← Tiny Office Hours
Tiny Office Hours
#2: How to Start a Holding Company, How to Hire and How to Incentivize Employees
00:54:55
Andrew (@awilkinson) and Chris (@_Sparling_) answer your questions for charity. To be featured in a future episode, submit your question here: https://podcast.tinycapital.com/.
Loading summary
Transcript92 lines
- [00:00]
Andrew Wilkinson
Hey, everybody, thanks so much for coming to our second ama. So we've been doing this interesting thing. Chris and I get a lot of emails every single day from entrepreneurs asking us questions, and it kind of bums us out that we aren't able to respond to all of them. And so we started basically telling everyone, hey, instead of us emailing you back, go and do an ama. And if you, if you want to, you can donate to charity, and we'll prioritize your question. Otherwise, we'll do our best to answer it. And we just do these monthly podcasts. So it's kind of nice for us to cut down on our email. We get to have a little more fun, share all of our answers with the community, and donate a little bit of money to charity. And for every dollar that anyone donated, we match it dollar for dollar, and we donate to a local charity here in Victoria. So, yeah, it's been. It's been great. And yeah, let's. Let's kick it off. We've got a Brayu here to help us manage all the questions and ask us as we go. And, yeah, let's, let's roll.
- [01:01]
Moderator
Yeah. So the first one is a text question comes from Andrew Randall. He said, I am a PhD on marine conservation and sustainable development in Canadian Arctic, Nunavut. Not sure how that's pronounced. How can I become a Tiny Foundation Fellow?
- [01:18]
Andrew Wilkinson
So Tiny foundation is our kind of dipping the toe in the water of philanthropy and trying to figure it out. And one of the things that we realized was that if you go and you start a foundation or philanthropy or something, and you want to be good at various areas. So let's say, you know, you want to. You're passionate about climate change or some sort of science or something like that. You have to hire people in house who are experts. And so what we started doing instead is saying, we don't want to have a staff. We want all the money to go to donate to science or charity or whatever it is, whatever the causes. And so what we're instead doing is just choosing people who we think are super smart and we admire a lot and we know personally and respect, and we're just saying, hey, you know, here's x hundred thousand dollars. You can do whatever you want with it. You can put it towards your own research, you can give it to another charity, you can give it to another researcher. And so, unfortunately, the way to become a foundation or a Tiny Foundation Fellow is to know us or have us seek you out. So I'd love to hear about what you're working on though. We're all. We always make random donations and fund all sorts of different stuff and if we can't, then I certainly know people who might look at it. So it would love to see anything you send. So send me an email.
- [02:36]
Chris
Awesome.
- [02:37]
Moderator
So I'll read the next one. It's a little lengthy. I have. This comes from Jamie Law. He said, I have been running a music production website for just over five years. During that time it has received over 9 million page views. It has generated 93,000 through affiliate commissions. 80% and then ad revenue which makes up 20%. It's taken a dip recently due to changes in search and a lack of content on my part, generating around $1,000 a month. Currently I'm looking for advice on what I should do with it. My original idea for the site was to turn it into a dribble slash unsplash for music producers. It's only recently I've been working with developers to allow third party uploads on the site. I also thought about transitioning it into subscription site for unlimited. Sounds similar to Splice but without the monthly credit cap. And I would allow anyone to post on the site. I purchased the domain waverly.com to do this. If I were able to get a seed investment to run full time, I think I would easily transition into a subscription site. I'm just looking for general advice on where, what I should do and how I might go about it.
- [03:44]
Andrew Wilkinson
I think it's a tough one. I think it's a really personal decision. The fundamental question I have is if you look at those page views and you assign a low conversion rate to them. So if you say, let's say there's 500,000 people uniques who visit the site a year, what percentage of them would need to buy the premium service in order for you to pay back all of your costs? Building that out and what does that number work out to and then what's the competition for that and how hard is it going to be to convert all those people? Um, so you know, in one world my advice would be, hey, just keep doing what you're doing. Keep making, you know, a hundred grand a year through affiliate, find clever ways around the edges to monetize it. I think without knowing how much it would cost you to take a swing as well, that's a little hard. But I do think this is probably a math problem. I don't know. Chris, what do you think?
- [04:38]
Chris
No, I largely agree. I kind of think that. I think pivoting to a Dribble is much harder than it sounds and I really wonder if that level of community is actually what people want and are looking for at the same time. My understanding is that the royalty free music space is tremendously competitive and it feels like a bit of a. I feel like this is a really tough space. I don't think it's 100,000 per year, Andrew. I think it's $1,000 a month, so about 12,000 per year. I think given the economics currently, it's really tough to make a swing for that. I would almost.
- [05:10]
Andrew Wilkinson
Oh, that's a good point. I was thinking that was annual.
- [05:13]
Chris
Yeah. No, I would just let it cash flow as it is right now and maybe focus on something else.
- [05:18]
Andrew Wilkinson
The other option would be to sell it to somebody else who might go and capitalize on that and just sell it based on the audience. But it depends on how passionate you are about it and again how much risk you're willing to take. If for fifty to a hundred K you could figure out whether or not this can generate a million dollars a year of revenue or not, I think that's logical to explore. But if it's going to be, you know, go raise a large venture capital round, take a huge swing, it's going to take you 14 months to know if you're a genius or an idiot, I think that's a little challenging. We often struggle with this. We own all these businesses where we see potential future upside, but there's so much risk in, in exploring that that we sometimes don't explore it.
- [06:04]
Chris
Okay, nice.
- [06:05]
Moderator
So the next one we have is a video question. I'll just play it for you guys. Let me know if you have issues hearing.
- [06:10]
Louis Mudrich
Just really big fan of tiny capital. My name is Louis Mudrich and my business partner Timothy Kim and I actually own a software and an ads agency. The agency is obviously the cash flow business and we've invested about 20 grand of agency money into the software company and we went through multiple build, measure, learn cycles. We also got some customers along the way, talked to a lot of prospects and basically we've learned a lot over the past year of working on the softW. Problem is that the SaaS only currently makes about 1% of our agency business revenue. Over the last year attention has been a bit divided where one founder is working on the software mostly and one founder is mostly working on the agency. So we've really been debating if we should continue to invest further into the software. Whether it's time or money or we should focus on stabilizing our Agency first, removing ourselves more from the company and solving consistent deal flow so we can continue to grow without much of our significant involvement. That would free up our time and give us cash flow to then reinvest into the software company continuously. Long term, we're both really interested in building technology companies, eventually getting into venture capital investing and even buying companies like Tiny does. So here's my question. You've ran a very successful agency and multiple successful software companies for someone in our position and based on your previous experience, what would you think is the best course of action for us to take? Should we continue to focus on one business at a time and and have both partners focus on building up the agency more and stabilizing it and making it more autonomous by adding a few management positions and getting deal flows solved? Or should we just sell the agency and exit and just use that capital to go all in on the software company, give us some Runway to figure it out, which could definitely prove to be more risky. Or should we continue to do what we did last year where we had one founder mostly focused on the agency and one founder mostly focused on the SaaS. Really excited to hear your thoughts on this. Maybe you see an angle that we don't.
- [07:55]
Chris
But.
- [07:56]
Louis Mudrich
But overall, thanks for listening and really awesome you guys are doing an AMA for charity.
- [08:00]
Chris
Thanks.
- [08:01]
Andrew Wilkinson
Chris, do you want to take this one?
- [08:03]
Chris
Yeah, sure. It's interesting. I kind of. I do think this is a. It's very much a deeply personal question as to which one each of you actually prefer. My gut is just based on our own historical lessons, is that it's best to bifurcate these ventures. And this could be you both stay on the agency and hire someone on the app side, or it's split between one person takes the agency, the other person takes the app. But sharing resources and trying to incubate within one existing org, I've always found it to be tremendously difficult with the team. The grass is always greener. If there's individuals in the agency side, they really want to focus on a pure play product. And individuals on the product side, after a long period of time, they start romanticizing the idea of client work. And so I found over and over just bifurcating and taking on that added expense and either building out the separate team and keeping it very clearly separate is the best path forward. And it's the anti synergy approach almost. And just saying we're not going to cost share within this, but whether or not it's your partner who takes one or you both stay on the other it's really more of a personal question as to what your relationship is and what each of you are gravitating towards.
- [09:21]
Andrew Wilkinson
Andrew, it's amazing. This, this really resonates with me. We know your pain.
- [09:26]
Chris
Yeah.
- [09:27]
Andrew Wilkinson
You know, we, we went through this a lot. And what we first did is we had metalab, our agency, and then we had Flow and Ballpark, our software businesses. And they were all crammed together in the same team. And what we found was we would start doing some really cool stuff on the software companies, and then a client would come along and we'd have, you know, Walmart or Apple or some big client who is saying, hey, we're going to pay you guys a million bucks this year. And, and we'd be going, shit, we need five more developers or whatever. And so we would shuffle the developers off the software stuff and then they'd go to the agency and we would just lose momentum constantly. And so what Chris and I ended up doing, kind of stumbling and bumbling along the way, was whenever we had a new business, we would just always create, you know, one person who runs that business and a fully separate team. And that probably took us three or four years to realize. Um, but if you look at what we did with Pixel Union when we spun it out, we just chose somebody from our team and we said, you run this now. And they were totally incentivized based on that. P and L, they had their own team. And there's no excuses, there's no saying, oh, well, I would have done it, but that developer got taken from me and shuffled over here. I was just going to say, I feel like there's a third door. You guys are forgetting, you know, you're saying either, you know, we both stay on the agency or we move, you know, across the two different things. You know, you can always hire a CEO for the business if it's big enough. Um, so I would always consider that as an option. And then the other thing I would say is selling an agency is very hard, especially if you guys want to leave it. No one's going to buy your agency if you two leave it. They're going to lock you in for a three to five year earnout because an agency is just the people who run it, essentially, or, or the executives there. So I, I wouldn't, I wouldn't consider that an option or spend time on it.
- [11:17]
Moderator
That question was from Lewis Murdoch, by the way. The next question is from Adeel.
- [11:24]
Question Asker
Hey, Andrew, thanks for doing this. Is there any difference in the outcomes.
- [11:29]
For companies where the founders decide to stay versus leave. And when you do bring in new.
- [11:35]
Andrew Wilkinson
Operators, what are the best predictors of their success? So I would say it totally depends on the company. I think some founders have a very long Runway. They can run a company for 25 years and go from garage to multi billion dollar public company like Mark Zuckerberg or Bill Gates. But I'd say those types of personalities are quite rare. And what we see is often that founders are very good at a particular phase. They're really good at starting, getting the product going, getting product market fit. But sometimes when a founder leaves, there's actually a lot of opportunity because you can bring someone in who understands how to run, you know, 100 person organization, how to spend on marketing appropriately, build a sales org, et cetera. And often what we see is an acceleration of the business. The risk is that when you put a new leader into a business, it's like doing organ transplant, right? You're doing brain surgery and often the body will reject the new organ. And so you have to be very thoughtful about who you put into the org. You have to make sure their culture aligned, values aligned, and that they have the right goals for us. One of the biggest things we look for is kind of gumption and scrappiness. And what we mean by that is focusing on things that are kind of in line with like a 8020 approach where with 20% of the effort, they can deliver 80% of the results. So one example would be when we hired Zach to run Dribble, we said, look, there's all these amazing, super exciting two to five year opportunities in this business, features, you know, all sorts of innovation. But in order to secure the business and get us a return, let's focus on some very simple base hits in that first two month period. And one of the simple base hits was, hey, the previous executive team didn't like doing advertising sales and so they just never built an ad sales team. And so like 50% of the ad inventory just went unsold. And so as soon as we got in, we sold that ad inventory that secured, you know, some growth in the business, gave us a cushion, and then we had all this extra cash flow to invest in future opportunity and growth. So we really look for people that'll focus on those right things instead of being dreamers. Chris, did I miss anything?
- [13:58]
Chris
No, I think, I think you captured that well. The two other predictors I always find, and we say this one a lot, but like, have they done this before at a slightly larger org, ideally, not necessarily some vastly Large org where they were potentially a wonk, but they actually know the speed bumps ahead just a little bit ahead of this growth curve. In terms of the first few months of a predictor of who I think will be successful, it comes down to was the CEO within the first three months, were they able to be decisive in some form? Too often we bring in a new CEO and they'll say, well, the first three months we're going to review, get the lay of the land and then after three months we'll speak with them again and they're asking, they'll start saying, well, we need another three months to get a better understanding of everything and all these new dynamics. And it turns into well over a year of learning on the job and over and over I find that the most successful CEOs very early on, they avoid. Perfect is the enemy of good. They don't succumb to analysis paralysis. They're able to make early decisions very early on, live with those decisions and pivot. It's very important to be able to essentially just shoot from the hip. And I always think in the first quarter after hiring someone, it's the best indicator if they're going to be successful in the long term.
- [15:14]
Andrew Wilkinson
We always have a pretty good gut feel. I'd say within three or four months if someone's going to work out.
- [15:19]
Chris
Yeah.
- [15:21]
Andrew Wilkinson
Awesome.
- [15:22]
Moderator
So next question is kind of similar. It's from Brad.
- [15:25]
Brad Tunar
Hey, Andrew and Chris, it's Brad Tunar here from Nova Scotia. I've been running a software company for about eight years and we've been growing quite a bit recently. And it's time to hire a coo, I think, and help me execute on the company vision, but mostly to free me up to be more product focused, which I think is my strength. Ideally this person would fill in some of the gaps, things that I'm not so good at as well, like sales and finance. So anyways, I'm wondering how you guys go about finding executives for your portfolio companies. Do you have a talent agency that you use or do you have an in house process that you use? I think that would be super interesting.
- [16:17]
Question Asker
To hear about how you guys go about that.
- [16:21]
Brad Tunar
So thanks guys.
- [16:22]
Chris
Cheers.
- [16:23]
Andrew Wilkinson
I think what we used to do was hire people in our orbit, especially when we didn't know the role. So for an exam, for example, you know, I was a designer in the early days and I knew I needed a developer and so I hired my friends, I hired random people I met, anyone that ever told me they were a developer, I said, do you want A job. I hired Chris at the bank where he worked. I said, hey, I need a cfo. Do you want to be my cfo? Because Chris knew accounting, right? And in that instance, I got very lucky. Um, but at the same time, Chris and I have made lots of hires like that and it's worked out terribly. And so I'd say over time we've really improved our hiring approach. And generally what we do is when we understand a role. So let's say that we need to hire a developer. Okay? We've been doing that for 15 years now. We know what to look for. We, we know what those sorts of people's resumes would look like. We know how to interview them. What we'll do with someone like that is we'll just go on LinkedIn, we'll look at all of our competitors and we'll start emailing people and just saying, hey, do you want a job? We'll, we put up a post on WeWork remotely, we put one up in the newsletter, all that kind of stuff. So very basic. The hard part is when you're hiring a role that you've never hired for. So I would assume you haven't hired a COO before. And it's very easy to hire someone who's a dingus because you don't know what to look for because they sound kind of smart, but in reality they may not know what they're doing and you won't be able to validate that because you've never had a COO before and you don't know what a smart COO sounds like. So what I generally would recommend in those situations is that you a are very strict about hiring someone from a company that's double the size of you and in the same space. And some company you respect, and they might not have to be COO titled, but they have to be kind of vp, Operations, Director, operations, something high level. Ideally. We always think that you're always better off paying up and just paying for someone really senior and paying for the right person versus cheaping out or trying to get someone junior who's learning on the job. And I would use a recruiter. Personally. Recruiters seem like a rip off. It's expensive. Sometimes you don't get the candidate you end up hiring through them. But we always think that anything that widens out the funnel is great. And then also having somebody who's recommending running that process is valuable. You know, you're the CEO of your company, you're getting distracted. You, you know, hiring's always Number three or number four or number ten on your to do list. So having someone who's incentivized to push that forward over the course of two or three months is really important. And. And then the other thing is just doing really deep background checks. So we like to do a lot of deep reference checking. We use a reference checking firm that actually calls, you know, goes back in time 20 years and calls old, and then also do a criminal record check and all that kind of stuff just to weed out any potential issues. Chris, did I miss anything?
- [19:28]
Chris
No, I think, I think in terms of the process, I think that aces it really well. The one thing I'll say is, you know, just don't make this a unicorn hire if you don't have the scar tissue of hiring COOs. You know, I would rarely recommend just hiring fast and firing fast and maybe not giving them the full title right from the outset, but you know, just work on building that scar tissue. It might take a few hires the first time to get it right. And just go in with that in mind. And I cannot underscore enough the importance, especially with any kind of director level role, as Andrew is saying, doing a fulsome background check and just making sure that you know what they're saying lives up to what they're reporting.
- [20:13]
Question Asker
Great.
- [20:13]
Moderator
So next question is from Dan. It's an interesting question. He asks, why does Castro emit conservative podcasts? From the list of podcasts users can subscribe to, Overcast and Apple don't.
- [20:26]
Andrew Wilkinson
So one of the fun things about running a decentralized conglomerate like Tiny is that we're not involved in any day to day operations of the business. And so all the CEOs and GMs and in this case Castro, has a general manager who oversees that business make their own decisions within the app. I've actually never noticed that they do this, so I'll have to ask them about this. I would actually recommend tweeting at them and saying, hey, why do you guys do this? And you know, hear it from directly from them. But I wasn't aware of that. That's funny.
- [21:01]
Chris
Yeah.
- [21:02]
Andrew Wilkinson
Okay, so actually Chris and I's liberal conspiracy. We acquired it just to do that.
- [21:11]
Moderator
So this next one is less of a question, more of a pitch. This guy's kind of pitching you his company. His name is Braden Levalds.
- [21:18]
Question Asker
Hello, my name is Braden and I'm the founder of Go Canteen, a virtual hospitality company that helps chefs and food service entrepreneurs scale their business by connecting them with a network of underutilized kitchen spaces. What started as a connection point to spaces we see as only the beginning. It's a revolution in property technology and mixed use real estate. We are rethinking the brick and mortar mindset to serve a new era. One that leverages the digital world that we live in, the one that moves at hyperspeed. Go Canteen Virtual Hospitality brings together three worlds to tell a new story that support our communities through food partnerships, brand development and virtual deployment. We believe that when you connect people with possibility, good things can happen and we're suited to do so.
- [22:09]
Andrew Wilkinson
So I guess he just wants us to critique it or talk about, about the idea. You know, this is a very hot space right now. I know Travis Kalanick from Uber has gone off and raised like a billion dollars to do his cloud kitchens business. One of the things that Chris and I think very hard about is competing in venture backed spaces or trendy spaces as well. So, you know, my first thought is you're, you're fishing in a very competitive pond. And I think that you really want to think twice before you do that. I think if you were to say, not venture back this and focus on a specific geography. So let's say you live in Seattle, you go out and you, you know, there's a lot of demand for cloud kitchens and you go out and you buy or rent, you know, two spaces and kind of slowly expand over time. That could work. The risk would be that cloud kitchens or someone rolls into town and that they have a, they're playing the 20 year game, not the one year game. And so they can just bleed you out. You know, you charge $10,000 a month for a cloud kitchen, they charge $5,000 a month and you don't have a business. So I'd be very nervous about that. And then I also think this is a very asset intensive business. You have to have a lot of risk, you have to sign a lot of long leases, um, you know, you've got to buy a lot of equipment, you've got liability, there's all sorts of complexities. I just don't go look at this and go, this is a great business. I think that if you can do an Internet business and that's your skill set, you can have much higher margins and lower risk. But that's just my personal take on this stuff. When Chris and I do, we do own some food and hospitality businesses. Those are hobbies we don't think of, you know, something that we do because we want to make money.
- [23:59]
Chris
I feel like you encompass that perfectly. This just seems like a logistical nightmare. Especially the idea of just competing with such well funded VC backed startups.
- [24:11]
Andrew Wilkinson
I don't know if you read my I did a Twitter tweet storm about our experience trying to compete against Asana with Flow and other venture backed competitors and you know, we, I said it was the equivalent of trying to invade the United States. When you're Fiji and you have a bunch of speedboats and AK47s and you're going up against, you know, jets and aircraft carriers, you just don't want to do it. It's just stupid and it's not going to work. So I would just be very, very thoughtful about if you're going to do this, if you are going to do this, I would say go and raise a lot of money and take a big swing. Don't try and do it on a really small scale because it's probably really challenging when someone like Cloud Kitchen comes into the market.
- [24:52]
Moderator
Speaking of Flow, that's our next question from Rabil. He asks question regarding your journey with Flow. Do you think if you had stopped investing in growth activities such as R and D, new features, development, design, etc. When Asana started picking up Steam and instead focused on extracting whatever remaining FCF free cash flow your customer base was willing to support, you would have come out with a positive economic outcome?
- [25:18]
Andrew Wilkinson
No, I think the biggest issue with so you know, a few people said todoist was able to overcome Asana and still build a good bootstrap business. And I think the big distinction with a lot of these other folks is they started in, in that case, kind of 2005 to 2007 and by that point you could really just have a web app. So you just needed a backend developer, a front end developer, maybe a designer project manager and that's your whole team, that's your whole burn. You could be relatively competitive. And then as soon as, you know, mobile came out, suddenly you needed a web client, you needed an API, you needed a iOS app and an Android app. And so the cost of dev just got way more expensive and it was table stakes. You had to do it. Nobody wanted, you know, no one's going to sign up at their company if you're iOS only and you don't have Android because there's always someone on the team with Android. And so we're in this awful space bot of we could have a crappy web app that sucked on mobile or we could invest the time and do it properly. And it turned out that was just very expensive and it was so early that it just meant we were burning. Whereas someone like Todoist, I would assume, could probably afford their. Their profit margin might have gone down, but they could afford to do that R and D and then still spend on customer acquisition and marketing and other stuff. So I think our biggest mistake looking back actually was not investing in customer acquisition and buying ads from day one. And to be honest, that was because we didn't understand customer lifetime value versus customer acquisition cost. We just didn't. We didn't think in math. We thought in product, oh, let's make the best possible product release, the best features, get the most, you know, TechCrunch articles or whatever. We didn't understand the math of a SaaS business. Chris, do you think I missed anything?
- [27:08]
Chris
No. Well, I'll say one thing which is like, it's so tough with the power of hindsight, but the idea of this alternate history, if we stopped investing and tried to cash Flow, I think technically there's a world where it got to a decent financial outcome, but I don't think we ever. There's no version of that history where we actually would have done that. The lesson, I think more than anything is that we should have loaded up the elephant gun and really meaningfully invested in that business. Not necessarily with our own cash, but actually raised venture. As much as it pains me to say it, I really think that the lesson from that is that we should have taken a much, much bigger swing and staffed up more and invested more.
- [27:53]
Andrew Wilkinson
The thing was, at the time, we didn't know how to hire a CEO. So what we ended up doing was I was the CEO of Flow, metalab, Pixel Union, kind of technically overseeing it, and Chris was the CFO of all those as well. And so we, I think in retrospect, we could have spun Flow out, hired a CEO, raised a venture round. We just didn't know the mechanics of that. And we were just totally clueless. You know, we were Fiji invading the United States. We just didn't realize it. You know, we thought we had an aircraft carrier. We didn't have anything.
- [28:27]
Chris
Well, we kept saying too, we're going to be Jason Freed and all these things. And there's such hubris behind our thinking.
- [28:35]
Andrew Wilkinson
Yeah, yeah, it was painful, but again, like, it was a great lesson. It was really painful, really shitty. But, man, it really instructed a lot of our thinking and it allows us now to look at SaaS businesses in a very different way than we would have had. We never had that experience.
- [28:53]
Moderator
So. Next question comes from Perrin. I don't know if I'M pronouncing that right. It's similar to one of you guys have answered before.
- [29:02]
Question Asker
Andrew, what is up, man? My name is Perrin. I asked you this question over email, and you very deftly steered me over here. I run a small inbound agency, and I am just getting to the point where I'd like to hire someone to run it. I know you have this model where you have a business idea, hire a CEO, and then they run the business and execute. My question is, how do you find these great people? How do you find a CEO that's capable of running a whole business without much input from you? What do you look for and where do you find them? Thanks a lot, man.
- [29:42]
Moderator
Take care.
- [29:43]
Andrew Wilkinson
Chris, you want to take this one?
- [29:45]
Chris
Well, we kind of covered this one before, but it really is, in this case, going to an agency that's at a slightly larger scale. And I'm not sure the size of your business, but, you know, presumably I would. I would try and poach their head of sales or someone equivalent. I don't know if I'd necessarily make them CEO right from the outset, but I would just slowly start to untangle yourself. And, you know, it goes back to what we were saying earlier of try and build scar tissue, hire someone and let them go if it's not working.
- [30:16]
Andrew Wilkinson
Yeah, we hired. We've gone through multiple. In almost every core new type of business over the years, we've gone through multiple people in almost every role before we nail it. So it's like the first hire is usually the friend or the pain hire, where you're just in acute pain. You're going. It's like you're running a bakery. You're freaking out. You're like, I just need a baker. Anyone who can bake, put them in, please, because I'm in pain. And then after that, you know, you might hire the person who's now the. They're the corporate baker, and they come in and they're. They're kind of culturally wrong or whatever. And then finally you find the right cultural fit, the right kind of skills fit, you know what to look for, and you nail it. So I always think it takes between two and three hires before you do nail it. And I think what Chris said is really on point. You know, typically in a. In an agency, the CEO is really a salesperson. They have to know how the business functions, but they have to be able to represent the brand, boast and both internally to your employees and sell your employees on your vision and your mission and all that kind of Stuff, and then externally having high level relationships with clients and how you market the business and stuff. So I think finding somebody who comes from a sales background, so looking for someone in accounts or whatever, bringing them in with the intention of maybe moving them up and giving them a lot of upside. And one of the most important things that we realize is that, you know, we used to look at our agency and go, you know, and you know, we're working so much harder than everyone else. Everyone else leaves at 5. They're not pushing. They don't seem that excited to close deals. Finally we realized it was because everyone was just paid a flat salary. So we started doing this thing where we basically say 50% of your comp comes from base. And that base just pays your basics. So, you know, puts your kids through school, pays your rent, whatever. But the rest of it is high upside based on the results of the business. And we found the behavior changed massively. So I would say try and put someone in with a high incentive where they can make a lot of money if things go well.
- [32:23]
Moderator
So the next question comes from gasper or sorry, Casper, to both of you. What is actually your favorite hobby outside of anything work related? Is it typically without Covid group activity or something on your own? Thanks.
- [32:38]
Andrew Wilkinson
Thanks, Gasper. I. I love to play tennis. That's probably my number one thing that I do outside of work. And it's kind of nice. It. It ticks a few boxes all at once. It's social. So I get to see a friend. Before COVID I actually had a Saturday night tennis group where I'd get all my friends who are dads and we'd do a big dad's tennis match with like eight of us playing doubles. And it was kind of like kids soccer. It's just total, you know, no one's very good and it was just really fun. And then it's also a great workout and I need to exercise and I have that much time, so I love to do that. And then I'm also in a forum group, which is basically like a support group for entrepreneurs where we all get together once a month and share what's going on in our businesses confidentially. And I found that just incredibly rewarding. I've made some amazing friends from it. What about you, Chris?
- [33:34]
Chris
Well, I'd say, you know, I have a business forum as well. A part of it is, you know, hanging out with friends and doing walks and such. I deeply enjoy. A friend of mine really has encouraged this notion of you only have 18 summers with your kids and it's just really helped conceptualize the importance of soaking up all these memories with your with your little guys as when you're able. So my ultimate kind of outside of work passion sounds weird, but it really is just trying to spend as much time as possible with my kids. And maybe it's more of a byproduct of COVID where we're not seeing that many people, but I'm getting a lot of enjoyment outside of work just trying to be present as present as possible. I'd say My third hobby really is reading. I love to read and I'm constantly going through some books.
- [34:23]
Andrew Wilkinson
Awesome.
- [34:24]
Moderator
Next question is from Owen. It's also a text question he says. My name is Owen Bick. I'm a web developer and entrepreneur based in Boston. I'm a huge fan of what you've done and I wanted to reach out to you for advice like you were when you started Metalab. I'm in my early 20s, I'm 21 and I'm struggling to find good direction to take my life. Since I was a kid I always wanted to start a business and I started my first company when I was 15. I ended up liquidating it when I was 17 and made what I thought was a nice profit at the time. Anyways, it's now four years later and I feel trapped. I want to work, maybe in either product management or sales, but that drive to do my own thing is killing me. I have thought about attempting to start my own agency since I've been working at agencies as a web developer since I graduated high school. But my only problem is getting clients. I feel like the market is incredibly saturated for web agencies and at the same time I'm grounded and not stupid enough to know that I am not really bringing much new to the table beyond what companies are are already doing. What should I do? I got laid off back in December and now I'm trying to decide whether or not I want to try to get a job at another agency like Metalab or starting my own thing. What would you do? I have about four months of expenses saved but I also just moved out of my parents house and got an overpriced apartment here and the last thing I want to do is to not be able to afford to live. Thank you for your time.
- [35:44]
Andrew Wilkinson
Owen Bick Chris, you want to take this one?
- [35:50]
Chris
I would move back home but I'm joking. I'm not sure it's really tough. Like I would just say it's difficult. What jumps out to you? I'm kind of Curious.
- [36:03]
Andrew Wilkinson
Oh man. Well, I always think you want to do the thing you want to do or what is it I always say, start where you want to end up, right? So if you want to work for yourself, go work for yourself. I always find it really bizarre when I talk to a young person and they say, well, you know, I really want to start my own company, but first I want to go and work at a Procter and Gamble and I want to do an internship here and I want to go to Harvard Business School and you know, then I want to do a summer in investment banking, right? And it's these weird things where people tell themselves stories about how they have to do a whole bunch of miserable crap because they want to do something they love. And all the miserable crap doesn't actually inform or help them get better to do the thing they love. So I always think, you know, forget all that other stuff. If you, if you want to work for yourself, go work for yourself. And I would say, you know, yes, there's a lot of agencies out there, but it's an incredibly large industry and ultimately it's just going to come down to who you know. So when I started metalab, what I did in the early days was I started emailing people who I admired in the tech industry and I said, can I help you with any projects? You know, is there anything on the go? And every great entrepreneur I know has helped launch a thousand other businesses because when they get emails like that, they love to help. Right? So I'm sure if you email Chris and I and your work is good, at the very least we'll tell you, hey, your work isn't good enough. Come back if it is good enough. I'm sure we could refer you to one of our small agencies and say, hey, you know, potential subcontractor or whatever it is. But I, I think I would just go do it and I wouldn't overthink it. I think one of the things we see when we talk to young people is that they overthink problems. They, you know, over kind of get into analysis, paralysis, you know, measure eight times, cut once and then never cut. Like just silly stuff like that. So I would say just go do it, don't overthink it. Try and find your first, you know, thousand dollar project and build a website.
- [38:03]
Chris
Yeah, especially reading through this, I really do get the impression you'll deeply regret not trying to start something as time goes on. I really, I kind of, I wholeheartedly agree with Andrew. Email us, but email anyone you can think of. And just try and start building this.
- [38:20]
Moderator
This one is from Simon Sander.
- [38:24]
Question Asker
Hey, Andrew.
- [38:24]
Andrew Wilkinson
Simon.
- [38:25]
Question Asker
Here I am building a newsletter here in Est, Estonia and heavily inspired by Capital Daily. I am wondering, why did you guys choose to go after investigative journalism method. After some time, instead of kind of focusing on just reporting on what's happening, it seems to be more cost effective to just kind of report what's happening. You need a couple of team members versus going after investigative journalism where you need to actually have, I mean, real journalists doing that reporting. So appreciate your thoughts.
- [39:00]
Andrew Wilkinson
Yeah, so I mean, originally the progression was actually that what was happening was I was reading, you know, New York Times, Washington Post, all these amazing papers, and then I'd pick up my local hometown paper, the Times Colonist, and they had just progressively laid off almost all their journalists. So they had a very small team and they just weren't really telling you what was going on in the city. It was all wire stuff. And I realized that there were local groups that were doing pretty good reporting on, you know, there was a car accident or a building burned down or city council voted on something. That stuff was out there, but no one was bringing it together in one place. And so I said, well, I read all these great email newsletters and you know, why don't we just create a simple email newsletter. I hired a friend of mine who was a stay at home mom and was looking for some work. And we just started writing Capital Daily, which was a roundup of all this stuff that's happening in Victoria. And originally it was just a summary, you know, linking out to other people. And then over time we realized that, hey, you know, we can actually do original reporting and start covering stuff in more depth. And so what we didn't want to do was reproduce here's what's happening, you know, these little micro bites of the car accident, the fire, that stuff other people were already doing, we could just link to that. What was more interesting is going, what's the stuff that nobody else can afford to do or no one else has touched? And so, you know, we've done in depth investigations into a variety of different issues in the city. And I think our audience has started to really put us, you know, to separate us from the other folks because we'll do those sorts of things and it's a competitive advantage. No one else is doing that kind of reporting. I think it's feasible over the long term. But we had to get to bigger scale. We didn't really start doing real investigative journalism for about a year. And by that point, we were about 40,000 subscribers and we could sell ads and start to fund everything. So I'd say just start with the roundup, you know, try and reproduce the job to be done, which is, you know, when you pick up the front page of the newspaper, let me skim it and know what's going on, and then you can layer in the other stuff.
- [41:15]
Moderator
We don't have names for these, so I'll just read the question. First question is, how and why did you decide to do Tiny as a holding company? I have several companies I started and own. Starting more and trying to decide if I should do more via holding company method or something else.
- [41:32]
Andrew Wilkinson
I think it totally depends on your personality. And I think Chris and I's personality just have it suited a holding company and being at a distance from things. We did seven, eight, nine years of extreme stress running multiple companies, and I think that we got to a point where we kind of went, okay, we've done that. Now let's evolve to the next step. And we always like to say that the ultimate form of delegation is hiring a CEO and just being on the board. So, you know, if you look at it, the original business was, you know, first delegating to designers and developers and then having project managers and then having CEOs for all the businesses. The ultimate version of that is just having a holding company and being decentralized. So that was just very attractive to us. We talked to a lot of entrepreneurs who I think would have a very hard time having a holding company, because part of having a holding company is disagreeing with some of the things the companies are doing or seeing opportunities or wanting to kind of play with the toys, wanting to swoop and poop and get involved and start messing with the businesses, and you have to be comfortable being hands off. So I think a lot of it just comes down to our personalities, and this kind of has borne out naturally over time.
- [42:56]
Chris
Yeah, I kind of think what's worked well for us won't necessarily work well for everyone. But I really do think that a large part of the reason I'll actually say this is that I think if you own a number of companies already, then you already are a bit of a holding company. It's just a question of, as Andrew was alluding to, are you like a General Electric holding company where everything reports up and you are the operational leader of all of these activities and you have the ability to truly jump down and everything reports after the same channels and there's shared synergy almost across everything? Or are you, the Berkshire Hathaway, which is more of the approach that we've taken where everything is verticalized. And I view for our method it works better because there's greater accountability on each of those separate companies. But I kind of think if you own a bunch of different businesses, you are already a bit of a holding company. It's just which one do you want to mirror?
- [43:50]
Andrew Wilkinson
Yeah, I mean we see holding companies that for example, they might only own e commerce brands and at head office they might actually have a big marketing team or recruiting team that helps all the companies. And that, that's certainly a method that's worked really well for some people. But it means that at the end of the day you're still running a business. You're just running five businesses at once from the top. And for us we're just done with day to day operations. That's not what we find enjoyable right now. What we really like focusing on is thinking through, you know, very high level business problems and you know, whether or not we want to invest in something and allocating capital, which you know, if you told me 15 years ago that's where I'd end up and enjoy, I think I would have laughed at you. But it's been really enjoyable for us.
- [44:38]
Moderator
Awesome. So, next question. I'm currently the CEO of a high multi seven figure a year company and we found a pretty capable coo. But I want to incentivize them appropriately so that I can focus more on the big picture vision versus being so involved in the day to day. Since we're 1.5x in revenue every year and are already profitable, equity doesn't really make sense. But it's tough to figure out the benchmark for profit share and what's reasonable. We're on track to do 1.5 to 2 million in profit share this year. What's the best way to structure this, to incentivize this person to stay long term?
- [45:13]
Andrew Wilkinson
Well, we had this interesting conundrum in one of our businesses. We bought this phenomenal business. It was growing at 30 to 40% a year without a really any attention. It was kind of sitting off as an orphan and it was hyper profitable. And so we looked at it and we went, well, you know, I think there's a lot of opportunity here. We probably need a CEO, but we were trying to figure out, you know, we didn't want to pay someone just to kind of monitor it and ride the wave. We wanted someone to get incentivized for growing it. And so what we did is we Basically said there's a hurdle. So you, you basically are incentivized for everything above x percent growth. So if your business is naturally growing at one and a half times 150% a year, you could say anything beyond. Once we hit 150%, you're going to get part of your bonus payout, and then you're going to get massive ratchets as you increase that. So if we double or triple, then that goes up a lot. And the big thing that I think would be a challenge here is you're still in the early days of the business, so maybe over time your growth rate naturally slows and you'd have to adjust the comp. But that's what I would do personally. I'd say, look, we're already doing this, and if you can keep us on that track, that's something. But anything above that, I'm going to start comping you big time on. Chris, what do you think was the.
- [46:37]
Chris
Brainchild of the hurdle incentive structure? I obviously like it. I do think that there's a. I love the way you've articulated it. I actually kind of think that is a good method. It really comes down to is the plan to give the COO outsized influence and control in the business. Because that kind of comp structure only really works if they are actually able to control the levers of the business. If you're still tremendously involved and they're just kind of riding your coattails, it might be worth entertaining a different comp structure, one that's much more of just profit share over and above a hurdle.
- [47:16]
Andrew Wilkinson
But the other issue with that comm structure too, like any comp structures, is if you don't hit it, let's say that your growth slows and you get to, you know, you're doing 100%. He might argue, you know, we were just organically slowing, and you might go, no, this was your mismanagement. That's the only reason we did a hundred. And so you can get into these disagreements. So, you know, the hurdle method is great if you keep growing at the same rate, but if your growth rate drops or it accelerates, you know, organically accelerates, or some exogenous, you know, thing happens that grows the business massively, that isn't really his. His or her per view, then, you know, you might feel a little annoyed.
- [47:58]
Moderator
So next question is he said hello, asked y' all on Twitter, and was advised to leave my question here. What's the best way to learn how to be a good operator, preferably from someone Else they say the best way to learn is to do, but I think it's equally, equally to learn what and how to do as like learning any new skill.
- [48:17]
Andrew Wilkinson
Thanks Chris. You want to take this?
- [48:20]
Chris
I was kind of mentioning this before, but I'm a big fan of trying to build scar tissue and just getting out there and really just making any kind of decisions and just starting to learn from what happened. And over and over we've, I used to really romanticize the idea of like I could learn all these lessons from books that I'll read. But whatever you've recently read will be top of mind for a short period of time. It really goes back to learn your own lessons, build scar tissues. As long as they're not, you know, life threatening wounds that you're building, you'll learn a ton. And I, I, I. So I am more of the, of the mindset of just jumping in with both feet and just starting something.
- [49:02]
Andrew Wilkinson
I think it's so important too that you employ strategic laziness. So as you do a role, let's, you know, let's say that you're the CEO and you know, you start doing a bunch of menial tasks. You need to be like a Gore Tex for tasks, right? So nothing should stick to you. You should repel water or repel tasks. So as you start to get stressed out about different things coming in, those should be bundled off and you say, okay, well I'm doing a lot of admin tasks now. I hired admin person, I'm doing a lot of payroll, okay, Now I hire a cfo. And I think the people that we find that don't learn are the ones that aren't strategically lazy. So the goal should be, at the end of the day, the CEO doesn't have a job. The CEO's job is simply to be a leader, to set vision, to set mission and values and all that kind of stuff and to really hire the right people and adjust the team and incentives accordingly. What we see with CEOs who fail is they do a lot of work themselves and they don't delegate enough. And so I think as long as you use that framework and you are constantly thinking, how do I delegate this? How do I repel this task that I don't enjoy or I don't have time to do and only do the things that are incredibly core to the CEO role, I think you'll be very successful. But I don't think any book can teach you how to be a great leader. I think it can give you some frameworks And I think you have to be. The important thing is you have to be reading the whole time. So as you have the pain, then you read and then you learn the next step. But without the pain, you know, you can't learn the lesson. It's like you give an 8 year old you know a saxophone and you try and teach them John Coltrane, they're not going to learn, they're not going to care. You take that same kid who's 20 and they're obsessed with listening to John Coltrane music, give them a saxophone, they're going to take to it in 10 seconds. So you need to hit people at the pain point or the joy point when they really want to learn something. You know, one example is we read a book about certain types of personalities, manipulative executives or kind of toxic people. We read that book for, you know, two years, we read a whole bunch of books about this, and then three months later we hired one of the worst executives we've ever had, who turned it out, turned out to be exactly that type of person. We'd read all the books, we knew what to look for. We learned about this. At the end of the day, you still have to kind of burn your hand on the stove to learn that it's hot.
- [51:30]
Moderator
Next question is. Hi. How would you recommend balancing early free customer versus paid for a B2B SaaS company free as a way to drive early customers improve product efficacy. But free customers may not care as much as paid. What's the balance in your experience, driving early product adoption through free versus fewer like higher quality and more engaged customers through paid.
- [51:55]
Chris
It varies so much by business and what the total addressable market is. I wouldn't say that there's necessarily a silver bullet that's applicable to all businesses, but.
- [52:06]
Andrew Wilkinson
Well, it's also a very different strategy. Right. At the end of the day, people free works really well. Or freemium, where you evolve from free and then you add on a paid tier. For people who become your most passionate users, it works best with a really large user base. So if you have a million customers and you have, you know, a small conversion rate, that's going to be great. If you have 100 customers and 2% convert and it's, you know, 98% free, the other 2% is paying you 20 bucks a month, you're not going to have a business. So at the end of the day, this stuff comes back to the math we mentioned before of SaaS math, right. And you just can't wing it. You need to actually do the math and go, how much traffic do I get to my website? What's my conversion rate? What can I afford to spend on customer acquisition? And then what will that equal in terms of customer base? And then can I afford for, you know, 95% of those people to be free or not? So that's a. That's a tough question, and I think it's going to require some. A little bit of simple spreadsheet math.
- [53:12]
Moderator
So this is our last question is, can you please explain the scout system in detail? Thank you.
- [53:20]
Andrew Wilkinson
Yeah, so it's really simple. People have historically given us great deals. Usually we're kind of top of mind, so we get off the phone with somebody, and then three days later they go, oh, I was talking to my friend Roscoe, and he wants to sell his Internet business. You know, I wanted to refer it in, but over time, they kind of forget about us or they meet some other firm or whatever it is, and they send them deals. And so we just wanted to come create a really simple incentive for people to continue to send us opportunities. And I don't know the exact details, but I think it's. We give a couple percent of any deal we close that someone referred to us that where we hadn't already spoken to that person, we'll give it to a scout. So it's a really easy way for people to make quite large sums of money. I mean, we close deals that are anywhere from one to a hundred million dollars. So those numbers can be quite significant. And we sign a simple agreement, but you just fill out the form on our website to become a scout, and if you find us something, we pay you a bunch of money.
- [54:25]
Moderator
Awesome. That's it for question, guys.
- [54:28]
Andrew Wilkinson
Great. Well, thanks so much, everybody, for all your questions. And we'll announce. We'll release this on the podcast feed pretty soon, and we'll figure out where we're going to donate that money. We'll make sure it's somewhere great. And it looks like we raised 3,500 bucks, so we're going to double that to seven grand, and we'll donate $7,000 to charity. But thanks, everyone, for the great questions, and that was really fun.
- [54:52]
Chris
Yeah, see everyone.