168. Leadership from Origin to Scale (Carter Cast)

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Carter Cast of Pritzker Group joins Nick to discuss Leadership from Origin to Scale. In this episode, we cover:

  • You’ve been a manager and leader in early stage companies – from startups like Blue Nile (from $0 to $50 million in a couple years) to Walmart.com (from $0 – 5 billion in 7 years). I’m sure each was different but tell us about the experience of scaling such high growth companies?
  • What were some of the key lessons or surprises from those experiences?
  • You went from Operator to VC… Why’d you write the book?
  • You present these catchy archetypes in the book… Captain Fantastic; the Solo Flier; Version 1.0; the One-Trick Pony; the Whirling Dervish. Can you give us a brief overview of each and then maybe we can talk about which, in particular, afflict entrepreneurs?
  • Clearly, you’ve thought deeply about the personal side of entrepreneurship and the psychology of founders. When you’re looking at new deals, what sort of traits are you looking for in the founders?
  • You and I have discussed your “Launching and Leading Startups” class at Kellogg– what do you focus on in the class and why?
  • I tend to see different skill sets and strengths of those running an early stage business vs. those running an IPO-ready company and we recently had David Cohen on the show who said that often the person to start a company is not the right person to scale it or take it public. Do you agree or disagree and how do you think about the changing leadership requirements through scale?

Guest Links:

Quick Takeaways:

1. Professionals can activate faster by taking their skillsets to an early stage company.
2. A company can’t scale without a value proposition that works. One has to ask, is the product necessary to the consumer?
3. Always test critical assumptions that will allow one to gauge product market fit.
4. The most important factor in business is team and the ability to hire good people.
5. Once a company starts scaling, hiring becomes quicker, but a rigorous hiring process with reference checks is necessary.
6. Carter advocates defining business “growth governors”- factors that stop growth or faster scaling.
7. Stay very connected to customer experience; its easy to lose sight of customer thoughts.
8. Startups should focus less on large incumbents and more on other fast-moving, agile startups.
9. Founders have to know where the market is moving, what future disruptions are, and the impact each will have.
10. It is very rare that a value proposition remains the same throughout stages. Instead a good management team can pivot to adjust to changing conditions.
11. Three characteristic of top performers include tremendous drive for results, learning agility, and the ability to enlist others support.
12. When hiring, pressure test candidates before-hand by learning how much they read, listen, and socialize.
13. One should always explore multiple versions of themselves; while it is good to specialize early on for a skillset, one should always explore other possibilities mid-career.
14. Carter’s book, “The Right (and Wrong) Stuff: How Brilliant Careers are Made – and Unmade”, explores why talented and good people run into trouble.
15. Egos have to be put aside to enlist others to work with you.
16. A good founder has a good balance of execution and team delegation.
17. People have to adapt to circumstances by changing their value proposition and go-to- market strategy with new information
18. Start-ups fail because they try doing multiple channels or products at the same time.
19. Founders should reevaluate their priorities weekly, if not able to do it daily
20. Part of strategy is deciding what NOT to do
21. Founders should focus on customer segments, channels, and critical product aspects instead of keeping optionality open.
22. The number 1 self-reported issue for professionals is being a Whirling Dervish- trying to do too much at once.
23. Success is always determined by the customers.
24. Founders have to have true passion, resilience, optimism, and listening skills.
25. There are 5 life cycles: incubate, start up, scale, growth, and mature and each requires a different skill set to lead.
26. What industry and stage one is interested in is more important than their desired functional area.
27. Investing in a good management team and staying out of their processes, is the best way to operate.

Transcribed with AI:

welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet.

Pritzker group VC Carter cast joins us today from Chicago. Previously, Carter was in management for Electronic Arts, PepsiCo and Blue Nile. And he spent seven years as the CEO of walmart.com, author of a number of publications, his recent book, the right and wrong stuff, how brilliant careers are made and unmade, has received rave reviews from business leaders and startup founders alike. Carter, welcome to the program. Thank you, Nick. I am glad to be here. Yeah. Can you tell us sort of the backstory in your path to becoming a venture investor? Yeah, it’s not it’s a circuitous path. I had no, no intention of doing it. Actually, I was. I just moved to Chicago and was looking for what to do next. And one of my former Kellogg business school classmates, MATT McCALL, who was at Pritzker group venture capital, he asked me to advise some of the portfolio companies. So I just did it to be helpful. And because it’s interesting, and I ended up getting an offer from from Pritzker group from JB Pritzker and the Managing Director, Christopher jente, to come join them as a venture partner. So what I do for the company, I spend the majority of my time working with our portfolio companies and advising them if, if they think I can be useful, I do look at deals too. But less my primary responsibility is to help with our existing portfolio companies. So it was something that just happened out of out of knowing somebody in the network, which actually points to, you know, one of the curricular lessons I think a lot of people have learned is the importance of maintaining a strong network, because you never know when it’s going to lead you into a new direction. That’s interesting. Got it? And even long before that, it seems like you had stops at a number of sort of a who’s who of the Fortune 100 Here. Can you take us through that path? A little bit at a high level? Yeah, you know, I started off right out of college in a big CPG company, I was at PepsiCo and I stayed there. 11 years in various marketing and sales roles, mainly, mainly marketing. And then I left because my sister had started at this little bookseller, in Seattle, that was this is 95. And, yeah, seriously, believe it or not. And she said, it’s really fun to take your skills to take your old toolkit into an early stage company, where you can activate faster, and that seems more like your personality. Anyway, Carter. And so I, you know, she’s my big sister. So I had to heed her advice. So that ended up having me leave after 11 years into a midsize company, which was Electronic Arts at the time, it was like $600 million.

You know, it was not the big company that is now that was in the late 90s, mid to late 90s. So I left there, and I was VP of Product Marketing. So I worked on titles like The Sims and SimCity, and all of the EA Sports franchise. And that sort of got me I think more tech credible by just working in side of a software environment, as a as a marketer. And then from there, I went straight into early stage like pre series, a startup, which became Blue Nile, which sells diamonds and jewelleries, jewelry engagement rings to men. And that was backed by Kleiner Perkins and Trinity ventures. And so I moved to Seattle do that it was basically a couple of us starting it together. And I realized that what I really enjoyed was the sort of early building phases, you know, building and scaling. And so what I’ve done since then, is I’ve put myself in environments where I’m part of the building team. And and that’s where I get the most satisfaction versus, you know, when it’s bigger and managing it. I had to learn that the hard way, I learned that by doing you know, big companies for a long time and realizing that there’s something else out there for me that fit my personality better, but I think I’m an activator, and I love testing and iterating. So I like working with entrepreneurs. And I like working in these early stage environments. And I didn’t know that until I sort of wandered into it with my sister pushing me into it. That’s great. And I want to kind of unpack this experience of being at these high growth entities. You know, you’ve been a manager and leader at early stage companies, like you mentioned Blue Nile, going from zero to 50 million then a couple years.

All the way to walmart.com that went to zero from zero to 5 billion in seven years. You know, I’m sure each was very different. But can you talk about your experiences scaling such, you know, high growth? Companies?

Yeah, that’s a good question. I think, first of all, you can’t scale it if you don’t have a value proposition that works. Otherwise, you just toss you know, you throw money away trying to get in customer acquisition, when you don’t have the lifetime value to pay off the acquisition costs. So we’ve all felt that.

Oh, yeah, exactly. Yeah. So you have to have the right value proposition. So I think you have to be smart in picking the right horse, or if you’re in the company, you have to test those critical assumptions that will let you know, if the you know, if you have product market fit, you know, if the, if the product meets a critical need that the customer has, and you can scale it, you can sell that in a way that’s profitable. So for example, at Blue Nile, we had two critical assumptions. And this is something I teach in my classes, you’ve got to test your critical assumptions, what are the two or three things that you believe to be true that if you are wrong, will will kill your startup and test those assumptions? So Blue Nile? I think there were there were two of them, that we had to know when there are three of us and literally three of us in a room. One was will men by sight unseen, a $6,000? engagement ring?

And what how can we test to see if they will? And then secondly, will DeBeers Sightholders? Sell us diamonds? We’re uh, you know, we’re internet upstart will they supply us with diamonds? So those are two questions. So we went about testing those assumptions as, as quickly and low fidelity as we could we set up a website that wasn’t even ecommerce enabled at the beginning. And we took orders. And we saw, we bought a company, a little retailer that was actually selling online, and selling a lot online for a little retailer. And we bought this guy’s company, and then he became our diamond buyer. But the big question was, how do you reduce the risk for this male buyer. So for example, we did things like we scanned and put all the diamond certifications, you know, Gemological Institute of America, G IA cert, we put those all online next to the diamonds, then we guaranteed that the appraised value would be at least 25% higher than the price they bought from us, we guaranteed them that. And then for in the early days, we actually didn’t process their credit card until they went and got the appraised the appraisal. So we said look, we’ll hold your credit card, you go get the diamond appraised. And, and if it isn’t 25%, higher in value than what you’ve paid from us, you know, send it back. What years this Carter, this is the late 90s. Late so this was yeah, this was I mean, this was crazy doing this back then. And then the other thing is we, we had to basically get the approval from DeBeers for the concept. So I had some really interesting calls with DeBeers organization. And they basically said we’ll sell you diamonds, but we don’t, we don’t want you to sell them as loose stones, because it will commoditize the experience. So set the diamonds and sell a finished product.

So you got to test those, you gotta have to find out what those assumptions are that are critical to your

ongoing entity, an existing entity and test those right away. So that’s one of the things I think it’s critical in these high in scaling companies is you’ve got to make sure the value proposition resonates. And you have to understand what are the critical assumptions you should test as soon as possible, and make sure they hold true before throwing a lot of money at marketing or selling or in or infrastructure. Then the second thing I’d say, Nick, is that it’s always about team isn’t it? It’s always about your ability to hire good people. And what I’ve seen a lot and I bet you’ve seen it too is as you start scaling, you start throwing WARM BODIES against problems. You start hiring quickly and lose the rigor in your hiring. And so you make some bad hires, and it takes a you know, I say to people, it takes a lot longer to unwind a bad hire than it is to be rigorous in hiring the right person. One of the lines I like to use is it takes longer for A’s to hire other A’s then for B’s to hire C’s.

And if you get B’s in the organization, they start hiring C’s because the C’s make them feel better, right? But the A’s like to work with other A’s because they’re they’re not you know, they’re not

He’s paranoid and they want to work with other gunners. The problem is it takes longer to find the A’s and it takes takes longer for the A’s to hire other A’s. So you got to, even though you want to hire throw WARM BODIES against the problem, you got to be rigorous in your hiring. So that means, you know, interviewing process has got to be really buttoned down, your reference checking process has to be really, really exhaustive. So you know, I like I liked the book, who, by Jeff smart, talking about the process you use to hire people.

So that’s, that’s the second thing I’d say is it’s always about team. And it’s and to build the team. It’s about it’s about hiring effectively. And then I think this the next thing on scaling is, it’s really important to save very close attention to the customer experience, because it’s easy to get compromised as you’re scaling, isn’t it? Sure. You know, you start making decisions that are expedient, but you know, what’s your NPS score? Yep. Are you losing your advocates? Is your churn rate going up? Is your repeat rate going down? What’s happening with your customer experience? As you scale? Are you still offering a good? You know, are? Is your account service? Good? You know, is your post sales service? Good? Are you shipping and getting the product on time? Making sure you have you as soon as you can you put those measures in place to track customer experience rigorously as you scale. And as you see problems, you got to get in there and fix them. So that’s the that’s the next thing. And then, you know, usually you try to figure out where are those growth governors? What are the governors that are gonna stop you from scaling quickly? Sometimes they’re at the top of the funnel, you know, they’re in difficult to get in customer acquisition or closing new accounts or sales cycles being too long. Yep. Often, though, they’re in the back end of the business, in fulfillment in clearing orders, you know, and you’ve got to figure out where the growth governor’s and what, what areas as you grow, can you predict that are going to become your net next growth governors that you’ve got to solve for?

But I would say, first and foremost, does the value proposition really address a current burning need the customer has? And what assumptions should you test to make sure you’re you’re absolutely sure that you’ve got the right value proposition? Once you do have the right value proposition, you’ve got to hire the team that can execute. Right?

Right. Yeah, people ask me all the time about sort of the secret sauce we look for on the venture side, and sort of where the best, most unique opportunities are within IoT? And my honest answer is that it’s really not about the nuances of IoT or some flashy, you know, hype curve, or AI or machine learning. It’s, I mean, it all goes back to the people. It’s kind of a generic answer. But the more you can pressure test the founders and find the right team, those eight players that you mentioned, then they’re gonna go out and hire the eight plus players and build something great.

Yeah, that’s what happened with Blue Nile is we had two guys from Bain started it. And they were very critical that a very high bar. I don’t know how I got in. But anyway, my interview with one of the founders,

I was to fly back to San Francisco from Seattle at three. And he interviewed me till eight. And I finally said, I’ve got to get back. I have work the next day at Electronic Arts, I can’t, I can’t interview any longer. And he said, well, then I’ll drive it to the airport. And then he drove me to the airport and kept interviewing me. We got up to the, you know, to the departure area. I started getting out. He said, I have one more question. I mean, that was that was how that was how they went about it to make sure they were hiring the right people. And you know, you’ve got to you’ve got to do that. And I’m amazed when I see how lacks some Pete some companies are in their interviewing process. You know, they don’t decide different people ask different questions. You know, when you do a huddle midway through the day, and you say, What areas do we need to address with this candidate? You don’t take them out to dinner to see how they are socially. You don’t do rigorous reference checking all that stuff is so critical. And I think because we think we’re you know, you think you’re so busy you you have a good intuition about somebody you can’t I don’t think you can rely on your intuition. You have to really, really have a bunch of different people digging at the candidate to make sure that they’re the right fit.

Couldn’t agree more. Do you remember that last question he asked you as you’re off to the plane. You know what the guy asked me one of those crazy case quest a case question.

Yeah, hazard

Trying to catch a flight? Yeah, he’s like one more, I just want to see sort of how your how you think through critical reasoning skills, like how many gas pumps are there in the United States? Wow. And I said, I said, I, if I miss this plane, you know, I’m not gonna get there at work tomorrow, I will email you an answer on the plane.

And of course, then, you know, you had no Wi Fi. So it basically had to sink once I got off the plane. But anyway, you know, it was a crazy question to end with. But it showed this sort of, you know, he was sort of being very rigorous about the process. Interesting. So, you know, you talked a bit about sort of some of these key lessons that you learned going through these experiences. What about surprises? Any, any, I’m sure there were things that you didn’t expect, right, that came up, that sort of changed, changed your mindset or approach? Can you mention any of those or touch on some of those surprising experiences?

Well, one of the things I’ve learned is that you’re worried about the big incumbent, you’re worried about big 800 pound gorilla waking up and hurting you. And that’s my experience is that’s generally not what happens. If you’re, if you’re gonna if you should be paranoid, you know, and Andrew Grove, you know, stay paranoid, if you’re going to be paranoid, be paranoid about the other startups like you. And because they’re the ones that are going to be life, and, and maneuver quickly. So those are the ones you have to watch. And then make sure you understand where the markets moving. Because you might be, you might be doing some and then mobile comes along and changes the dynamics of the purchase experience, right? So you know, whatever the the disruptions that are going to occur, you have to look out ahead and figure it out. What are what’s going to be the impact on your organization, I’m in a deal right now. And IoT is changing the way that we service these accounts in this b2b business. And so all of a sudden, being having the right people that understand machine learning and have the right people that are doing, in our case, data analysis around energy consumption for retailers, this wasn’t even on the radar when we got in the deal seven years ago, right? Or six years ago, right. And all of a sudden, it’s like, we have people that understand IoT and how it relates to energy conservation in retail environments.

And that’s now a requirement for people we’re looking at. It wasn’t even on the radar screen five years ago. So I think ground beneath you is like,

so I think making sure and I you know, to make it to move this to a more practical level, you have to hire people that are proven to be curious, and are have great learning agility, who are able to see where the puck is going and are and are able to shift strategy based on, you know, disruptions that are occurring in the market. Because the chances that your initial strategy, when we invest in a company, that chances are that that exact value proposition is the one that they arrived for the rest of the investment cycle is pretty rare. Usually there’s some pivots, major or minor pivots along the way. Yep. And so you’ve got to have a founder team and a management team that is paranoid and low and constantly scanning the market to see where they should be shifting and adjusting their business strategy and their business model.

Yeah, full circle back to the team again, right? Yeah, it gets back to the team. So like, if I would say, and I did a lot of research around what successful people do differently as part of this book I wrote, and the three things that I found over and over and over by looking at big chunks of research around 360 feedback, people that were in the top 10% of their companies, or organizations, had an effectiveness had three common characteristics. They were they had tremendous drive for results, which isn’t surprising, you know, they had a sense of stick to itiveness. And they land the plane, you know, they they got the ball over the goal line, whatever metaphor you want to use. Yep. Yep. Suck. Second. You’ve always been on these at lunch, I remember. Yeah, they were good. That’s right. They were good at they were good at enlisting other people’s support, because they realize it’s a team sport. And then third, they had tremendous learning agility. Specifically, they had these discovery skills. They were really good at experimenting, and observing and questioning, and doing market tours and doing competitive audits and asking people that are on the cutting edge of industry, what’s going to happen next. They had that they were so outwardly focused, they were able to constantly adjust their strategy

Based on getting new information, and so I look, especially in entrepreneurship, I look for people that have that learning agility and that discovery orientation. 100% I mean, is there a way that you personally pressure test for that? Yeah, I asked stuff like, you know what podcast you listen to what books tell me, tell me the last three books you’ve read that are tell me the last book you read. And that you’re, that influenced you, I interviewed one guy to be the chief revenue officer for a company. And I went after those three topics, you know, learning agility,

you know, sort of perseverance, and enlisting others. And he fell flat on his face on learning, agility, interest, he was he was good at executing within an existing environment. And he was good at relationship management. But I said, What’s the last great book you’ve read that is effective that has influenced the way you think? And he said, You know, I’m so busy, I don’t have time to read a lot of books. And I said, Okay, well, what, you know, what, what blogs do you read? You know, what? Who do you follow on Twitter, you know, what podcasts you listen to, and he was just,

he just struggled. And finally he goes, Wait, I, here’s a book I liked, Who Moved My Cheese. Oh, and as I said, wasn’t written when that written in the 90s. So I worried that I worried that if I if we would hire him into this company, who would he’d be the kind of person who’s going to be really abreast of change and be able to an end, he was a good relationship person, but I just worried that in this business that we’re in that was moving so quickly towards IoT solutions. He was just not going to stay abreast to change. Gotta root that out early. Yeah, you do. Really? Do you know on Marc Andreessen is recommendation, I’m reading the autobiography of Walt Disney right now. Oh, interesting. Oh, my God, like, you know, the classic sort of stereotype when I think of Disney, I just think of creator and creative. But that guy is a pure entrepreneur, talk about learning agility, and adaptability and resourcefulness. I mean, he is, I mean, every once you read the book as long, it’s involved, but if you if you feel like it’s describing you to some degree, if you can be, you know, 5% of sort of the, the man that that Walt was, then you’re probably going to be successful as a as a founder.

Now, on your recommendation, I’m gonna grab it. i He has one of the all time great mission statements for Disney back in the day, you know what it was? Have you gotten there yet? No. To make to make people happy, okay. That’s it. You know, you get all these complicated missions valid, you know, vision statements that are full of hyperbole. And then I looked at Walt Disney’s to make people happy. Yeah. And that was pretty cool. So So Carter, you mentioned the book, I’d like to get into this a bit. You went from, you know, clearly being an operator, at some, some fledgling companies that became very large, as well as some large companies, to a VC, you know, evaluating early stage startups and helping them help them scale. Why did you write the book? Well, you know, why did I go from an operator to Vc is probably first, and then I’ll tell you why I wrote the book. But yeah, I think it’s really important for us to understand our motives. And I, I’m very motivated by a variety, also just by sort of mentoring. And so that be motivated by sort of a purpose driven person. And I found that the the career that I moved into the variety, as you know, in our business, it’s really, it’s really interesting. And you’re always talking to smart young people, or smart old people building new things, and it’s, you know, you’re never bored. And the I just feel like I can be helpful in mentoring and counseling people, and I get a lot of satisfaction out of it. So, you know, I think there’s a book a good book called Designing your life, which is about career it, essentially career management. And I liked it, because he, they talk about versions of yourself, you know, like, we’re not one version, we’re many versions. And you have one version of you might be an operator, another version of you might be a venture capitalist. The third version of you might be an inventor, who knows. But looking at your life, in terms of chapters with different focal areas is an interesting way from, for me, at least to think about it. And I realized that there could be a different version of myself versus being an operator, which is being an investor and being a teacher. So I moved into this different life of teaching at Kellogg and, and being a writer and, and being a vineyard venture capitalist. And I, I try to stress to my students that you don’t have to be one thing Now early on, you might want to be one thing to get that skill set that’s you can leverage later in your career. But as you go through mid career, there’s different versions of yourself that you can use

You can explore. Because you might you know, in this in this day and age, you probably are have two or three different four different careers in your life. Yep. So why did I write the book, you know, along the same line of thinking, I thought one of the future lives I want as I get older, and God willing, being in my 60s and 70s, and 80s, is I’d love to stay productive, being a writer and being a teacher. So what topics are interesting me from to research, and one of the ones that I found super interesting is, there’s so many books about leadership success, but there’s so few about failure. You know, it’s always about winning. And it’s always about profiles of people who’ve won. And I thought, What about profiles of people who don’t win? And why don’t they win? And what about you can hurt you? What, you know, what don’t you know about yourself can hurt you so sure. So the book was an exploration of why good people, talented people run into trouble. And so I researched it for a couple years.

And I interviewed a ton of people 100 And I interviewed people that have gotten demoted, or or fired. And I interviewed executive recruiters and executive coaches and HR talent development people. And I found that there are these five reasons good people run into trouble and get derailed. And so what I did was I explored these five areas through these characterizations are these archetypes because to make the topic a little more palatable, and less scary, you know, instead of saying, I suffer from interpersonal issues,

you could say I have a touch of Captain Fantastic and me. Yes. So I created these five archetypes. And each archetype represented a different reason people run into trouble. And so I talked about these archetypes. And then I talked about what, where they run into trouble. And then corrective actions you can take. And then I created a an assessment with the Center for Creative Leadership. So you can actually take this assessment and see do any of these areas, you know, do I fall into any of these traps? So the five are Captain Fantastic. Yeah. Which is, the person whose ego is is on steroids and is running into trouble, because he’s having trouble in listing others to work with him? Because he doesn’t listen well. And he is, you know, sort of bearish. And I know some of those. Yeah, we all do. And we all have, you know, a lot of us have pieces of him, sometimes that can come out that we got to be careful of especially if we take some success, you know, you can get a little big for your britches. So Captain Fantastic is one archetype. The other one is the next one’s the solo flyer, which is a really good executor, a person who’s very good at getting things done, who then gets a management position and doesn’t know how to leverage their team. They keep trying to do it themselves. They don’t teach the team they don’t do a good job of they sort of have a hard time going from player to coach. Yeah, yeah, lots and lots of those. And that’s a fixable, that’s definitely a fixable thing. It’s just a matter of realizing that once you’ve promoted somebody, they need your help even more in making this sort of transformation from me to we write then the third one is my favorite, which is version 1.0. This is the person that’s not adaptable to change. So you know, you and I were talking about how you have to have learning agility as an entrepreneur and constantly adjust your value proposition and your go to market strategy based on new information. Version 1.0 is someone who gets in a in a groove and the groove turns into a rut.

And they, they aren’t abreast of the changes that are occurring around them. And they don’t make adjustments. Yep. So that’s the state curious message. The fourth one is called the one trick pony. And that is somebody who is good at one thing, but hasn’t taken lateral moves, and doesn’t understand how all the pieces fit together. So they top out at some point, because they are considered to be non strategic. Right, also overestimating the importance of their function, I find, oh, great point. Yeah, they can be sort of lopsided, they see everything through the lens of their function, and they aren’t balanced in their assessment of a problem and how the problem might be solved it by different functions, or how the problem might be manifested in other areas other than their function, right? Maybe they’re in finance, but they aren’t thinking about it through the lens of manufacturing, right? Maybe they’re in software development, but they aren’t thinking about it through the lens of customer experience, you know, UX UI or what, you know, whatever. That’s a great point. You bring up an easy trap when we’re all you know, in our own worlds and specialists in certain areas. So yeah, that was it.

doing. And then the last one is the whirling dervish, which is somebody whose eyes are bigger than their stomachs. There, they say yes to too many things. They get overextended and balls dot drop balls start dropping, and people distance themselves from them because they can’t be counted on. Right. And that is very entrepreneurial, you know, the importance of focus when you’re a founder. And deciding which of these things is really going to reinforce which of these activities should I work on, that are really going to reinforce building my value proposition, and we’re going to create a great customer experience, and not trying to do everything. And as I bet you see this too, a lot of the companies that we see that are failing, they tried to do too many of the things at once. They try to go through multiple channels, they tried to go b2b and b2c, they try to put too much feature functionality in their product, because they aren’t quite sure what exactly the customer wants to they try to offer a whole bunch of stuff, hoping that they hit the, you know, they hit a nugget somewhere. It’s frustrating to see Yeah, but so you know, self Admittedly, I have this issue as well, you know, you fluctuate you vacillate from this the whirling dervish to focus. And it’s tough. It’s tough to balance priorities and not take on too much. But yeah, I see it in founders as well. Somebody asked me, you know, how often do you think that, you know, founders should reevaluate their priorities?

And I said, almost weekly, not that you should change strategies weekly. But when you look at what’s on your plate, you should be looking to pair all the time.

I love Michael, Michael Porter, you know, the Harvard professor, his definition of his definition of strategy. Strategy is what you decide not to do?

I just think it’s a perfect definition of strap business strategy. Well, there’s so much there’s so many different options and potential routes for business. So editing, and limiting yourself. And enforcing focus is one of the hardest things.

Yeah, it is. And you know, a lot of entrepreneurs try to keep optionality open.

They want to have multiple, and I understand it early on, you want to keep your options open. Yeah. But at some point, you’ve got to lock in on who’s my customer? Not six, not six segments. Yeah, who are my one or two key customer segments? What are the channels?

What’s the product? That’s what’s the aspects of the product that are critical to get right? And let’s go.

And, you know, if you’re wrong, you can adjust, but we see time and again, straddling of strategies. And you know, when you’re an entrepreneur, you have scarce resources, financial and people. That’s not a good formula. Yep. So that’s the fifth, that’s the fifth archetype. And, you know, we’ve, I’ve had, I’ve had 1000s of people take this assessment. And the number one self reported issue is this whirling dervish, is it is a really, yeah, I think in this day and age, everyone feels overwhelmed with, you know, our devices and notifications and texts and emails, and they feel like their people feel like they’re drowning under Data and under communication, and that they’re having a difficult time focusing. So I would argue for priority, you know, at the end of the day, readjust your priorities every single day, to look at what you want to do the next day in the next week. Because I think it’s just a different world. I’m 55. You know, it’s such a different world than when I started a business in 1985. You know, so much simpler, it was so much simpler. There’s just less less barrage of communication to distract you from focusing on getting your primary work done on, right. So many competing things for your attention. Yeah, we see it. Well, we’ve seen I bet you’ve seen this too. We’ve seen entrepreneurs who get a taste of success. And then they go on the speaking circuit. They get on panels, and they get interviewed a lot. And the some of our very best entrepreneurs don’t do that. They don’t subscribe to that. They stay focused on their business. And they turn down a lot of these ego stroking opportunities, because they know that that in the end, it’s going to their success is going to be determined by their customers, not the press or analysts or anybody else. Right. People ask me all the time, Nick, why aren’t you on more panels, even in Chicago? And why having, you know, done more keynotes, and I just have to say no, because I’m running an investment firm. I mean, it’s, it’s wonderful that we have the podcast and it’s wonderful that you know, we run these investment groups and we have some of them

NC you’re in there. But that’s not the business, the business is investing all those things contribute, but it’s not the focus. So I had a woman who runs one of Warren Buffett’s businesses, super sharp. And I asked her after we had a nice long lunch, some mutual acquaintance introduced us. I asked her if she would be a guest speaker in my class, my business school class. And she said, No. I said, Oh, okay. Why? And she said, I focus on my business. That’s what I do. That’s good for you. Yes.

Good answer. Good answer. So clearly, you’ve thought deeply about, you know, the personal side of entrepreneurship, and the psychology of entrepreneurs. You know, when you’re looking at deals, what sort of traits are you looking for in the founders? You know, you and I have discussed your class at Kellogg launching and leading startups, you know, what do you focus on in the class, when you’re when you’re talking to students? Sure. The tray for I’ll start with the traits of founders, I look for probably three or four things, one is a true passion, they are insulted, they can’t believe that this thing hasn’t been already created, they believe in it so much, and nothing is going to stop them from birthing this baby, they are passionate about their about their startup, and they are purpose driven, they believe in it, they believe in the problem that they’re solving. And you can feel it in the way they talk to you. And that’s super important. Because, you know, they’re gonna get punched a bunch of times in the gut. And it’s that passion for the problem that’s going to keep them going. So you’re looking for not somebody who wants to make a lot of money, but somebody who just loves the idea that they’re pursuing, because they believe it should come into being they want it manifested really badly. So that’s first. Secondly, and probably along the same lines, they’re resilient. And they’re resilient, because they believe in what they’re doing. So they’re going to win, they get turned down time and again, by prospective customers are by investors, it’s not going to, it’s not going to stop them from pursuing their dream. And probably along with that, is they’re optimistic. I think most, most good founders are optimistic by nature. They see the upside, the glass is half full. And they see failure as another learning moment, instead of seeing it as an indictment of their personal skills is their personality. Yep.

And then the last one, which is really tricky, is I look for somebody that can listen well.

They’re going to listen to their board, they’re going to listen to the people that are putting money into their deal. And it’s tricky, because you know, I think most great founders have a bit of Captain Fantastic enum. I mean, who’s insane enough to start a company? If you don’t have if you don’t have a little bit of Captain Fantastic and you wouldn’t do it, you wouldn’t do it right. But you have to know how to modulate your ego and listen for the nugget of wisdom that Nick has or the JB Pritzker has are the you know, Christopher jente. Has, you have these people on your board, or advising you that have done this a while. So listen for the good thought that they have. Right and avoid the tendency to say yeah, but yeah, but yeah, but you know, some people say, you got to listen, don’t just don’t just reload. While they’re talking. While they’re talking. You don’t want to be reloading, you want to be listening. So I I’d say someone that listens, well, someone that’s resilient, they have a true passion for their problem. And they’re optimistic.

It’s really hard to find, but when you find it, it’s a special thing, you know, a founding team, or a founder that has the combination of those skills. You know, they’re passionate, they’re obsessed with the customer, they’re confident, but they also can take feedback in stride, you know, with without getting defensive, sort of that rare makeup is just, it’s really nice. I mean, we track our metrics pretty closely on the deal flow side. And we, in March, I think we had 362, some odd deals that we looked at. And one of those deals, you know, we made an offer to you, because one of those founders had had that right mix. And it’s just so special when you find it. I’ll give you an example. Nick, I was, in my class, I have to teach. I’ve taught two classes. One is called New Venture discovery, which is a practicum where the students build the build the idea out in class, and then at the end, I haven’t pitched to VCs, and they’re graded by the VC. So essentially, I’m one of the ones grading them but there’s three others. And one of the ideas afterwards

A year later, I kept helping this guy and I invested in his company. And I invested in the company because of the those things we just talked about. He listened well, he was curious. He believed in his idea he believed in and it was a tear, it was a terrible space he was in, he was creating a shoe, a running shoe, a tennis shoe, wow. And red ocean, red ocean. But his insight was that he was going to create in the most comfortable shoe imaginable, in sort of the casual tennis shoe category, which was had not had a lot of innovation in it. So I think he saw a little whitespace in a red ocean. And that company is all birds. Wow. So Tim Brown of all birds, the founder was created the company in my class. And I invested in this thing. Because of him, because of his because of his personality. I mean, it’s insane to invest in a shoe company, right? It’s it’s all about scale, and scale and manufacturing and brand power and distribution power. And here, he was this one guy creating this idea. But he had a nugget of an idea, which is a very, very comfortable shoe in the casual in the casual tennis shoe category where there hadn’t been a lot of innovation. But I invested in the thing because of the guy’s personality traits. I believed in him.

Wow. And that, you know, now it’s doing quite well, I’d say. So, we’ve got quite a few pairs in the household here. Yeah, I mean, this was 2013, that he came through Kellogg in my class. And honestly, when people ask, why did you invest in Allbirds? Did you see where they were going? I said, I invested in and because of Tim Brown. He had all the traits we just talked about.

So I figured he was going to pivot a few times, he did pivot a few times. But he was curious, and he listened well. And he had those great discovery skills, he was always out researching the market and trying to understand where the you know, where that little whitespace could be that he could exploit.

So, Carter, you have unique experience working with early founders and founders that are scaling. You know, I’m curious, I see these different skill sets and strengths of, you know, founders running different types of businesses at different stages. You know, there’s certain skill sets that lend themselves well to finding product market fit, getting an MVP and selling to early customers. And there are different skill sets that lend themselves well to, you know, the companies that are preparing for IPO. Clearly. We just had David Cohen on the show, and he was saying that the person that starts a company may not be the right person to scale it and take it public. You know, do you agree or disagree with David? And how do you think about sort of the the changing leader leadership requirements through scale? Well, I may agree 100%, with what David said, I have, I’ve laid out five stages myself. And I wrote down some of the traits, skills and personality traits, that a person needs to be successful in these phases. So I’ve written down excuse me, incubate startup scale growth and mature as the five life cycle phases.

In incubate, you know, your pre series, A, you’re hatching the idea, and your skills there are, you know, you’re good at Discovery skills, you’re good at research, you’re good at seeing trends, you’re good at associational thinking, you know, orthogonal thinking, you’re good at pattern recognition, you have an ability to deal with ambiguity, all those, you know, early, early skills like Tim Brown had, that is a rare bird that, you know, there’s a true founder that sees something and is able to mobilize people against it. And then the startup phase, all of a sudden, you have to be able to be action oriented, to be able to execute, to be able to sell, sell to investors sell to your first customers sell to prospective employees, and then your scale phase, all of a sudden, you have to be good at demand generation, product innovation, hiring, all of a sudden building infrastructure, processes and procedures. And then in the growth phase, how do you extend the product? How do you look for new markets, new channels, business development, partnerships, pricing, strategy, global expansion, and then the last phase mature, you know, cost management, constituency management, all all of these different five phases require very different skill sets. And so when you find a Bezos, it’s like for Steve Jobs. It’s like finding Willie Mays

You know, you can field he can run, he can catch he can hit, you know, you it’s so rare to find a Jeff Bezos, who takes something from incubation all the way through, in his case, gross growth phase. And most of the times, I think, we find a lot of founders who are good at incubate and sort of the mid startup phase, it starts showing that they don’t have the, the skills to get them to the scale phase. And that sometimes is a different person. And sometimes it isn’t, sometimes the person has tremendous learning agility, they can take something into the scale phase. But it requires such a tremendous amount of self awareness, by the founder to know are they the right person, to move it from startup to scale phase, and mean? It’s such, it’s such a hard thing to do to get it to scale phase. It’s such a victory, that if a founder realizes they’re not the right person to take it from scale to growth, or from startup to scale, there’s nothing to be ashamed of, they’ve done an amazing thing that most people can’t do bringing it from incubate to through the startup phase. And sometimes it’s a baton handoff to the person that goes it grows it from scale phase to growth phase. So I agree, and it it just it takes a tremendous amount of self awareness for a founder and say, am I the right person to continue growing this thing I’ve created? Or is it time for me to bring in a different type of a leader? And for me to play more of an advisory role? Right. Right. And, you know, that’s the $10,000 question. When is it time for you to look to bring in a team that has a different skill set than you and knowing knowing when that time is? Or are you the person that continue to grow and change to be able to do it? Right? I mean, those, those have to be difficult, difficult conversations. None of the founders of AR folio are at that stage. So I haven’t, I haven’t encountered that. But we encounter it because we’re series A investors. So we see people that go from series A to Series C, or D or mezzanine. And as they go to those later phases, all of a sudden, they’re going from managing something that was, you know, $20 million,

with 30 people to managing something that’s $400 million, with 500 people, and it’s a completely different job description.

And the leadership requirements are completely different, right? And some people just go, Whoa, I love the fact that it’s succeeding, but I liked it when it was back there. You know, I liked it before it was more fun. The answer might be go start another one then. Or become an advisor to somebody who’s more operationally oriented. Right? Yeah, people talk about sort of the unicorn companies and trying to invest in them and how, you know, they’re so rare. And I kind of think it’s, it’s really more about the unicorn founders, you know, the, the profile of the Jeff Bezos or the Mark Zuckerberg, the people that can take a startup from all through all the stages that you mentioned, that is the rare mythical special person that is just really hard to find. And in very rare, you know, a lot of those people don’t exist. Yeah, it’s I agree. 100%. I personally, I’m not the incubate guy. That ambiguity. And that that tenacity, it takes early on to define the new idea. That’s not my skill set. I can join that person, once they’ve gotten some traction and help them through the startup and scale phase. Well, then, as it gets into the mature phase, I sort of lose interest. It’s not what I love doing. Right. And so I know personally, when I was an operator, I did best in the startups scale, early growth.

And some other people are good at growth, late growth, and some other people are good at helping go from incubate to early startup. So you know, there’s, there’s a lot of different combinations. But you know, when I’m counseling students at Kellogg, people talk a lot about what functional areas should I go into marketing or operation, desert finance, or whatever? And I’ll say there’s two other areas that are really important. What industry do you want to play in? Where do you want to plant your flag? Yeah, what industry as a tailwind. That’s being disrupted, that’s going to have a lot of growth in the future. I chose omni channel retailing as my career. And then the third consideration besides function, and industry is what stage do you want to play in? Because people don’t think that way. But stages is important as either one of those other two considerations so important. I can tell you the number of conversations I’ve had at Kellogg with students going, Yeah, I didn’t really think about stage. You know, you might love being in 100 and

billion dollar company and hate being a billion dollar company, you might hate being in $100 million company and like being in a $2 billion company, you might go into a startup and you might feel completely at home in the chaos and the lack of systems and the lack of structure. And you might go in there and feel like a deer in the headlights. Yep. What is right for you? And there’s no right answer, right? It’s just what’s what fits your, your profile? Where can you excel? What are you going to enjoy it even at the investor level? Honestly, Carter, like, I feel like my job as a precede early investor is different than the institutional seed or the series a guy or the series B gal, right? It’s, yeah, it’s a different job. We’re all in the venture capital world, but we’re doing different things fundamentally. And people just, you know, these these firms. I mean, some of them are great, right. But the people trying to invest multistage, doing a precede deal, you know, one week and then doing a series B deal the next. I don’t get it.

I agree with you, I think firms that stick to their focal areas, and do something extraordinarily well. And don’t, you know, we don’t play early, early stage, we count on people like you to find these things. And then we try to help those companies that are getting traction scale. Right. And so you’re right, are different roles for different firms same as the same as a person inside of an operation. Right. Right. Well, I’m pleased to say that we do have some co investments tovala. And sure, there’s a couple others. But yeah, David, Robbie is an example of a entrepreneur who’s got great stuff isn’t a My goodness. He has stuff in your book at the right. He’s got it. Yeah, sure. He is resilient. You know, even handed, you know, just I’ve been so impressed with David. He is one of the greats, we’ve got a lot in our portfolio. So I don’t want to undersell the others, but he is one of the greats. Yeah. Carter, if we could cover any topic here on the program? What topic do you think should be addressed? And who would you like to hear speak about it? Oh, my gosh. Well, I’ll tell you, I love Brad Feld. Yeah, I wrote him a fan note yesterday, as a matter of fact, the clarity that he talks about deal structure and term sheet. He is such a friend of the entrepreneur. And his book venture deals is required reading and Michael is and his blog, you know, as the VC, and I think you have failed thoughts. I would say if you haven’t had Brad on there, get him on and have him just talking about deal structure and what the entrepreneur should you know, on a term sheet. A lot of this stuff people argue for is not of consequence. But there are four or five things of consequence. And he can talk about those things really clearly. We have had him on and he actually talked about the terms he evolved. But then I gotta go back and listen

to that. It’s been about four years since we’ve had him so I should probably I should probably get him back on. The other one is probably about there’s a bunch of other ones. Fred Wilson, I love he’s so thoughtful and reflective and honest, Bill Gurley. I, you know, like watching Bill analyze just about anything. You know, Bill Gurley of benchmark, Mr. Marketplace, I would say get girlie on and you just asked him to analyze about and he wasn’t, you know, he was an analyst before he became a VC. So he has tremendous rigor.

Early and Fred Wilson, I love reading what Fred Wilson of Union Square Ventures has to say. He’s his blog is so good. Yeah, he and I have traded a lot of emails over the years. But he doesn’t do a whole lot of this sort of thing, unfortunately. But I’ll do my best Carter, what investor maybe you’ve already mentioned him, but what investor has influenced you most? And why?

Or who has? No I would say I follow guys like girly and Wilson and you know, the what they’re prognosticating what they think is gonna happen in the future. But my you know, I like a lot of people. I love Warren Buffett because he’s value focused. Yes. And I worked at Walmart, I’ve worked at companies where you’ve got to stay value focused. And, and you focus on the fundamentals, and he’s value focused. And he focuses on the fundamentals. And he’s good at staying out of the hair of the management team. He, you know, invest in good companies, he invest in good management team and he doesn’t tinker. He helps them if he can help them but he stays out of their hair. So I just think he’s that he’s such a rat. It’s so rational. I love it.

And finally, Carter, what’s the best way for listeners to connect with you?

Well, I’m on LinkedIn, and I have a I have a website for the new book I wrote just under my name Carter cast.com. And I have resources on there. I have my assessment tool you can take to see if you have any derailment tendencies. So probably harder cast.com or LinkedIn

All right, the man has Carter cast the book is the right and wrong stuff how brilliant careers are made and unmade Carter. It’s been great connecting and sharing Old, old swimming stories and

looking forward to the next one. You know, I use I use good now and swimming. Yes, we’re great. You are good. Again, it’s back, you know, back like it was in the 70s. All of a sudden there. Once they got rid of me that it was all up from there.

Well, thanks, Carter. I appreciate it. This was great. Great talking to Nick. All right, take care.

All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot them an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that. Some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same accomplishment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening