The Reason 90% Startups Fail! How The BOSS Startup Science Team Can Help You Succeed! Webinar

Okay.

All right, everyone, uh, thank you very much, uh, for joining, uh, whether this is, uh, live or recorded. We hope this is, uh, very helpful for you, um, in terms of your understanding of Boss Academy, um, and our process to help entrepreneurs, uh, with a playbook, um, to help them get to a desired outcome very quickly. So, um, my name is Randall Laveau. I am co-founder of BOSS Capital Partners and running BOSS Startup Science along with Greg Shepard. Greg, I'll let you go ahead and introduce yourself.

Yeah. So Greg Shepard, and I actually came up with BOSS over about 25 years working with 14 different companies that I did, 4 private equity awards, TEDx speaker, Forbes author, Forbes radio host. I'm a council member of Forbes as well. I've written 100 articles for 29 publications. And through the process of doing all this stuff, I did a huge study to try to figure out why entrepreneurs were failing, to see if the systems that I had used over the years would also be effective for those pitfalls.

Yeah, and so my bio, my background, I'm focused on growth.

My traditional experience has been around sales and marketing from both the entrepreneur and investor side of things. So I've been a part of startups that have grown to $100 million. I've come in as a senior leader of companies that started at $100 million and sold at $1.8 billion. So I've been through the cycles and the life cycles associated with startups and driving towards exits.

So Greg, you want to talk about the opportunity just in terms of entrepreneurship and what it really means for us to kind of impact the failure rate amongst entrepreneurs?

I mean, when I started, I came from a background with very little wealth and I spent a lot of time trying to figure out after I made my money, you know, how I could help other people. And I found out this interesting data stat that about 4%, just 4% of people that are living underneath the wealth inequality line have the opportunity to get out from underneath that line. And 98% of those people do it through a windfall, which is inheritance, lottery, or starting their own business. and 75% of them did it by starting a business. Being somebody that has dyslexia and autism, I found it interesting that 4 out of 5 of them were people on some sort of a spectrum. When I looked at the data then, and I realized that 90% of these entrepreneurs actually fail trying to make that happen. And so I thought to myself, holy smokes, I need to spend some time figuring out why why these entrepreneurs actually fail. So over the course of about 5 years with a team of 4 people, we did something like 120,000 surveys, interviewed 1,200 people independently, studied tens of thousands of articles. I had to do this research for the book, the book that I have coming out published by Forbes later this year. And it was really helpful to understand this. Now, when I looked at the data, I saw ran out of cash and not the right team, pricing and cost issues, etc. And this is sort of how they answer, but these are lagging indicators. This isn't, this isn't really, this is a symptom of a problem, not really the problem themselves. So when I started to think about what were the actual problems underneath this, when they ran out of cash, you say to yourself, well, if investors are investing into a business, and at that point they're making the investment because they know they're going to make more money, and then they stop making an investment, what does that tell you? It tells you that the investor has lost confidence in this opportunity. It tells you that the business may be overvalued and the investor has another place to put their money that has a better return in the same time frame. And so each one of these individual things give you this indication on what is underneath the way that the entrepreneur was answering the question when they found out why they failed.

And Greg, there's this being one of the biggest reasons startups fail. This is kind of looked at in 2 ways, right? The running out of cash. One is the inability to raise funds, and the other side is the inability to efficiently effectively use the funds appropriately, causing you to run out before your next round. You want to talk about that?

Yeah, I mean, you know, when you are looking at— a lot of times when you're raising capital as an investor, you see decks and it'll say, you know, use of funds is 25% to this and 30% of that, but the investors rarely check on that, on the allocation of funds. So they rarely see that you actually did spend that much on it. And the chances are you're going to be off. But if you don't have any checks and balances, you can quickly spend more money in an area than you've allocated there, therefore putting you off budget, right? In addition to that, a lot of times they bring on expenses before they actually need to bring them on. So they'll be told that they need an executive team and they'll get an executive team on, and then before they actually need those people, or they'll hire high-hitting executives that are not used to working in a startup.

Right.

These people are not practitioner-level people that are going to roll up their sleeves and do the work. They're the kind of people that need to hire other people to do the work, and you can quickly run out of money doing that as well.

Yeah.

And then the next one, um, not the right team, right? We've done a lot of research here, and, um, I know, Greg, you've got a couple of comments on this in terms of, of your thought and our approach. Um, one is, is the horse and the jockey. And 2 is principle over position. Do you want to break those down in terms of this not the right team and why it's so important for entrepreneurs to be thinking about this early on?

Yeah, I mean, you know, understanding first of all who is supposed to do what. So understanding what these functional area leaders are going to, are going to do in the first place should align with your financials. So a lot of times what you see is you see entrepreneurs hiring for some job they need done instead of hiring for a structure of a business. What I mean is that I use 4 functional areas. I use product and engineering. I use shared services, which is like operation. I use service and support, sales and marketing. Each one of these things should align with the valuation driver for the whole business so that everybody understands what success looks like. Underneath the valuation drivers are the KPIs, which are the leading indicators to the value of the business. So if you don't align, let's say, sales and marketing to the valuation driver growth, or if you don't align, let's say, service and support aligned with retention, or operational shared services aligned with margin, then you essentially are building a management team without any numbers. So it makes it very difficult to run a KPI, which are made of both lagging and leading indicators, to your financials, which are the ultimate lagging indicator, and align that with the success of the, of the management team. And so that's a really big thing. And oftentimes they'll be doing the right thing wrong or the wrong thing right, meaning making sure that the sequence of the things that you do are in the order that they should be done according with where you allocate funds and what stage you are in the life cycle of your business.

Yeah, definitely.

And then the next one, actually the next 3: pricing and cost issues, product without a business model, and poor marketing. Do you want to talk about the importance of the ICP, the ideal customer profile, and why getting that right initially is so important to the success of the business?

Yeah, so the, the, you know, you start with the end in mind, meaning that you have to understand who is essentially going to buy your business. Because that, that place that's buying your business, that acquirer, has something in mind. Either they're buying you to make more money or they're buying you to save money. I had a friend who sold Amazon Robotics to Amazon. That was a save money scenario to cut down headcount, whereas most of the acquisitions that happen are actually to make money. And the way that they make money is that they've already built up a customer base that they've already paid through customer acquisition costs. Their CAC to LTV ratio is is really good because they've already acquired all these customers and now they're just profit. Well, the way that they grow that value is by selling other products to that same place. So if they're sitting there trying to sell other products to that same customer base, then they want to buy other businesses that have products that they can sell to grow their lifetime value, therefore monetizing the investment they already made on their CAC, their customer acquisition cost. So when you start out with understanding that, you start out with understanding that your ideal customer profile and persona must match those of the acquirer. Otherwise, you can raise money, work really hard, and not, not get an acquirer for your business because your customers don't match them and they can't take advantage of that synergy. And so pricing and cost issues, product without a business model, Same thing. The other thing I would say is that when you go into your product, you want to make sure that you're building a business that to a certain extent is your vision. Once you get past that MVP, which is a minimal viable product that you're building, keeping in mind the customer, at that point everything that you build should come from your customer feedback. It shouldn't come from your vision anymore. A lot of places go out of business because they do this. They go off on an adventure in their own head with their vision and not listen to their customers. And therefore, you know, a lot of people go, I had to do 3 pivots. Well, pivots are a red flag. If you have to pivot, it means usually you missed something, unless it's a situation like COVID. Poor marketing aligns with not understanding your customer too, right? So if you don't understand who your customer is, how are you supposed to get in front of them, which is what marketing does? does. And ignoring customers is what I brought up earlier. Ignoring customers is a just— you're going to fail. Your customers are buying your product. Let them tell you what you want. Lose focus.

One of the things about that though, Greg, right, is when you're serving too many customers. Yeah, you're out of ICP. You want to talk about in ICP versus out of ICP and why that's so important? In fact, you had to Let go of half of your customer base because—

Yeah, I mean, I did this, right, where I built up a business and I had lead generation customers, and I also had customers that were selling business-to-consumer, and the acquirers didn't want any of those lead generation. They only wanted consumer brands. So I had to essentially get rid of half my portfolio and start over again. And this was a real setback, cost me years. And a lot of dilution to do that. So understanding upfront who your customer is and what they want, and making sure that that aligns with the acquirer of your business is extremely important. And the loss of focus usually comes from a customer, from an entrepreneur that doesn't understand their customer, right? It's like leaving your house to go on vacation without a destination. You didn't pack right. You don't know where you're going. You don't know how long you're going to be. Gone, so on and so forth. So you got to make sure that you understand what you're heading into the whole time and be smart about it. So that loss of focus and lack of passion came from people that got mixed up. They did analysis to paralysis. They followed their vision instead of the customer. They didn't get traction, and then they start to fall apart. So all of these 3— burnout, lack of passion, lost focus— usually are attributed to the same problems. And the failure to pivot is again not resetting. If you're gonna pivot, you need to go back, reset your North Star, which means your ideal acquirer profile, your ideal customer profile, your persona, and everything, and realign your whole model to that pivot. But again, if you have to pivot, usually you miss something. It's rare that it's a COVID thing or some election thing or some economy turndown that you haven't planned for maybe when you're doing your wargaming. But failure to pivot is usually a red flag. It's like, why do you have to pivot? I missed something. Well, then you missed something. So these— each one of these different slices all come down to a very few group of things, the different themes, if you will. And so these are the themes. So you start out by saying you have a management team that isn't the right management team. Maybe you hired practice— you hired People that are high-level executives that aren't practitioners and don't roll up their sleeves and do the work. Instead, they want to outsource to other people. Or maybe you hired the right person in the wrong place. Or maybe you don't have your functional areas set up appropriately, like I talked about earlier. Failure to understand the customers is maybe when you were doing your MVP. I always tell people in BOSS, I'm like, listen, You need to get 5 to 10 customers that are going to stay with you from the beginning all the way through to your MVP. And if you can sell those customers, then you have validated your product. They have helped you build something that they are willing to pay for. That is a great way to validate your product. And now you have some customers paying and you can move into the next level in the lifecycle. An incomplete exit strategy. This is something that just blows my mind because the majority of companies, I can't tell you, I look at probably 100 deals a month and maybe 1/10 of one of them even have an exit strategy at all. And I just cannot believe that people don't start with the end in mind. They don't start by thinking, this is what success looks like, and then driving to that. It's the only thing I can think of in life That you do. I mean, you don't, you don't start saying, I'm going to lose weight, and that's it. You say, I'm going to get down to a certain amount of, a certain amount of pounds or stones or whatever, and that's where you're going to arrive at, and that's what success looks like. So an exit strategy spells out what success looks like, and that's in the North Star. This will prevent this one, which is overvaluation. So This is a really common thing, and it goes back to in the previous chart where the investors don't want to put money in. Well, the investors put money into things that are going to make them money. If the investors don't want to put any more money, it means that either they think it's a lost cause or they have a better place to put their money for better returns. So if investor wants 2 to 5x and your company is starting to get overvalued and now they can't get 5x, and they're looking at 1.5 or 2, you shouldn't be surprised that they're going to go put their money with something that's going to give them 5x because the valuation has grown too long. Sometimes they just won't value at all. Sometimes the company just gets overvalued for any acquisition at all. So understanding who you're going to sell to, how much their pattern of buying businesses for, and all of that helps you prevent yourself from getting into overvaluation. and understanding the investor's expectation, which is more important than your valuation. The investor is going to want 2 to 5— if you raise $1 million, they want 5 times that back. So it's very important, and that's in a 3 to 5 year period of time. The longer you go, the bigger the return they're going to need. And bad advice is just everywhere. I think accelerators are fantastic and they have a really, really important role in the entire ecosystem. Sometimes I found that the mentors and accelerators are one-time, one-hit wonders. They're a consultant trying to pick up consulting. You know, it's— they sometimes you can get bad advice. You need to be very careful. Investors, and I'm an investor, so yeah, I can tell you that a lot of really bad advice comes from investors because, you know, they're betting on 1 out of 10 working anyway. And if you fail, it's in the numbers. But to you, it's, it's, you know, you've lost your 401, your house, your family, and your friends' money, and so on and so forth. So, you know, you need to really filter the advice and make sure you look at who's providing you the advice and what their track record is. And then after that, get the advice and then judge the advice for yourself. Because if they're not bringing up things that are really critical, like all the stuff that I've talked about on here, then the chances are you probably need to step back and filter out what's not good advice from the stuff that is good advice. And you need to understand the persona it's coming from. A lot of times entrepreneurs will listen to an investor. That investor has been trained formally, right? So they are some graduate from some school. They've been in investment banking their whole life, and they're listening to that person who's never actually run a business or been a practitioner. of a business, or they're listening to somebody that is the executive of, you know, some big corporation, and that's their board of advisors. But those people aren't used to running a startup. They're used to working in a bigger company with more resources, and they can provide bad advice. It's very— the advice is— this bad advice is never intentional.

Right.

So it's important for you as an entrepreneur to understand where that's coming from and then back into Well, and one of the reasons that we have bad advice here, and like you said, Greg, I mean, I never believe that mentors or investors are intentionally trying to hurt a company. What they're lacking though is the context of the situation typically. And it's easy for someone to give you a piece of advice in a moment of time, but without the context of the business trajectory and the maturity of the business, it's hard to give relevant advice. really strategic, specific advice to someone. So, Greg, why don't you talk about the playing field? And I think this is a good transition into the lifecycle and how entrepreneurs have historically been at an extreme disadvantage by just not understanding the playing field.

Yeah, I mean, one of the things I was trying to solve for is I knew that even as an entrepreneur myself and the entrepreneurs that I've met, It's like somebody being dropped into an American football team playing field, not understanding how the game is played. Like, these are yard lines, and the objective is to make progress in the yard lines, aka KPIs. This is the time of the game. The game lasts so long, and whoever survives that period of time and scores the most wins the game. These are the rules. You can't do these things or it can cost you penalties. And overall, it's a rough playing field. So most entrepreneurs don't even know what game they're playing, what field they're on when they start. So when the life cycle was created, the concept of the life cycle was to make sure that this is spelled out so that you can see the playing field you're on to begin with, giving you some advantage. So When you start out, you say, okay, well, all of these things all start out with a vision, right? So you have some vision, something, some problem you want to solve for a customer, or maybe you're taking advantage of an opportunity. A bull market is taking advantage of an opportunity where you're going to make revenue, and solving a problem is more bear market, although you can mix the two up. But you don't want to try to sell a new opportunity to make money in a bear market where nobody's spending money. to align your vision up with what's going on in the economic ecosystem. And then you get yourself to a product and the product is an MVP. Now at this stage, you should have picked up 2, 5, 10 different customers that you're using to help you build your minimal viable product. Now these customers are very important that you choose them wisely because those are the same customers that you're going to try to sell the product to At the end to validate, uh, your business and your pricing. So you want to build your product at that stage.

And these would be the same people, right, that have also helped you validate your vision, right? Right. You're taking them with you along that journey.

Yeah. A lot of people will go out and they'll say, oh, I validated these different things, but they validated them with an investor or they validated with a friend of theirs or something like that. They didn't validate that with an actual real customer. that is going to be paying them when they're done with this initial process through alpha, beta, launch, and growth.

Especially for SaaS companies, and we've seen this many times where a subject matter expert in the, in the space will validate the vision and potentially validate the product, but that's very different than an actual end user validating the usage of the product. And so product validation is not just having someone say, this is a good idea, and conceptually I think, you know, it would work. You have to have users in day in, day out, understanding their behaviors within the systems to know that you have good usage, right? And by understanding this, this is going to help you prevent you from making mistakes in product feature roadmap development and go-to-market messaging and what the true use or value of the tool is. To your actual users.

Yeah, I mean, it's very important. I, I made that mistake too where I had built out a suite of products and then I went and started trying to sell it. And what I realized, I should have just built the first product and let the customers tell me what else I should have built because I ended up turning off half of them. And then I would have saved years of time and a ton of money and a lot of frustration had I done it the appropriate way.

So it's good to get visionaries to agree and validate your vision and your product, right?

They need to, and it's important for them to, but it's just as important to get the actual users to validate it as well.

Right. And, you know, I've heard this, people say to me, they'll say, well, the customer doesn't always know what they want until you show it to them. And I'm like, that's the case, but that's not the product, it's the problem. What you're validating is the problem and your way of solving that problem. That's what you're validating. Is this product solving this problem? AKA, is this— first of all, does this problem exist? That's what's envisioned, right? Does this problem— is this an actual problem that you're willing to pay for? You know, in the North Star, we ask questions like, are you willing to pay for this? Are you not willing to pay for this? Is this something you'd like to do yourself? And so on and so forth. And so it allows you to validate that this is a problem, this is a problem they want to pay for on the outside and get solved, and then you work with them to develop the product. Now once you've developed that product, you can move into revenue, which is where you convert that 5 to 10 initial beta, alpha beta customers to actual paying customers. Now because you've had friendlies the whole time, now you're in revenue, right? So you have another opportunity to raise money. You can say that you have customers that are paying you, and then you want to go up against your go-to-market and judge the performance of your go-to-market strategy at this next stage. The go-to-market strategy is not what most people do. I look at decks all the time and it's like a go-to-market strategy on 1 or 2 or 3 slides, and I'm like, that— first of all, a go-to-market strategy— a strategy is a plan. So a plan has details. So when you're looking at the details, you have to say, okay, at alpha, beta, launch, and growth, these are the different plan versus actual numbers I should have on different areas of your funnel. So if your funnel is, let's say some campaign creates traffic, that traffic creates free users, those free users convert to paid users. All of those things are different steps in the funnel. Your go-to-market strategy should have what creates the opportunity to drive revenue in it. So it's a run of show. This event happens on this date. My average number of attendees is this. The average number of those people that sign up is this. And now you have a go-to-market that you can judge up against KPIs before you go into growth. Because if you do it after you go into the growth, then you're going to be spending a lot of money and again getting yourself upside down. So you can see that this is very logically, intentionally built so that each stage you're capitalizing on what you did the previous stage and then really monetizing as you, as you stretch your wings.

Well, yeah, and we—

the reason we have this as go-to-market here instead of sales and marketing is because in startups, and especially with entrepreneurs, go-to-market involves all 4 functional areas. It is not just sales and marketing like you would see in an enterprise company where just the sales and marketing departments are focused on that. The reason that all 4 functional areas need to go to market together is because you're going to use this lifecycle to have an important transition. When you start your company, you're building a product or service to sell to customers. At a certain point in your maturity, your company becomes the product or service that's sold to an acquirer, and they're buying the whole company, not just sales and marketing or the revenue side of things. So you need to keep alignment with the internal functional areas of the company as you mature through the lifecycle. So you're essentially packaging your company up as a product to sell to someone, making that transaction happen more smoothly and decreasing the chances of you having to take dilution.

Yeah, this lifecycle is really important because what it does is it says what should you be validating at a different stage How long should it take you? And at that opportunity, when should I be raising capital? Your valuation is going to jump at these levels. Once you validate your vision, you have something that you didn't have before. Your valuation can go up a little bit. Once you have a product, your valuation— once you have revenue, once your go-to-market is shown to be successful through KPIs and measurement of metrics, Once you show growth, you know, every one of these stages, your value— this curve that you see is your valuation growing over time. So your valuation grows as you raise capital, which means that you take less dilution. Now, the thing that I always have with entrepreneurs is they say, well, I'm raising enough money for the first, you know, 2 years, multiple different valuation points. So first of all, what you're doing is you're raising money when your company has the least valuation. So not logical. Second of all, they'll say, well, the reason why I'm doing that is because it takes 50 to 60, 70% of my time to raise capital, but it shouldn't take that time if you're doing this appropriately. Those investors should be more than excited to put money into your business. You shouldn't have to hunt them down if you are showing them progress and they can see that valuation growing over time with validation. They should be excited to put money into that business. Now, it's true that there are different types of investors. There's these early-stage investors and mid-stage and more the end of the life cycle when you go from sort of like community, friends and family, and, you know, community fund Kickstarters and stuff like that all the way up to private equity or venture capital and in between angels and micro VCs and stuff. That's true. You have different investors. But these investors will help you raise money along the path because if they don't, they lose their money and they're seeing something that is actually working. Now the reason why the timeline is in there like that is because the studies show that it takes about 3 years from an average company to be passed up by their competitor. And the reason why— the analogy I give to people is to say you're walking through a jungle and you got a machete. You're chopping down the rainforest, you're chopping down— now, is it slower for you or the person behind you to catch up with you? The person behind you just runs down the path you already made. So they're going to catch up with you pretty fast. Now, as soon as you go to your go-to-market, you're going to be getting yourself in front of the very people that are going to be competing with you. Now, at that point, it takes— it's taking you— look at the amount of time it's taken you, maybe 3 years to get to that point. Maybe 2 years, maybe a year to build the software that you have. Why can't they do it in that time or even half that time? Because you've already done a lot of work for them. So that means that the lifecycle has to be reduced down to a timeframe where you sort of remove or at least set aside the concern of competition. The first mover only advantage— the first mover advantage only works if you're the first mover, meaning the first one sold. Otherwise, you get passed up. Look at Yahoo getting passed up by Google, Apple getting passed— Microsoft getting passed up by Apple, MySpace getting passed up by Facebook. You could go on and on and on. It's the first mover advantage is not as important as the second mover look back. So it's okay if you're an entrepreneur and you're the second mover, you just need to know what you're up against and understand the advantages that you have. And if you're the first mover, chase your shadow. Look behind you because I guarantee you there's another entrepreneur right there on your tail.

So this is the lifecycle. And this is one thing right here, right, which is the playing field for entrepreneurs to move efficiently through their maturity. Now, what we also have is BOSS. And BOSS stands for Business Operating Support System. And think of BOSS as the vehicle that you use to move quickly through this lifecycle. So just knowing the playing field is one thing, but having tools, templates, resources to help you is another, and that's where BOSS comes in.

And so there's 6 foundational elements of BOSS.

First is the structure.

Greg, do you want to talk about best practices and KPIs cascading through an organization in the functional areas?

Yeah, so the structure means like basically your functional areas, the areas that operate different functionalities in your business. And the mistake that a lot of entrepreneurs make and a lot of businesses overall make is they don't understand that human behavior is based on, you know, the ability to see themselves achieving. It used to be carrot and stick, carrot being reward, stick being penalty in the Industrial Revolution. And now it's come down to understanding what success looks like and knowing how well you're performing up against that success. So you start out by saying, what are the valuation drivers for the business? What are the things that drive the valuation of the business? Growth, margin, and retention. Okay, well, where do they belong? Well, your functional areas should align with those valuation drivers. So growth is sales and marketing, retention is service and support, and margin is shared services operations. Right now, product and engineering obviously across all 4 functional areas. So now you've got numbers on the heads of the people that directly affect valuation. And then underneath that in BOSS, we have already written out KPIs and KPIs are made out of leading and lagging. The ultimate lagging KPI is any financial number and leading campaigns KPIs are the things that create the financial numbers. So as an example, let's say your valuation driver is growth. What creates growth is sales. So you have a KPI on sales. What is the leading KPI to sales would be the number of campaigns you run in demand generation, the number of demos that happen, ultimately the number of contracts and sales that come in. Now what you have is you have a direct, what I call pulling the thread, one thread that flows from the valuation of the company All the way down to the individual who's creating that value, which is essential. So it's very important that you structure the business the way it's supposed to be structured.

Exactly. Then the North Star. The GPS analogy works great here. And my first introduction to BOSS more than 5 years ago was with the North Star. And what I found about that to be so amazing is It is like a GPS in the sense that the 2 most important data points are where you are and where you want to go. And then the GPS helps you get the— or find the most efficient route to your destination. The North Star is exactly the same. Whether you're driving your company towards an exit, strategic exit, you have a lifestyle business and you want to just get towards, you know, some number that's healthy for the business. Some distribution channel for whoever is invested. There's lots of things that the North Star could do, but it's very literal. So whatever you put in the North Star and whatever destination you set, it's going to take you there, which is very important for the entrepreneur to understand. So in the North Star, we start to find what are the drivers for the business and what is a purpose-built business look like in this case. One of the things that we do to identify a purpose-built business is looking at the ideal acquirer profiles.

Greg, you want to talk about the exit strategy and the IAPs and how they play into the North Star?

Yeah, I mean, so I get into a lot of conversations with people and I say to them, when I look at deal flow, what is your exit strategy? And a lot of times even investors, they push back and they go, my exit strategy? I'm just starting. Why should I have an exit strategy. And you have to start with the end in mind, and I'll back into that for a second. But when companies buy your company, they're buying you as a product, not as a company. Your whole business is just a product. A synergy is made out of either they're going to make money or save money by buying your business. And if they have 25,000 or 50,000 customers, they've already paid for the customer acquisition cost of those customers. So what do they do? They need to grow lifetime value in order to get to lifetime value to CAC return. So if you're— if you don't plan for who's gonna buy your company and understand what their customers' ideal customer profile and persona is, you could get down the line where you've spent all this money of investor capital and built this business all the way down the line, and then at the last minute find out, whoops, I had the wrong customer. And now you're in a really bad situation. I know that because I've been there myself. So understanding the profiles and the personas of the people. So the, the ICP is the ideal customer profile. That's the business. The persona is the individuals in the business. So you need to understand who you're talking to and you need to understand what problems you're solving for the business overall. The reason why those are different is because you may be talking to somebody who doesn't personally benefit by solving this problem for the business. And sometimes they won't solve the problem. They'll sit there and go, well, I got to go to corporate and deal with this and contracts, and I got to go deal with that. I just don't want to do the other work. That's why the, you know, competing against the status quo is the biggest competitor. It's easiest to just keep things going the way it is. And so understanding your ideal customer profile, understanding that profile up against your ideal acquirer profiles customers is extremely important. That and several other things, a whole list of other things are in the North Star. And the North Star is essentially your strategy, your overall strategy from where you are to where you wanna go. Yep.

And then we have another section, which is our strategic section for strategy. And this is where we also deploy the begin with the end in mind principle. So the idea here is we take an end goal. Let's say your valuation drivers are a certain percentage of growth, A certain level of margin and a certain level of retention. You start with those being your targets, and then you break those numbers down and reverse engineer them into a quarterly cadence for you. So I want to know what I could be able to do in the next 90 days to impact my strategy over the next 3 to 5 years, and BOSS helps you do that. Another area is helping with execution. So BOSS has its own execution methodology, which is called a MODM— missions, objectives, tasks, and measures. And this is our way of breaking down that North Star, turning it into an actual strategy across the 4 functional areas, and then being able to activate that strategy through execution.

So this was a really big deal, right? To sit there and say, okay, we wanted to make sure that as we're building this out, that nothing was shelfware, that everything you did it had multiple different purposes so that you're not sitting there doing things that don't need to be done, which we found common with a lot of consulting companies. You know, business plan. Well, when are you going to use it? Never. So why do it? So all of these things are specifically built out. So what you do, what you see here is you see you have a structure. That's the team that's going to get things done. You work with the team now to create your North Star. This is your direction, where you're going to go, when you're going to get there, what success looks like, so on and so forth. Your strategy, which is a step-by-step plan on how you're going to go about that. A mission is an overarching thing, right? This is your big mission. Usually missions are per functional area. Your objectives are the individual things that you have to achieve in order to achieve the mission. They are in from X to Y by date, and then execution are the actual activities that have to happen to make sure that that overall strategy is achieved, thus the North Star being achieved. And so the MODUM, the last area of that stands for metrics, which are the KPIs. So essentially when we work with our portfolio companies, we're like, we settle on a North Star, which everybody should do with their investors so there's alignment. This is what everybody understands to happen. Then show them the strategy so that when you start to execute, and have results, they get investor confidence. They believe in your ability to set a plan out and execute and achieve the things in the plan. That's a really big deal to an investor. And so this MOTM is a way to operate your business on a weekly basis. We do this with all our portfolio companies. We go through the details with them. It makes it a lot easier. It also gives you the makings of your board deck and your updates to your investor. Because you're literally using what you're actually doing to create these things, which gives them comfort.

And then while you're going through this, what you're doing is you're executing on processes, many of which will have to be repeated. And so a great thing for a company to do, and what BOSS helps them do, is standardize processes. So as you're executing in the modem, it starts to obviate the things that need to be repeated, and these could be bifunctional area or should be bifunctional area. And what they'll do is they'll help create or eliminate waste in terms of people getting up to speed on new tasks or missions that they have to accomplish. So by recording the best practices, essentially the most efficient way to perform the process or the task needed, and then recording those and using them internally, what happens is everyone is on the same page moving at the same level of efficiency. And while they're executing and using the standardization to perform their tasks, They're also finding new and even more efficient ways to do those tasks, which is called kaizen and continuous improvement.

So with standardization, real quick, sorry, with standardization, a couple of things I want to make sure that we hit on is that when you start to scale, so this life cycle that we showed you earlier, there's a point at which you get into growth. The thing that really kills companies when you get into growth is headcount, and it's not necessarily the cost of hiring hiring the people, it's the cost of the amount of time it takes them to become productive. If you have already documented the standardization, the best practices, so who does what, what do they do and when do they do it, when is the trigger, what is the accountable person that happens, and the how is the best practice itself, then you start somebody out, you put them through an educational process that teaches them how to use the knowledge base where the best practices reside, and then there's less dependency on the other people to get them up to speed, therefore costing you substantially less money. You know, if you think about it, it's 33% of the annual salary of somebody it costs them in the first year. So if you're paying somebody $100,000, that's $33,000 of that $100,000 in the first year of burn in order to get them to profitability. Or productivity. That's a lot of money when you're hiring ten people at a time. I've been there. I could tell you personally, if you have standardization, you teach them how to use the best practice. You cut that down by a third at least. Like it'll be like instead of it being six months to 100% productivity, you'll be there in a month or two months because they learn the best practices. The other thing is that if you're judging metrics. Based on the way people are operating, but everybody is operating differently. Your metrics are going to be flawed. You may have numbers all over the place, but if people aren't doing things the same way, your numbers are flawed in the first place. So it helps you bolt down what people are doing and how they're going about it, so that when it comes to doing kaizen, the continuous improvement, you are sure to make sure that you're sure that everybody is doing things the same. The last couple pieces are when you sell a business, your business is complicated. When they go through due diligence, they're going to see, they're going to ask you, how does this business operate? And if you're like, oh, it's in everybody's head, then everybody's got keyman consolidation. That's a real risk. But if you go in and you say everything's in here, this is how the business is run. Think about this, try to get IKEA furniture without any instructions, right? I mean, it's a disaster. You can't undo it without the stuff breaking and it has to be done in a very sequential order. Same thing with business. So give them instructions on how to run your business. That's one. The other, the last piece of this, which is also fundamentally important, is key man consolidation. I know that people that are listening and people I talk to all the time will be building a business. They're building a business, and as they build it, the executive team that they have initially and all of the people that follow them have built up tribal knowledge that's their head. It's not in knowledge bases, not in best practices. What you now have is you have people that hold you hostage, right? You're literally held hostage by your intellectual property and tribal knowledge data being in the minds of other people who can quit and go work for a competitor if offered more money. And that's just one thing, right? Let alone the risk that you're sitting with. They get hit by a bus, you know, the proverbial bus, or they're sick for a week or whatever. You're in really bad shape and you continually have to pay these people more until you get yourself to a point where you can't afford them anymore. And now you're in a situation that you can't back out of because you didn't do the best practices. So this standardization phase is vital for so many reasons, including your exit and your ability to scale. And you can't do kaizen, you can't do continuous improvement unless you standardize things in the first place. What are you going to improve? Something that doesn't exist, right? So you have to do that. Sorry for interrupting, Randall.

No, well, I mean, we've literally seen acquirers shave points off evaluation during this process in the transaction when they're trying to do their diligence on how the company works. And what happens if you don't have it standardized and documented somewhere, they're taking the resources of your team that's still running the business and asking them questions about how they're running it, making their performance go down. And all of a sudden the business is looking worse and you're not selling at the amount that you thought you were.

Right.

It happens all the time.

Yeah, they'll just start marking it down because what they'll do is they'll sit there and they'll say, okay, well, we're going to need a working capital adjustment to get up to speed on your business. If you want to stay with that business, it's good. But if you don't, now they're going to have you They're going to give you some golden handcuffs to stay with the business for the next few years to make sure that everything gets transferred. And all those golden handcuffs for you and the other executive team members that they have to give out, so incentives and things like that to keep them around because they're concerned about them leaving because you have all your data with them, all your intellectual property with them, costs money. That money comes out of your valuation. Right, so you're, you're actually going the opposite direction. Instead of getting premium, you're going backwards. This is a really big point.

So, um, we talked about, uh, this being the playing field, and then within this life cycle, there are specific validation criteria that you should be seeking out. Um, so we're gonna spend some time going through each level here and what are the specific validation pieces you should be looking at. So let's get to vision.

All right, Greg, you want to go ahead?

So you have a vision, you have this idea that you're gonna, you're gonna build this company. You have to validate your vision before you go further, right? Because otherwise you're just drinking your own Kool-Aid and it's easy to sell yourself. So you start out by saying, have a I've been able to go to an accelerator and had my North Star validated, meaning my whole idea. The North Star is a very big thing, okay? So don't— it's a lot of work, but you get through this thing and you're like, this is my vision. And if the accelerator says, yes, I'll bring you on, that's a form of validation. Do I have product-market alignment? Well, if you've built your MVP, you've started to build your MVP with people that are ultimately going to buy your product, they're going to tell you whether you have alignment or not along the way, another form of validation. And do I know exactly where I'm going is in the North Star, right? I tell people, I'm like, building a business without a North Star, without an exit strategy is like building a product without a customer or without a problem. It's like going on vacation without a destination, just leaving. So these things validate this initial stage. Now the vision stage is usually funded through crowdfunding and friends and family, what I call community financing. But you still want to make sure that you're achieving these areas of validity because as you go through, you're also selling yourself. Remember, you are also an investor and you're going to put, you know, 3 to 5 years of your life into this. You have a lot to risk, so prove it to yourself, not just the investors. The product phase is essentially getting through your alpha, beta, launch. So typically you want 3 months. You have 3 months of an alpha, 3 months of a beta, 3 months of a launch, and then you go into growth. Now in those stages, what you're doing in the alpha stage is you're saying, did I get the overall idea right, Mr. Customer? And in beta, did I get this idea now put into a piece of software or whatever the product is, Mrs. Customer? And she's like, yes, you nailed it. Now you've got validation along the path. And when you go into launch, you want to make sure that your go-to-market is working effectively, studying your KPIs, looking at what the takeaways are on conversion rates and anything that's going to drive those results. And this initial, we call this a ABLE, so alpha beta launch, you want to have 5 to 10 customers in the ABLE area. And then you want to have in ICP validation of product, which in ICP, everything is in ICP. This is just every single time, everything always in ICP. Anything that's not in ICP is garbage. So in ICP validation of product, which means that your ideal customer profile are buying your product or they're interested in buying your product when it launches. So these alpha/beta launch customers, your ABLE customers, should convert to actual customers. So be very careful about who you choose in the very beginning. And one of them, at least one of them, should be a keystone. So you have a keystone customer going into your launch. The revenue phase is validating Your ability to have somebody pay for your product. So essentially, what you want to do here is you want to be able to get on the phone when you're pitching to raise capital and say, "I have paying customers." Now, those are your able customers, right? Your alpha beta launch customers, and those customers should convert to paying. Now, you're going to give them a discount, sure, because they helped you along the way, and you can explain that to the to the investor. But the investor is going to sit there and say. Wow, they've got 10 customers that helped them get the information and now are paying them for the product. Now it's validated. Your product is validated. You have an MVP of your product. People are paying for your product. It's a different business than it was before, therefore deserves a different valuation.

And so you're gonna raise the money in a different way too, right? You're not now looking at product development costs and engineering as much as you were before. There's a shift in the business.

Right, and you can tell if you look at financials. You can see somebody will say, oh, we've completed our MVP and we're in our growth cycle. And then I look at their numbers and they got 50% of their spend, of their cost, going into product. And I'm like, either they're not where they say they are, the organization's being managed inappropriately. The, the amount of money you spend should move from— at the very beginning, it's going to be heavy product. Right? And then it should start moving towards the next stage in the lifecycle, which is, you know, getting into growth. So now you're into your go-to-market. Now is where the rubber meets the road. And you've got your go-to-market, which includes what specific activities, aka tasks in the motive, are going to create which drivers, aka objectives, underneath what overall mission. That's the modem and how that backs in. So at this level, what you're saying, you're saying the judge for whether my go-to-market— because that's a sales and marketing approach, right? The judge of whether my go-to-market is working at this stage in the lifecycle is my LTV to CAC ratio, right? So the amount of money I make off of the lifetime value of a customer and how much I pay for that customer, and you want 3 to 1 to 5 to 1. If you have those numbers, what that means is that for every dollar I spend, I'm going to make 3, or for every dollar I spend, I make 5. That tells the investors that this thing is going to scale, at least in terms of the go-to-market, right? So you know that your go-to-market is going to work. Now, where the end of your go-to-market is going to work is when you get into growth. That this just proves that your go-to-market is financially feasible, right? Just like unit economics. prove that your product is financially feasible. Now what you're doing is you're saying, okay, let's move into growth because I've done what I can do here. I feel comfortable. I'm validated.

And you want to keep it in the sweet spot here between 3:1 and 5:1 ratio. If you start to go under and you're in a 2:1, it's probably time to start panicking and figure out what's going wrong.

It should not be that low.

At the same rate, if it's over and you're 6 to 1, 7 to 1, you want to invest that money back into the business and keep yourself at a 5 to 1 ratio. So it means to somebody that there is a unique opportunity and you should be putting resources and money at that opportunity because you could capitalize it. It could make more for your business than it would cost to earn it or buy it.

Right. Because literally an investor— think about it— the investor is saying, if If I invest in this company, for every dollar they put into marketing, I'm gonna make 5.

Yeah.

Right, so the investor is thinking this is a logical investment, right? It makes sense. Now, remember, this is customer acquisition costs left. It's not the full value of the business, right? So there are other costs. That's why when Randall was talking about 3 to 1 minimum, that's because anything below that is absorbed in just operations cost and other things outside of driving sales directly. So it's very important to, to make sure that if you're underneath that, you need to go back and, and rethink about your approach. If you're using a bunch of sales reps for your go-to-market, you know, maybe rethink that. Sales reps and, and that approach is old school. The new school is doing demand generation, giving people worthy, meaningful, good information, and then softly Introducing your product to them, like we're doing right now with you, and then letting them find the value on their own. There's a lot less cost to that and way better customer retention. Don't push, pull. When you get into this growth, now what you're doing is this is all in ICP, and now what you're trying to prove. Is that you can grow at scale. What I mean by at scale is in a big way, right? So you're sitting there going, okay, I know that my financial numbers work. Now what happens when I start to put more gas in the motor, when I hit the accelerator and really start to push down? Do I start to see these economies of scale or does it go the other way? In other words, if you look at the top line and the top line is expenses and the bottom line is income, These things should not only pass each other up; they should both start going different directions. That's an economy of scale. Otherwise, if they're both trailing, you know your expense, your margins stays the same the whole time, and your growth stays the same all the time. You're just making the same business with bigger numbers. That's not a business you're going to get high multiples from. A business you're going to get high multiples from is a business that's getting taking advantage of the benefits. of economies of scale and able to grow on itself, right? So that you have the ability to build a real big business and showing the acquirer what happens if I cut out the CAC because I already have the customers. If I cut out the CAC, wow, this thing's really big. And then you can negotiate on your multiples and get premiums. The optimization phase is towards the end of it. Now you've got your go-to-market, you're, you're humming along, you're growing at a really high rate. And now what you need to do is you need to start optimizing your business based on the acquirer's ideal acquirer profile. So if the ideal acquirer in your studies through the North Star, when you document it, that they're going to be after growth margin retention, most of the And when they're looking at those growth, margin, retention, they're not all created equally, right? Some of them are going to say, we really care about retention. So that's the primary. Or we really care about growth. So that's the primary or margin. That's the primary. And that backs into how they're going to buy the business. They're buying it on EBITDA, then they're going to care about margin, right? If they are buying the business based on top-line growth, just for growth, then they're going to care about top-line growth. So when you're optimizing, you're optimizing and moving around the way that you're deploying your resources, financial and human resources, to the best outcome of the valuation based on the acquirer's way of judging your company. And that process changes completely the way that you think about optimization to begin with. Now, in addition to that, you can go in and you can do things like There's technical optimization, which is where you go in and maybe get your code off of the monolith and onto microservices and really pressure the code down and make it easier to manage. There's operational optimization. So if you're using best practices and you read through the best practices and you can see areas where you can reduce effort with technology, use a CRM or some sort of project management tool, then you can reduce that. And one of the numbers I use for that, because I got in a lot of conversations with investors when I was an entrepreneur, and I'm like, I'm working on optimization. And they would say, well, what are the financial benefits of optimization? So I said, well, listen, this person in this functional area does this one activity in the best practices 5 minutes every day. They're like, not a big deal. And I'm like, yeah, but there's 20 people doing that. And those 20 people are doing it 5 times a day. Now, what you can say is you can say, The average person is making this much a year. Take it down to an hour, and it costs us this much to do those activities. I just eliminated that; therefore, just drop money down to my bottom line, increasing my margin. Right? So that can happen in your tech, in the code, in the way that your servers are established in your tech stack, and all that stuff. And it can also happen in operations. But it can also happen in sales. Like I said earlier, if you've got sales reps dialing for dollars, and when they do that, they're trying to make a cold call, validate whether it's a suspect or prospect, and then validate whether or not the thing's going to move forward. But you can do that through producing massive amounts of content faster, and it's less expensive than having a bunch of sales reps out there. You just optimize your sales approach. And so this is all over the business, and the way that you find those opportunities— this goes back to standardization— is by looking at the knowledge base. Literally what I would do is I would sit behind and shadow an employee that's doing a certain job, and behind me would be somebody from operations and somebody from product and engineering and somebody from finance. And I would say, I want you to show me everything you do. Give me a life in the day of. Right? And then they show it, and then we go back and they make notes. You come back around and go, okay, so I noticed that when you were doing this, you had to open 3 different browsers up and copy and paste information, or you have to do this spreadsheet. So what we did is we created this tool to make it more efficient. And you calculate again the benefits of that, financial benefits of that, by how many times it's done, who's doing it, how much they get paid, and by how many people are doing it every day. And this is where you get into the optimization phase.

All right, that, that is our presentation today. We appreciate everyone who joined and who will watch this at a later time. We hope this was a good introduction to BOSS, BOSS Startup Science, and the BOSS Academy. Join us for part 2 Where we're going to be unpacking the North Star and giving some how-to examples. We think it's going to be really exciting. So thank you all very much.

Appreciate it.

Marty, if you want to end it or recap, I think we're good.

Thank you.

Bye-bye. Thank you, everybody. We'll be making recordings available, I believe, and send out information about the next session.