How to Improve Startup Failure Rate? | Jeffery Potvin | The BOSS Podcast with Gregory Shepard

Gregory Shepard, an entrepreneur who's built and sold 12 businesses, a recipient of 4 private equity awards, TEDx speaker, and Forbes author. This is The Boss Podcast with Gregory Shepard.

I'm pleased to welcome Jeffrey Potvin, the founder and CEO of Open People Network. OPN is a group of angel investors helping accelerate growth through the Supporters Fund and the Pitch-In program. Jeffrey is an angel investor in multiple regions who has invested in over 50 companies. Jeffrey, thanks for joining the podcast.

Oh, you bet. Thank you very much for having me. Very excited to chat with you today.

Well, you're a busy guy, so let's dive right in. You're a lifelong entrepreneur with a track record of building companies. When you started looking at the perspective of leaving, you know, as an entrepreneur and moving into investing, what drew you to becoming an angel investor?

Well, it's a great question and it's an interesting one. I kind of feel like the world kind of drove me into this, if that makes sense. I was working as a software engineer at Loblaws, which is the largest grocery retailer in Canada. I guess like everybody, I worked a lot of hours building these platforms, moved from an engineer into running their e-commerce side of the business. And while I was doing that, the front-end admin people didn't really know what I did, but they seemed to think that it was online and anybody that was doing online stuff, they should send to me. So it worked out very well that they started sending me a lot of startups. And I had this inclination that I needed to meet with all of them, figure out what they were doing, help them re-engineer their materials, and then get them in front of senior-level execs in all the different lines of business within the Loblaws grocery retailer business. And from there, I continued to work with startups, helping them figure out what they were trying to sell. At the time, I couldn't invest, but I certainly enjoyed trying to figure out how to help them navigate through business. I got to learn about new tech, help implement a lot of that in Loblaws at the time. You know, big business was pretty much not really geared to working with startups. So, it was really great to figure out how to maneuver and work with them at the same time. And then, as I worked through my tenure there, I ended up leaving, working for a startup. And I still had this knack for wanting to work with the startup side of things. So when I left to start to work for one, I started to plan out my own business. I wanted to build my own company. I wanted to start investing. So I put all this down on a mind map. And then the next 15, 16 years, that's pretty much what I started to work from. So it started by working with startups and helping them build their platforms. So I developed a software company called Hardboot. And that's really what got us started. We started doing investments through there. And then once about 10 years ago, or 5 years into the business, I started to have the opportunity and the capabilities to start investing directly, instead of just using code or another way of working with these companies. So I started investing in the companies direct. And pretty much over the last 10 years, I've really started to hone in on the space, invest more, and work with a lot of founders around the world. And it's been pretty amazing. And at the same time, get to work with a lot of Angel and VC partners as well.

So I'm a big fan of what you're doing over there at OPN. It's interesting because OPN versus OPM, you started out saying you were doing OPM and other people's money investments is what I was thinking about. And a lot of people enter the market that way and you move from being an entrepreneur yourself and then being an intrapreneur to being an entrepreneur and then becoming an investor. That's a pretty clean path. And I think that what you guys are doing over there at OPN is just really, really unique. And what I wanted to do is give you a chance to talk to the audience, the listeners, about what differentiates OPN from the norm.

I love it. And I really do appreciate that you enjoy the model that we've created over the better part of the last 6 years. And just to kind of dive into what OPN is or the Open People Network, It started mostly because throughout the time that I started investing, one of the things I realized was that a lot of companies just weren't getting their due. They weren't getting in front of the right people. They were getting, I guess, broken down because of the wrong advice, the wrong investors taking their money and not really helping them grow. And it got to the point where it just, it frustrated me and I felt there's got to be a better way to help these startups really understand how to model, how to set their businesses up for success, the cap tables, how they raise money, how they get investment. So that's where it kind of all started from. It just got to this breaking point where we just saw too many failures. And, you know, the old statistic that everybody throws around, the success rate of 1 in 10. I looked at that and thought, who wants to be part of an environment where you have a 1 in 10 success rate? It just seems terrible. So how do we help a little bit better and clean that up? And even if it's 2 out of 10 or 3 out of 10, I think that's a a better increase and a lot more success. So we started to work with not just the angel groups, but started to bring the startups in and figure out how in a quick 30-minute call or 45-minute call can we work with them on their offering, offer them some advice and direction? Can we help them clean up their cap tables and start to do more one-on-one? So over the better part of the last 6 years, we've divided it where we— our team takes 30-minute calls, we talk to all of the founders of businesses around the world. We started off doing a small amount. And we started to increase that deal flow by running events, getting them in front of investors. Today, we see about 300 companies a month. And we net those down into a program where we refine everything that those 10 best companies are doing every 2 months or 4 times a year these programs run. And then we refine them down to the best 5, 3 to 5 companies, and, and then we invest in them, and then we get them in front of our network. And what this does is it allows for our network to now pick up on our groomed deal flow. And because we've been working with these companies anywhere from a month to a year, we're really honing in on helping those founders really understand what they have to offer, providing them with capital and, and outside knowledge. And then the great thing that ties this all together is that about 4 years ago, we created a fund called the Supporters Fund. So instead of it just being myself investing, We created a fund, and now we utilize this fund not only to make investments into these companies, but we also take— which we have a large pool, we have 45 angel investors that have come into our pool— we utilize them as board of directors, board observers, angels, and we tie them right into those companies when we start doing deep dives so that we can utilize their proficiencies and help the founders even more. So this model ties in nicely with supporting the angel ecosystem and getting them the best deal flow, but it also supports the startups. Getting them a lot of access to people that have been through the trenches and not only from an investment, but also from a startup perspective, have been there, done that. And it really brings a lot of value back to the startups. And we feel this is a great way to help not only the startups, but help investors tie quicker into businesses, appreciate what they're doing more, and then help them grow. And our goal is to get them to Series A. And today we have had a couple exits, but we also have a couple of companies that are now raising at Series A. So our model's starting to prove itself and we find that the hands-on really does make a difference early on.

Thanks for breaking that down because I see the concept of helping founders stay focused on their vision while guiding them along the entrepreneurial lifecycle. And then you do that with this accelerator program, Supporters Fund, right? And then the Pitch It series. And one of the things that we do at Boss Startup Science is a study that was why entrepreneurs fail at that 90% rate that you had mentioned earlier. And I'm wondering what you're doing at OPN that is different in terms of, you know, helping these folks not fail at that, at that 1 in 10 rate.

Well, I'm going to say all of the videos and everything that I've watched on the BOSS platform is fantastic. So amazing work you guys have. I've spent the last couple of weeks ripping through a lot of the material and it's fantastic. So I think the best way to look at it is, and I think some of these things that you certainly touch on throughout The work that you guys do, and again, highly supportive of it, is a lot of it, and you mentioned it, is focus. A big one is that, and I'll use the analogy that the brain of an entrepreneur is like walking into the Cowboys football stadium. That's your brain. It is opened up. There's a million seats. There's 700,000 or 76,000 seats or whatever the number is. And it's just millions of doors. So, there's just so much room out there and your brain just wants to do everything. What big business is great at is they're good at compartmentalizing how you think and how you execute. And as an entrepreneur, you need to really drive into that. And it sounds wrong. Like everybody's like, no, I want the freedom of thinking. And yes, you do have that. But when you can really hyperfocus your business and do one thing great and solve one problem, you really are going to get more investors on board. You're going to get more interest level and you're gonna generate faster, quicker revenues and turnovers, or at least you're gonna understand where your problems are internally so that you can correct and adhere to your supply chain or your financial structure. All of that's going to come out of really trying to focus in on that problem. And I think really early on, the big miss that a lot of founders have is they tend to think so broadly and they think that they have a lot of data, a lot of interest, but they haven't really found what the real one nugget problem is. And when they start to really define that problem, they'll start to feel the returns coming from that. Your sales will increase, you'll get a lot more interest. You may have to pivot a little bit or you don't, again, depending on how well you've really infiltrated the market. But that focus is going to help you grow. And there was a great example of a case study, I guess, that came out recently. And it was with grooming products. I know, and they were doing one thing really well, selling like crazy. And one of the Dragon's Den investors had said, don't ever veer from this, stay on track and just sell— to make it easy, we'll just say blankets— sell blankets. And they said, no, we're all for it. We did it. And then one day, you know what, let's try something new. We've been doing really well. We've got hundreds of millions of sales. And they veered off and tried to sell cookies. And they realized that the cost of time was actually affecting the other side of the business. So after a year and a half of blowing $10 million, they decided this isn't working. They stopped and went back And now they're doing $500 million in blanket sales. So the focus really does make a difference. And I think a lot of companies have to really understand that. And what we try to do is get that focus and figure out what the real problem is, and work with them until that is kind of defined, and then start feeding in different sales outlets so that they can close more deals, and then keep getting them ready so that they can ramp up and start raising more funds, but really heavy focus on that area.

So when we did this research, right, we found out that, you know, out of the, like, 40% of the entrepreneurs fail within A year of leaving an accelerator. And the reasons that when we mined into that and figured out what, why was that the case, it sounds like you're helping out with a lot of those things. You pointed out one of them being, you know, we have a joke that entrepreneurs have the attention span of a fruit fly, you know, shiny thing syndrome. You know, the investors always talk about this stuff. And it sounds like one of the things that you do is help hone them in and focus on get more laser-focused instead of, you know, horse blinders on what they're doing. But in addition to that, it sounded like you're also making introductions to help them out with getting in the door to sell their products also. Is that correct?

Yeah, we utilize our network quite a bit. We, when we see that we've got a portfolio company that's doing a great job, we'll make connections into other partners, into other investors, you name it, wherever we can feel that we can make a dent, we will certainly open up that opportunity. And we do the same thing from strategy consulting. We'll introduce people that we think can always bring a value into the business, and we try to vet it out as early as we can so that we have some strong partnerships. And the way this feeds in nicely is that when our companies do get to Series A, we've built some great relationships with Series A investors, so we can tie them in and they can see this company has gone from, you know, say, zero to to $3 million in revenue, and they're hyper-focused. And now those investors that are now looking at them, they can see that track record, they can see the things that they've done, how well organized the business is. And then they want to be part of that because it's a clean, easy sweep. And I think to go back to your comment on the accelerator side, I think when you've been handheld for so long inside of an accelerator, and you come out of it, you have millions of questions and millions of concerns or things that you want to deal with, and you may not have those right people to go to. And I think that having that check-in point makes a big difference, even if it's only 20, 30 minutes. And I think every startup should look at, you know, how do I find an advisor that will give me 20, 30 minutes every 2 weeks, just so I can report and give feedback, and I can get someone to share a little bit more with? Because at the end of the day, we all have questions, you know, yourself and your business and myself and mine. I always want to have somebody that I can throw something at as well.

That's really unique. I mean, you know, I did this tremendous amount of research, and the There aren't a lot of accelerators out there that are really setting the entrepreneurs up for success. There's a bunch of them out there that are just clipping cap tables. So I'm really happy to hear that. And it's important for the listeners to know that because this is an example of a good one. When you look at deals submitted to OPN, what are the top things you typically focus on?

Well, we do have built a matrix that allows us to kind of go through and give some criteria and break it down on it. Does it meet these certain things on either on revenues or downloads? Like, there's obviously a million data points that you can utilize that will benefit the success of that company wherever it's at. But because we are first money in, or typically try to be first money in, a lot of that time the companies are pre-revenue. So we have to look at different metrics. And a lot of the time, a lot of startups try to go into this stealth mode of development or stealth mode of building. And I think that's appreciated to a certain point. But if you want to really start to make a dent and get ahead of your business, a lot of it has to come down to how well can you build a community? How fast can you get out into market and start to execute so that not only the business can grow and start to build pivotal points throughout the time that they're growing and from seed to Series A, etc.? There's also what other avenues do I need to look at that are going to make a difference? So Am I being socially active? Am I jumping into pitch events? Am I going in and writing papers? Am I getting case studies done? What are all of these other facets that you can do that deliver value back to your business? Because at each stage of investing, people are going to be researching on you, and they're going to be looking to find out what you've done. And those things help de-risk your business from an investor standpoint, but also from a customer standpoint. So we try to look at all of these different avenues along the way to see how much you've de-risk your business. And we're going to now analyze and say, is this product— it's great today— is it going to look great in 5 years? Can we iterate? Can the product change? How strong is this team? Does this team bring enough value for the next 2 to 3 years? And then if we layer on new executives, is that going to make this product even better in the future? So there's a lot of other data points that we'll look through, but there's always going to come down to maybe 2 or 3 main points, which is product-market fit? Can they generate revenue? Or is this a revenue-free company until they build up enough users? So we're kind of analyzing a lot of different pieces, which most investors will at the early onset. And origination is always going to be helpful too.

That's great. Thanks for sharing all of that. Okay. All right, Jeffrey, we have to stop here. But coming up in the second part of my chat with Jeffrey Potvin, the founder and CEO of Open People Network, Jeffrey talks about the importance of founders seeking out mentorship.

You know, I think a lot of founders may think that they know more or there's no way somebody is going to understand what I'm trying to do in this space. And it's not so much about always having somebody that understands you 100%, but what it is, is it's having somebody that understands the vertical and the space you're in so that when you are out talking, they can help you better navigate. They can make introductions, but they can also coach you along the way so that you can learn about the environment.

Learn more about the BOSS Business Operating Support System at bossstartupscience.com, or you can reach Gregory Shepard at gregoryshepard.com. Gregory Shepard, an entrepreneur who's built and sold 12 businesses, a recipient of 4 private equity awards, TEDx speaker, and Forbes author. This is The Boss Podcast with Gregory Shepard.

Thanks for checking out the conclusion of my conversation with Jeffrey Potvin, the founder and CEO of Open People Network. OPN is a group of entrepreneurs and business pros who help startups with business fundamentals, technical and tactical outcomes that help build future leaders. Jeffrey, we've seen an incredible growth in the diversity of startups like space, AI, fintech, robots, Are you involved in any of these verticals specifically?

Well, currently right now on our fund side, we're very open-ended to all verticals in all areas of business because we are trying to offer value. But in the last iteration of our program and change and the last closing of our second fund, our focus really shifted to deep tech, fintech, and CPG, which is my background. So it kind of makes a lot more value for us to be able to focus in on what we're good at and what we can be quick at in order to make investments. But I think in the sector in general, when you're looking at what areas are kind of really keen, I think that investors are going to start to go into, you're seeing a huge change right now in impact investing, of course. So anything that's going to reduce carbon and reduce emissions packaging, all these types of things are really shifting a lot, and I think they should. So I think a lot of investors are really leaning towards investing in companies that are taking this approach. It might not be 100% of a full impact and a full change today, but they're going to get to that stage in the next 3 to 5 years. And then other hot areas, I think robotics in the next 3 to 5 years going to be huge, and that's across all sectors. I really feel that It's only touching the surface right now. Like, you do see in the US where over the last 10 years they've lost a million jobs in manufacturing to robots, but they've also increased jobs in other sectors to pick up the slack for having the robots. So I don't think there's a loss of real skill set. But what you're going to see is a lot more of that change and a lot more people diving into and learning more on the coding side and other things to start supporting these areas. I think fintech is another one that is really taking off in the last couple years. There's massive amount of groups around the world that are building up around fintechs, and rightfully so. I think that the decentralizing of business in banking is huge, and I see that there's a lot more to go. So you're going to see a lot more changes in that space as well. And I don't know if that means the banks are going to come up and start buying everybody, but I do see that there is a lot of change happening from You know, of course, from your Robinhoods all the way down to ClearBanks or Clearco now, and these types of companies that are being able to fund businesses faster, but also being able to transact quicker.

Let's change gears a little bit. And let me ask you this question. A lot of these startups, I always think about the horse and the jockey, you know, horse being the business, jockey being the entrepreneur, and the jockey never having ridden a horse before, they can have the fastest horse, you know, and still fall off. And so my question to you is, because a lot of these startups have leaders that have never led before and they're first-time leaders, what advice would you give to them when they're walking into a leadership position for the first time?

I love the question. And the reason being is that you're really focused on the founder and the CEO. And like us, when we do, we really do focus on that person because we feel that that is the real meat and potatoes of how any business is going to build and be structured. And one of the things that we like to share, or at least guide our founders on, is that when they first start off in a business, that because they are green, they don't have that type of experience, they're not going to build their company and have a few million dollars running through the business in the first 12 months. Hopefully they do, but it's not as common. So they are going to be in build mode. They're going to be building up that business. So one of the things we recommend they do is they go out and they find somebody that has, you know, 10, 20, 30 years experience in the area or in the vertical that they are going to be infiltrating with their business. And the reason being is that they need to get that senior-level executive experience. And that information is going to come by socializing and working with those types of individuals. So, we always recommend to go and find a mentor or a coach, somebody that does have that real in-depth knowledge. You know, I think a lot of founders may think that they know more Or there's no way somebody is going to understand what I'm trying to do in this space. And it's not so much about always having somebody that understands you 100%. But what it is, is it's having somebody that understands the vertical in the space you're in. So that when you are out talking, they can help you better navigate. They can make introductions, but they can also coach you along the way so that you can learn about the environment that you're going to be going into. And I think that makes a big difference from a learning experience. You kind of get that on-ground, you know, crawl, walk, run. You're going to be running a lot faster if you can get in there and crawl first with a few either ex-founders or CEOs or senior-level executives that are in the area that you work in.

One of the things I— when I was doing research on you, one of the things that I read about was you talking about loosening the belt at the lower end of the funnel. What is that? And when it comes to changing the startup investing ecosystem, what do you, what do you mean by that? And what advice do you have?

Well, this kind of has 2 sides to it. And it really starts with when it is very early on, you're getting into prototyping stages, there's a lot of dollars that are needed to set this up. And one thing that I found over the years of working with early-stage companies is that A lot of this cost is obviously put on the founders to figure out how to navigate, and a lot of them will spend and waste a lot of time trying to find $10,000, $20,000, $30,000 just so that they can go in and do some prototyping or get in and access certain systems. So what I mean by loosening the belt is that there has to be possibly in the future some government intervention where the governments are able to come in validate quickly ideas and ideation stages. And maybe they do this better through the accelerators, and they start to push dollars into those accelerators that are feeding the dollars into these early-stage companies. And it's non-dilutive. It's a way of getting this entrepreneurship and business off the ground. And this is huge, huge for any country. And you're starting to see this change happening in a lot of countries right now, from Mexico, Chile, Canada. What they're doing is they're, they're trying to bring dollars in, they're bringing startups in, they're giving them funding, they're saying, hey, come build your company in our country, we'll give you $50,000 of non-dilutive funding. And they're bringing startups are going in there. So there's been the last couple of years, startups are chasing dollars in countries because countries want those entrepreneurs to start building businesses in their country. And that to me is what entrepreneurship is about. It's about figuring out How can I build something, keep as much of it in my pocket as I can, have some non-dilutive dollars that the government's going to put in, allow me to create jobs? And the more jobs you create, that builds an environment and that gets more people interested to want to build companies. And really, when you're looking at the numbers, I think it was something like 96-97% of Canadian economy is built off of startups, which are less than 3 people. So you're already looking at how do I feed that engine and help those people survive and help those people build big companies or mid-sized companies. And that all has to come by loosening the belt and allowing the governments to come in and open up and start spreading some dollars into those accelerators to get those companies off the ground. And then aside from that, providing tax breaks to investors. They're trying to ensure that the investor doesn't make any money off of this, yet they're the ones putting in this early capital in some instances, and it's really small. I think in North America, the angel investors only make up about 7 to 15% of total dollars invested into an early-stage company. So I think there's got to be a way to keep more dollars flowing in. And by giving tax incentives, which some countries do, some provinces do more than others, that's another way of opening this up to ensure that startups have the potential to succeed. because they actually are getting some dollars to help them grow. Not everybody's sitting with a silver spoon in their mouth thinking that they can build a company off of the family money. So I think there's got to be different ways to bring dollars into those companies that can help create more jobs. And at the end of the day, that's what every government wants.

I think that's great. Yeah, the UK has one of those programs. I think it's, I think it's fantastic. How do you think about performance when you're monitoring the performance of the entrepreneur and the business? in your portfolio companies as they are in the accelerator and then post-accelerator. How do you think about that and how do you understand what they're doing and make sure that they understand what they're doing?

From an entrepreneurial standpoint, it comes down to a certain point, it does come down to metrics. It comes down to the data and how that data resides and is it proving that they're solving a problem. When the company is starting to work with us, if it's month 3 or 12th month in. I think a lot of it is really trying to understand, are they solving a problem? Do they have an audience? Have they built a community? And with all of those components tied in, are they able to scale this business? Are they able to keep moving forward and generate the revenues that they're expecting? And does that bring back a value back to the business? So we're always doing check-ins. If it's not, again, every 2 weeks or monthly or every quarter, The whole goal is that we want to make sure that we're— they're aligning to their problem that they're solving, and we're aligning to making sure that they're getting to the stage where they can get to that Series A to be able to be scaled by getting in larger dollars. And in order to get to that point, they really have to start proving and showing a lot of metrics that are going to get them to that stage. So the metrics again can vary if they're all about revenue or if they're just about users and generating the revenue later. Again, it depends on the scaling type of business it is. But we try to look at as many avenues as we can. And if we see that there's flagging problems, then we want to be able to offer that input and insight. And again, while at the same time bringing the right people in to have those conversations with them as well, so that these founders can continue growing and pivoting as they need.

I really appreciate your time and all the knowledge that you're dropping on the listeners very, very much.

Super appreciated. From everything that I've read, seen, and watched, keep up the amazing job, man. You're doing an awesome Awesome, awesome feat for helping early-stage companies and businesses in general to succeed. And all the content and data you guys are providing is just purely gold. So thank you for having me.

Thanks so much, man. I really enjoyed it. And I appreciate everything so much. I really do. And what you're doing for entrepreneurs and stuff. I mean, you know, there's people out here like us that are really trying to make a positive change.

No, I appreciate that, man. Yeah, no, I'm a big fan. I used to I was people be like, why are you trying to help them so much? I'm like, I'm like their cheerleader. I just a big fan of what it takes, and we've all had to go through it. And in life, everybody needs a little bit of help. But in the startup world, back in the day, as I'm sure you're familiar with, every time you try to go in and pitch a company, they're like, oh, you're a startup. I don't have time for you. I'm too big business. And you're like, what the hell, man? Your company needs this, and you're too shallow to see this. And they'd be like, no, you're gonna fail next week. I'm like, yeah, because you won't sell me. That's why.

So true.

It drove me crazy. Yeah, but today, today things are a bit better. People are more open-minded, which is great. So, uh, but it's come a long way, and I think it's, uh, there's a lot of good people out there and you just got to find them. But, uh, the startups are really what create environment for business, man. Without it, you know, the governments wouldn't be able to tax the way they do. And so it makes a, it makes a big difference on an economy. So the more that these governments and everybody else can get behind it, it's huge.

Absolutely, I couldn't agree more. His name is Jeffrey Potvin, and to find out more about the Open People Network, check out opn.ninja. And that's it for another episode of the Boss Podcast. If you enjoy the show, make sure you take a second to subscribe so you automatically get updates on new shows when they drop. Also, if you have a minute, I'd love it if you left us a review so more folks like you can discover the show. Thanks for listening, and Namaste, my friends.

Learn more about the BOSS Business Operating Support System at bossstartupscience.com, or you can reach Gregory Shepard at gregoryshepard.com. This has been a production of Forbes Books.