus analyzing, what is it about the leads we’re getting? Are they the wrong leads? Are we not talking about, you know, what we do correctly? Are we not solving their problem that they have? If you, if you solve that and you got to the point where you were closing 70% of your leads, you wouldn’t need any more leads coming in and you would grow your business. And that’s what you’re talking about. When you say, when you deploy capital in that realm, now you can actually make a difference and really grow a business versus just pumping in more leads and being inefficient with what you’re doing. That’s the waste piece.

(38:57): It is. I mean, it’s, um, you know, if you think about capital’s fuel, which it is by the way. Yep. Um, and you’re driving down the road, so you now have more fuel, which means you can drive. You get more time, you bought more time. Yeah. But if you don’t change what you’re doing with that in, in that period of time, don’t expect a different outcome. You’re just gonna have to go right. Is more capital. Um, yeah. You know, we have two laws of business building at true space, which are pertinent for this discussion today. Law number one is if you want your business to change, you have to change the way you lead it. So that’s kind of a captain obvious, right? But law number two is the, is the law of systems thinking and systems dynamics. And that is that your Sy, the systems, the 12 systems in your business that we can identify are perfectly as designed to produce the results that you see. So we we’ve been working with a really amazing business out of Broomfield that now has a, about a 70 million valuation. Um, that for three years was perfectly designed to lose $300,000 a month.

(39:49): Oh my gosh.

(39:50): They were a venture based backed business. They were also perfectly designed to raise 3.6 million every first three or four years.

(39:57): Oh my gosh.

(39:58): And so if, if you don’t change that, if you’re just, it’s like, it’s the law it’s inertia. You just keep moving at the same pace in the same direction. You just capital just gave you more time to do that. Same pace, same direction. Right. So, oh my gosh, that’s the message is we gotta get, we gotta get up above this and we gotta work on the business, uh, at, at the top end, before you’re gonna exceed the change at the bottom and don’t raise capital, do the same thing just longer. Yeah. That’s, that’s my message. When we first started this discussion, you know, 30 minutes ago, capital is so vital and so important to growing a business. It’s, it’s how you’re gonna use it. It’s the important part.

(40:34): So if you could give, what would you say is the most important like personality trait or characteristic that, that someone needs in order to be a successful founder? The way that, the way that we think of success or successful entrepreneur,

(40:53): Let me tell you, maybe let me answer this. I think it’s a great question by the way. And you know, I’ve, I’ve only built three businesses, so I’m not really that expert on maybe the founder of themselves I’ve seen,

(41:02): I’ve only built three businesses.

(41:03): Well, it’s true. I mean, I, I really wanna put that in context that I, I much, I’m much more coming to you and your audience today as a researcher and a journalist, cuz I’m, I’m telling you what we’ve observed, not one I’ve personally done. I’ve I’ve made every mistake. There is 500 times and I

(41:17): Haven’t all,

(41:20): Um, still impetuous, all the things that come with that, right? Yes. But I will tell you what I think, uh, the counter of that would be is if you build a business to get rich or make money from the beginning, you’re gonna be one sorrowful person at the end of it. So are the people that came along the ride. If you saw something on TV, watched Elon Musk for a couple times and you want to, your persona is to be that person, um, you’re up for a bumpy ride in a really rough, rough time. Yeah. If you start a business to meaningfully, make a change to do something intentional and purposeful and you can pull people into that, into that realm, you’re gonna be really successful. Um, no matter what, even if you have to do this three or four times to get it right, you’ll, you’ll figure it out.

(42:03): Yeah. But the, the greed factor, the, the finite game that, that Simon cynic talks about is the, is the problem that we have in this country is that people think that the, the title of entrepreneur somehow means that I’m gonna be the next billionaire with a unicorn, you know, mil, billion, dollar evaluation. Yeah. And you know, you think about the 25 million businesses that are operating that are well below that number today. Um, that’s just not reality and it’s not, it’s, it’s, it’s a place where you can get yourself really hung up, especially if you’re young and your first time founder. So now let’s get back to founder. I think the courage to be a founder, isn’t recognized enough in this country. Yeah. You know, not that you’re bailing out to get a job. I don’t mean that at all, because we need, need everybody’s involvement.

(42:49): But when you, when you decide to found a business to start something, and especially if you’re an employer, this takes some courage. Yeah. Because you’re, you’re not just involving you, you’re involving everybody. That’s connected to you, your partner, your spouse, your kids, your family, your EV everybody’s now involved in this craziness that you got started. And it’s your responsibility to keep that if that’s what you wanted to do, you’ve gotta keep that moving. And it gets back to why do something intentional and purposeful. Yeah. Do that. Yeah. But don’t go into a business with a spreadsheet going, you know what? I figured out a way to make a billion dollars,

(43:24): Right.

(43:25): Because it’s gonna be, it’s not gonna be a great ride for you. And you know what? The media doesn’t love to hear this message cuz they want the go find the unicorn, the one that got, you know, the big dollar valuation yesterday. Yep. But I think your audience is pretty pragmatic. So hopefully that it rings true there.

(43:42): Yeah, it does. And it’s, it’s a message that, that I’m constantly saying, which is, if it’s about the money, that’s never gonna drive you. It’s never gonna be. It’s never gonna be enough when things get hard and things get hard. Sometimes they get hard and then easy again, like three times in one day, right? That’s it’s the, it’s the roller coaster, especially of an early stage company. The why, which is what you’re talking about that drive that passion for fixing a problem, changing the world, shifting something, you know, for me, it’s the, I think it’s ridiculous that nine out of two and venture backed companies fail. I think it’s ridiculous. 90% of the time investors are wrong. 90% of the time founders are blowing up their companies because they think that’s how they’re supposed to work. I, I, I think it should be the other way around.

(44:30): I think 10% of the time we should look at each other and go, well, that’s weird. What did we do? Like what didn’t we do? Who didn’t we support? Right. That is the thing that drives me. That’s the why that drives me every time something gets hard or every time an investor says to me, well, we don’t really know that you have the technology to blah, blah, blah, whatever. It’s like, that’s okay, because I know this needs to change and I’m gonna go change it. Right. That’s the thing that’s driving, not money, money. It just isn’t enough to get you outta bed every day. And people think that it is, they think that’s the driver, but it never is. I mean, it just never is.

(45:07): No, and it it’s such a false leader for us because we can get really sought into it. It’s either that or fame. So it’s also, you know, you can be, you know, fame and well known and all those things and God bless the ones that make it there. Yeah. Um, you know, I think they, if they’re do, if they’re good people, they can help a lot of others because absolutely that, but you know, to be famous and rich from building a business, as the reason you exist is a really interesting place to sit. Cause they’re not gonna retain talent for long term, You know, think about the great resignation that we’re dealing with today, just to make sure let’s talk about that real quick. We have two seconds for it. Yeah. Because we’re of our connection to Gallup, uh, which does a lot of that research. Uh, the great resignation is mostly happening at companies over 500 employees. So interesting. Granted it it’s, it’s amplifying reverberating down into our space for sure.

(45:57): Sure.

(45:58): But the businesses that most of us are leading, the ones that are, are listening to us today are wonderful places to work because you can actually have a stake in the outcome. Your role can actually influence where the business goes. You can feel your impact and you can be, have a sense of belong longing to something. Yeah. That’s all driven by the reason you formed the business in the first place. Yeah. So if you want people to, to re you know, relieve your business, give ’em false indicators of wealth and grandeur and all those things. And when that doesn’t actually happen, because it takes 10 years or 12 years to get to 10 million. Yep. That’s where the wheels come off. So get, give, ’em, give, give your team a, a real, real reason to grow their business. Yeah. And to come to work each day and be excited about it. And it’s amazing how it will, you know, you you’ll be able to persevere for a long period of time because of that.

(46:45): And, and I love what you’re saying because I work with a lot of smaller, you know, smaller businesses, 20, 30, 40 employees sub sub that 10 million a year. Or, and they are not having mass Exodus, at least the ones that have a really strong why in that and that they have a purpose and you can feel that energy around the purpose. Right. And they also don’t fight for good employees who could go out and get a lot more money if they went some more else, because those employees really love what they’re doing. And to your point, they feel like they can make an impact and they can, they can have a shift. You know, they have a say in what they do matters way more than a bigger paycheck somewhere else.

(47:28): Yeah. I mean, we know a couple things from our data, first of all, compensation and benefits truly do matter for everybody. Yeah. So you’re gonna have to pay, you know, people in a competitive of course, but you don’t have to overpay them. You don’t have to manipulate them. You don’t have to promise them things that you can’t. But if you combine that with a purpose and I feel like when I come to work, I’ve actually changed the outcome of the, of the company or I’ve satisfied a cus whatever those things are. Yep. Um, I’ll come there like with fully engaged every day. Yeah. And that’s really, that’s really where we want to get our businesses to. And that’s, you know, I don’t think there’s anything that an entrepreneur would ever feel better than to watch a fully engaged workforce. Ugh. It’s doing the work that you envisioned. I mean, it doesn’t get any better than that on any given day.

(48:10): I know I just got chills when you said that. Oh my gosh. That makes me so happy. Okay. So are there any resources, podcast books? I know you’ve mentioned a couple so far that you would recommend to our audience, um, to sort of continue this conversation for themselves.

(48:26): Yeah. There’s some real, um, recent ones. And then there’s some old ones. Um, if people are readers and thinkers and that kind of thing, I’ll start with, you know, again, this dates me a bit, but a researcher at MIT, her name was Dana Meadows, uh, really built the, the world around systems thinking. And she wrote a book called limits to growth. Uh, Dana passed away, um, back, I think in 2009 or so the limits to growth is really around capability concept. Now she was a, a, you know, the researcher looking at how many people could actually populate the earth.

(48:56): Oh wow.

(48:57): And they had built this massive computer model. And of course the, it just, it just shows the, the technology. It’s kinda like watching a movie where you see people dial a telephone,

(49:06): Right.

(49:07): This, then my grandson goes, what, what is that? What is

(49:11): That? What is that toy? Or what is, but it is such a seminal piece of work. I think it’s, you don’t have to read the whole thing, but it gives you this thought that there’s a system that we can see within our business. That’s the basis of what we do at true spaces, systems thinking. So we can see 12 systems in your, in your business. If I fast forward that to really the concept that’s most current. And I think the most consistent with the message that you and I had today, um, Simon Sinek has written a book called the infinite game. It’s easy. It’s an easy read. Yeah. And it really does help us rationalize and come to terms with this false push of schedule, false push of, of 10 X’s and things like that. Yeah. And it really kind of helps you can book on how we think is, uh, uh, or thinking fast and thinking slow is, is also just so perfect for an entrepreneur right now in this, in this kind of day and age black.

(50:01): Swan’s good. Um, if you want another book that kind of helps you think through this son, me, uh, moon is, uh, wrote a book called different she’s. One of she’s the head of marketing at Harvard is also a really cool book D back to winning 85% of your deals versus 15%. Yeah. She’s got some really good stuff there. We’ve got some really good reports. If you’re more of a scientist, uh, from our work in, at Gallup, I’ll offer those free to you guys today. Um, as well. Um, our, our research report there, you gotta wanna look at our squared in a few things because it regresses data, but it gives you this stuff that like, you can really see your business scientifically. You can see it that it’s like, uh, it’s it’s like your blood pressure. I can, I can actually read your blood pressure.

(50:42): It’s you can feel it. I can read it. So, anyway, I love that’s. That’s kind of where I, I think I know why you asked that question, cuz it’s so pertinent to, uh, business builders. Yeah. If we’re not learning it and, and, and finding something every single day we’re losing. Yeah. Whether we learn it from our people, our business, our customers, a book, whatever it is. If you’re not getting something every day, you’re not building your business because there’s no static place stand and say, ah, it’s great. I can take a break today. Yeah. There are no breaks to build a business. You won’t get one,

(51:13): There’s no breaks. That’s the message.

(51:15): No

(51:15): Breaks.

(51:17): Well, Charles, thank you so much for joining us today. Thank you for sharing your story. Thank you for all of the wisdom that you have poured into our audience today. It’s it’s or refreshing hearing transparency and hearing the truth and ha, and being able to embark on the journey as a founder or an entrepreneur with reality in front of you and, and not having that stifle your creativity or your excitement, but having it drive you to make better decisions as a founder. So thank you so much for that message. We really it.

(51:48): Yeah. Thanks for bringing people together.

(51:50): Yeah. Appreciate you. And if people would have questions or they’d like to get in touch with you, um, or maybe their business is in that sort of 1 million and they’d potentially be good for true space, how do you recommend they get in touch with you or what’s the best way for them to

(52:02): Do that? Yeah, I’m really accessible by the way, by design. Um, my email is cfred@truespace.com. And you know, I, at the very least take a look at some of our research. I think it informs you that my mission in life is I’m I’m, I’m kind of done getting a business to go build it, to sell it. My daughter and I are building this hopefully with a long, really long path. So yeah. I love that. Anything that you need, we, we have available and we’d love to share it. And, uh, all I want is job growth. That’s, that’s, that’s my mission in life.

(52:30): Awesome. I love that. I love that. Okay, perfect. Well, make sure to include all that in the show notes. Um, thank you so much again for spending time with us today and for your wisdom and just for what you’re doing in the world, cuz it makes such a difference and you have definitely helped shift some of the stuff that we’re doing at Precursa in ways that is paying dividends already, even pre-product pre-revenue so thank you.

(52:54): You’re gonna get there. Yeah.

(52:56): Right. All right. Y’all thank you so much for joining us for this episode as always happy entrepreneur and I will see y’all next time.

Thank you for listening to this episode of Precursa: The Startup Journey. If you have an idea for a startup and you want to explore the proven process of turning your idea into a viable business, check us out at precursa.com. Make sure to subscribe to this podcast wherever you listen to podcasts so you never miss an episode. Until next time…  

Cynthia Del'Aria

Cynthia Del'Aria is a serial entrepreneur and tech startup ninja, specializing in product-market fit and idea validation and helping new entrepreneurs reserve their time and money for the idea with the best shot at success. With two successful exits before 30, an active high-profit-margin SaaS in the commercial airline space, and two additional startups in the works, she knows what it takes to traverse the entrepreneur journey, the highs, and the challenges of turning a vision into a successful, viable business.

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