A Conversation with Steven Hoffman of Founders Space

Startups. Books. Television. More startups. Technology. Steven Hoffman — aka 'Captain Hoff' — and host Matthew Dunn spent a thoroughly enjoyable hour discussing all of this and more. This episode will be particularly interesting for entrepreneurs & marketers, but it's also wonderfully broad. How are startups like the TV business? What are some of the key issues if you're seeking funding? Sit back & enjoy!

DODGY AUTOMATED TRANSCRIPT ;-)

Matthew Dunn

Good morning. This is Dr. Matthew Dunn, host of the future of email marketing. And my guest I'm delighted to have aboard today Steven Hoffman, aka Captain Hoff, Steven. Hi, and welcome,

Steven Hoffman

Matthew. It's great to be here.

Matthew Dunn

Yeah, I'm gonna I read your whole bio. We'll we won't even have time to talk because you've had such a fascinating career, but co founder space now. So you work with hundreds and hundreds of startups, author of multiple books, including a new one that just came out correct?

Steven Hoffman

Yep. So with fiving a startup reviving a startup would you've done yourself? Yes. multiple, multiple times. I've done three venture funded startups to bootstrap startups and you're

Matthew Dunn

still around this fascinating world. Why?

Steven Hoffman

I don't know. Because now I'm actually helping other startups to survive. That's my mission.

Matthew Dunn

Yeah. Passing passing on some wisdom and experience and connecting people a bunch, I'm guessing.

Steven Hoffman

Absolutely. Yeah. I'm profligate networker. I network? network constantly.

Matthew Dunn

Yeah, that's Yeah, that's, that's one of the more valuable skills in life, isn't it?

Steven Hoffman

Actually, you know, before the pandemic, I was traveling 70% of the time. So I was all over the world because we operate we have partners in 22 countries. So yes.

Matthew Dunn

Now, one of the things I wanted to ask you having having read up a bit on founder space in on you, one of the one of the top of my questions to me was, because because you've been at this working with founders and in the startup domain for a long time, and it seems like it's gotten hip and sexy, and all sorts of stuff relatively recently. How do you feel about that?

Steven Hoffman

Well, it is exploded recently. And, you know, it's been on an upward trajectory for a long, long time. So I got in before the.com, boom, before the.com bubble burst before you know any of this stuff happened. I got in, in I actually did my first startup in the early 90s. Believe it or not, tell me about it. Yeah. And it was a startup called lava mind. And I love my mission at love of mine was actually ironically, to teach entrepreneurs to teach people to be entrepreneurial, but we did it through games. So our first game was called gazillionaire. And it was designed to be super fun, which it was, and actually introduce people to business, how you do business supply and demand loans, interest rates, all the different things people need to know. And that game got picked up by the largest PC game publisher at the time I funded it entirely myself is entirely bootstrapped and became a big hit. Wow, it's still available today. Decades later. Later, yeah, it's still selling has fans.

Matthew Dunn

I I've got two sons, I end up mentioning them more often than not just because, like, you know, cuz I love them. And they like, they like a game from the 90s called Age of Empires.

Steven Hoffman

I love that. Yeah. And any fan of that.

Matthew Dunn

We've talked about it a ton of times, it's like, Great game design has nothing to do with the technology it's running on. It's great game design. Yes.

Steven Hoffman

And that's what this was, it was put a lot of work into the game design, actually, because I had to self fund it. It wasn't the most high tech game out there at the time. But that actually made it last longer. Because it wasn't about the technology is about the crazy art, the crazy ideas. It's really humorous. Your kids if you want them to learn something about business, have them play gazillionaire and play gazillionaire they'll become gazillionaires. Someday, someday, promise,

Matthew Dunn

what was the one they they did spend a little time on Zoo Tycoon at one point, and I thought that was actually yeah, that was a decent, like, Introduction does a sort of checks and balances involved. Yeah, you know, there

Steven Hoffman

are a lot of these business games out there that are really some of them really, really fun. Yeah, yeah. So I have to you know, I have to tell you back in the in the 90s, early 90s. I experimented with email marketing. Could you Really? Yes, in the early days, I remember there were no email marketing services out there. You literally had to use the thing called listserv on your ISP. So this dates me, but you know, pre internet days this is what people did.

Matthew Dunn

Yeah, yeah, yeah. Yeah. You and I have, we share the having been around this long enough to talk about the roots which actually still affect how things work. today. I've said I talked a lot of people email marketing world and and they're like, I've been at that for 15 years. Like that's nothing some of us Some of us were doing email before it was smtp. And some of us were doing email in the days of listserv and and Yeah, wow, that's a ways back. What? What's your read on how email has has shifted? I mean, it was designed as a point to point person to person or a person to group on medium. And we use it for everything, including marketing. Now, Does that surprise you? Not at all,

Steven Hoffman

because even in the early days, I was like, Well, if I can email people and let them know, we have an update for our game, yeah, yeah. they'll, they'll respond and no, may buy our next game when we let them know. So absolutely. You know, it's been there since the beginning, really, since the beginning it because it makes so much sense. And, you know, I remember when Constant Contact was on the rise, you know, they are one of the earlier ones, and I adopted them and use them. And I thought, wow, this is brilliant. It's it's, this is what every business needs.

Matthew Dunn

Yeah, yeah. And I mean, we're getting to the point, arguably, every business, almost every business is doing some of that. And at the same time, I'm betting, you end up saying to some of the startups that you coach, you need to pay attention to building your email list.

Steven Hoffman

Correct? I told them, I mean, just the other week, I'm working with a startup, and I'm like, are you collecting email addresses? And they're like, no, and I'm like, What are you talking about? Right? Like, every startup has to be doing this from like, day one, like every contact you make is valuable. And you can use that and you want to keep them update. And you might want to have more than one list targeted at specific, you know, you know, your partners, your customers, you know, different groups.

Matthew Dunn

Yeah, yeah, yeah. And I'm in complete agreement with you. But when you talk to someone who's you know, either new to their business or, you know, stepped out of a corporate job, whatever you try and convince him of that, there's so many other shiny toys asking for their attention. Why is the email list? One of the things that you single out is focus on this and do this?

Steven Hoffman

Well, for a number of reasons, because social media is so crowded, you can't rely on it to get through to customers, you just can't I mean, you can get on there, if you want to spend a lot of money on ads, you could do that, potentially. But you know, repeat customers, people have engaged with you, they won't always see your posts on your feed, like a lot of them like Twitter, and all these things that in Facebook, they're just so crowded, and there's an algorithm, now that you we filters out, so you don't know, you know, if it's reaching the right people on there. But with email marketing, you'll know they'll get it and you can track that. And they're, you know, you can look at the analytics and see how many people are opening and who is opening, it's it, you have a lot of power there that you don't have on these other platforms.

Matthew Dunn

And you do your ability to hang on to that list, like the big spreadsheet you mentioned. Yeah, we have that's in your control. Yeah, I

Steven Hoffman

have a spreadsheet. But that's for tracking my stuff. I also have separate email marketing lists, which are up there. And then, you know, we have over 100,000 people on our email marketing list, you know, entrepreneurs who signed up at Founder space. And it's great, because every time you know, we want to reach out to them, and we reach out, you know, this, you know, we've always debated and I'm sure you've discussed this many times, how many times you send them email, so that they don't get sick of it, right? You know, you want to maximize you want to hit that maximum, where it's not too few where you're under you utilizing it, it's not too many. So we sort of settled on by monthly. Because for us, that seems to work. You know, I don't know what your experiences but that's ours.

Matthew Dunn

Yeah, that I mean, that seems it is hard to balance that Top of Mind versus, you know, bottom of the trash can act. And I know that seeing messages from someone, even if I don't read them affects how I will treat the next one. So that that does sound like a really healthy and sustainable like you can actually find something interesting to say every other week, right?

Steven Hoffman

Yeah. So every other week, we have new content. And you know, when we do our lists, we are really focused on providing value. I mean, we're not focused on sell because if we're focused on sell, nobody wants to be sold to unless it's a store and they subscribe to it just to get the coupons right the discount the sales, well, then you focus on selling, but I see a lot of these stores out there that make a big mistake. So like, I'm really focused, like let's they should segment it more because like, if I'm interested, you know, in Samsung, and I want you know, just their phones, I don't want to receive stuff about the big screen TVs and other gadgets, because I'm just interested in the sale on their next phone. So yeah, and a lot of times, I see this more often than not, so I will sign up like I want this new phone then I want to know when the next phone goes on sale, and I want it and you know, because I'm thinking of buying it, but I don't want any other emails they should there should be an option for that. Because what ends up happening is they just start sending me All these other electronic products, which I have absolutely no interest in, so I unsubscribe and I never get alerted when that phone goes on sale like, so they end up missing that opportunity. That's a little segue after it's a tangent I went on. But in our marketing lists, I was talking about value. So when, when we go out there, we're engaging with entrepreneurs, they have lots of questions, you know, they're always needing to know about something. So when we go out there, every email, and every post we have on there is about how can we provide them more value? How can we give them something so that they not only don't unsubscribe, but they actually share that with other friends, they're like, Wow, this is so useful. So that is, so what we do, and there are different types of value you can give them. So we like the, there's two types. One is kind of content that they can consume, that really, you know, experts that can help them with their business. So we feature these experts that help them with their business. The other form is actionable items, like let's say they're looking for venture funding, and there's a pitch contest, they want to know about that, let's say they, there's a networking opportunity where they can, you know, get meet other entrepreneurs, they want to know about that. So we're really selective about going through, and only featuring those things that they can act upon, right away, that will make a difference in their business, or that will help, you know, educate them and propel them further.

Matthew Dunn

Right. Right. So you really steward that channel? Yes. And I guess it pays off, you don't get to 100,000 without having respected people's time and added value.

Steven Hoffman

Yeah. And that's been in, you know, a lot of people, this has been a dilemma for us, because a lot of people approach us and they'll say, well, we want to email your list with our whatever, you know, they're, they're one of our partners, and yeah, so we want to do business with them. Like they have a conference and they're like, we want a dedicated email about our conference to your community. We're like, wow, you know, we, we always say, well, we have a policy of just sending out to a month, and we're willing to include you in one of those two email newsletters, but we can't just spam our mailing list, like they don't want to hear about every conference that approaches us or every, you know, partner has something to sell. So you know, if it's a value to them, we will include it in our newsletter, but we won't do the one offs. And I know there's a trade off, because we've missed out on a lot of opportunities to do cross promotions with them, because we won't do that.

Matthew Dunn

Yeah. Well, it's a it's a good way of keeping yourself honest. Right, sticking to that really set an editorial calendar.

Steven Hoffman

Yeah. And we never we never sell or share those email addresses. Yeah, we really, we really love.

Matthew Dunn

Back to your example for a sec about, you know, electronics manufacturer doesn't, you know, doesn't pay attention to your specific interest in this. In this moment where we're starting to ask more questions about privacy and control of data. We've got this, we've got this choke point. That's a difficult thing to navigate on both sides do I want the companies I agree to hear from to be more accurate, targeted, whatever in their communication? Sure. How much time will I invest in telling them that open question? How good are they at keeping track of it? massively open question. And it doesn't surprise me, though, that most, if not all of us. fumble that ball pretty badly. Like I get emails from many, many, many companies. And like a lot of them are just blind. There's one, I pick on the outdoor outdoor goods retailer that I've subscribed to for a decade, and I've bought 1000s worth of dollars, the stuff from right, they still don't know what I'm into. And I would think my purchases If nothing else, would be a really clear indicator. So this is

Steven Hoffman

a huge if you're a startup out there a huge entrepreneurial opportunity. Can you take AI, and actually integrate it with their the web browsing that they do the data that you gather on this outdoor site, the purchases you made, and actually tailor the email marketing just to the items that you're interested in you're interested in. So if they know you're big into backpacking, they can feech send you backpacking stuff, but if you're not into soccer, or tennis, there's no reason to give you the latest tennis racket. Yeah, the percent off because chances are it's just spam do right. The the real goal is how do you make your own marketing a value to people, right? How do you event it's great. You're one of the things that killed me though, is when Google made that separate tab where they shove a mobile tab Yes, ah, because it makes it much harder to reach people. And but I understand why Google did that because so much of this email as we're talking about, is really untargeted

Matthew Dunn

Yeah, yeah. And and and, you know, the nominal reason to do it was the better for Gmail subscribers I, I wonder whether they asked or whether they decided and instead it was a good thing kind of like Apple's recent move with male privacy. Did they ask, or was it good for them to do it? And everyone said, Yeah, based on the short rationale given?

Steven Hoffman

Yeah, so I'm just talking from an email marketer perspective. Yeah. From our perspective, we want more open. So we don't want to put on another tab where people can just mass delete it without seeing, you know what we have to say,

Matthew Dunn

well, and you wouldn't want you wouldn't want a message from founder space to an entrepreneur to one of the 100,000 entrepreneurs on your list to land in the promotions tab. You don't want to promotions relationship you're not sending promotions got exactly, but yeah, that's what's happening. So interesting. And it's very hard to get out of that. Because the rules aren't very clear.

Steven Hoffman

Right? You can't really I don't know. And I don't know if you know, like, how to make sure you're not in the promotions tab or have people unselect you from that? I, you know, that would be a good question. I don't even know if it's possible.

Matthew Dunn

There are there are companies and there are people with the expertise to try to help with that. Nobody, as far as I know, has a bulletproof formula to make it work. And and and like, you know, like the secret sauce and Seo? I don't think Google's about to say, here's the playbook for how to get out of the promotion. So right?

Steven Hoffman

Because Because we all use it. There would be no reason for

Matthew Dunn

right there'd be there'd be no reason for it as well. Well, I'm delighted to hear that, that you're banging the drum for the continued role of email and a list and over responsible communication through the channel with the with the startups and entrepreneurs, you coach,

Steven Hoffman

as an investor, as a venture investor, as you're working with all these startups, I do see that opportunity for companies that will come out with really refined AI driven email marketing, like that will completely integrate all of your interactions with that company. Yeah, all the data, they gather with the content that is right for you, that will dramatically increase the open rate and the engagement on those emails.

Matthew Dunn

Yeah, there's it there, there are a handful of companies that are doing that, that kind of thing. But I think it'd be fair to say that the majority of email platforms, just there. They're nowhere near that yet. They're so busy with speeds feed sends deliverability stuff, right?

Steven Hoffman

Right. They have their hands full. Yeah, and but what I'm saying is, it's only a matter of time, before it rolls out. It's at the beginning stages. So we're gonna see that and we're gonna see different effectiveness, like there'll be one company that really breaks through that with something that's just amazing. And then everybody will jump on that. Yeah,

Matthew Dunn

blue, blue shift is doing some some really good stuff in that regard. The other the other challenge, of course, is that, that sort of crossing over of this silos, right? You've got your own commerce silo, and your email silo, and you're trying to figure out how to make them behave like they're the same beasty. And that's not not trivial. I wouldn't be surprised if as closely as you see cloggy, klaviyo and Shopify, working in overlapping markets, I wouldn't be surprised to see them. Try that direction like that. And and Shopify stores, not necessarily the same number of skews to manage. So it's a it's a more, it's a more finite problem, at least out of the gate.

Steven Hoffman

Yeah, absolutely. Huh. Yeah, Shadow fight would be great.

Matthew Dunn

shift gears since you since we get to pick your brain for a little bit on tell us tell me a bit about what you I know, I know, founder space has sort of a whole number of tiers of programs. But you know, broadly speaking, tell me about the things that you guys do for people are going down this hard road of startup.

Steven Hoffman

So we do a lot. So basically, we are an incubator, and accelerator, meaning incubation we work with earlier stage startups, sometimes just at the idea level. Acceleration is where we really invest money and time to startups that actually have traction, they're going, you know, they, they, they, they have a great team, they have a product, they're they're figuring it out. And what they tend to need most of all, is our insight like into, you know, whether they're on the right path, things that they could improve on pitfalls that they need to avoid. And capital, they need to raise capital, because they're, they're at that growth area. So we engage with both and we offer different types of programs for each one. So at the earlier stage, it tends to be more educational programs, like we have lots of content on our site, we run events, we do, you know, zoom, gatherings, and interviews and all this stuff content for them, because they need to learn once they kind of figure it out. That's where we come in with the money, the time the expertise to really push them faster.

Matthew Dunn

And You help connect them with investors in terms of their pursuit,

Steven Hoffman

capital, right and teach them and I write a lot about this in my book surviving startup really teach them the ins and outs of what investors are looking for. And also how to email investors. Honestly, yeah, I know how, because a lot of the cold email, like what works in a cold email, and I can tell you right now, like if, if your audience is out there, and you want to write a cold email and get to somebody, first of all, it pays to be concise, because I know, in the cold emails I get, if there are paragraphs, I read the first couple sentences and the last couple sentences. So if there are paragraphs and paragraphs of information, unless it's from somebody who I'm reading, you know, if it's cold, I just don't read it. Right? I like what, so tell the people what you want, right away, like they have to put if it's cold, they have they have to know, in context. So if you're raising funding, you know, tell them I am raising, you know, raising capital, and then immediately in like, one sentence, some of your business, like, what is your business? What do you do, who are your customers, you know, just you can put it in a sentence for almost every great business out there, right. And then after that, I usually say, put three bullet points, because people love bullet points, they don't want to read and highlight three incredible things about your business, like, you know, we just hit, you know, you know, 100,000 customers, we just won this award, we just, you know, close seven new deals, whatever it is, I'll put these three bullet points in there, and then put a link to your, ideally, a video, because nobody likes to read a video and say, watch this. In the video, literally, you it's you talking like you're the CEO. And you're showing them your product, like what your product is, and why customers are going crazy over this product that and that's almost all you need for cold email to an investor. And, and it works. If you don't have a great video, if you you know, you don't want to produce one or whatever, you can put a link to your investor deck and keep a short investor deck 12 to 15 slides that are very visual, with little text that they can click through really fast. And even if you send them to your video, they may ask for your investor deck. But that's great mean what you want to do is engage them in a back and forth dialogue. And then as quickly as possible move to setting up a meeting, right? Either a zoom meeting or in person meeting depending on things, but you want to get face to face with that.

Matthew Dunn

That's a that is that is terrific advice. And I want to extract this chunk of our conversation and go, Why pay attention to this if you're if you're on the hunt for funding. There's one thing implicit in in the points you just made about bullets, you focused on you focus focused on quantification, and two out of the three that you mentioned which which which I think is great advice our eyes go to numbers, and an investor almost by definition is is looking for

Steven Hoffman

quantification Yeah, they want real things they want we call traction is data like what is your user growth? You know, our user growth is growing x month a month? Yeah. What is you know, they want to see that you know, we're getting this much if you have that if you're pre revenue, if you're early stage, you put what you have, but yes, numbers speak louder than words.

Matthew Dunn

Words Yeah, yeah. Especially in in a brief cold email numbers really kind of jump off the page, don't they? Yeah, yeah. a different perspective on numbers. You mentioned that you live to the through the the the.com boom, and I was I was around going Wow, this looks like a bad idea. And now we're in a boom that just leaves me baffled.

Steven Hoffman

It is it is either the most incredible boom in history or the most incredible bubble in history or both. But you know, you look at the world today. And you know, every day I open you know, I consume lots of information so I'm out there you know, in the in the blockchain world, the crypto world NF T's, like shooting through the roof. And you know, people like I just saw yesterday, there is a an NFT basically a non fungible token on the blockchain have a picture of somebody's kid making a smile, sold for $71,000 like it's somebody's kid making a smile. Yeah, a random kid. Yeah. You know, not not famous. And $71,000 something's wrong there.

Matthew Dunn

Yeah, yeah. Is this what's the famous money money? What's the famous example in Holland when flower? Yeah, the tulip. The tulips Yeah, she's you know, mania were the two digital tulips we're dealing with here. Yeah,

Steven Hoffman

we're we are literally it's it's it's tulip mania all over again, because you know that these when people are buying an NF T and people don't even understand what they are. They just think they can speculate on it. Just like a tulip. It didn't matter what it was. If you can get the next guy to pay more than you w Yeah, why not buy it. So that's what they're doing. They're buying it. And they're trying to flip these things in is in the crazier the thing they buy, the more press, it gets, like this thing got a lot of press. So I'm sure there's another person in line to buy it for double because it was so ridiculous. In fact, the more ridiculous it is, the more press you can actually get, the more value you actually create, which is has no correlation to reality, right? In the sense of this thing actually has a worth or utility for somebody. Yeah,

Matthew Dunn

yeah. Worth it worth. Are you? I'm glad. I'm really glad you said that. Yeah, that that particular aspect of what's happening broadly does seem quite bubbly. We are living

Steven Hoffman

in a meme driven bubble. Like if we had to go back in time, this is like a meme different bubble, right? These things propagate on the internet. And, you know, most of the NF T's and things like that are literally selling because of names. You know. And if you look at even these cryptocurrencies, a lot of them I mean, Dogecoin is a joke, right? It was a joke currency. It's now worth an incredible, you know, billions of dollars, the founder sold it off to buy a Honda Civic now, it's worth more than the Honda Motor Company. So, yeah. So he sold off all his Dogecoin because he knew it was a joke. And how well I can buy a car with is pretty cool. If he had held it, he would be worth more than the Honda Motor Company. But, you know, you know, where is reality here? We don't quite know. Now it's not to say there isn't value in some of these things. And NF T's in cryptocurrency? I'm not like totally, like negative on them. I think there's value I just think there's massive speculation going off.

Matthew Dunn

Yeah, yeah. Yeah, PR, particularly, particularly that corner of the world. There's also a lot of, there's also an explosion in in in sort of conventional investing, right venture venture firms have more funds than they've had ever

Steven Hoffman

by Bay, our origins drowning in capital drowning. And that's why you see the valuations in Silicon Valley are higher than ever, like astronomical, like I was working with the startup the other day. And you know, I'm fairly conservative, and I know the company and I was like, well, your company's probably a 4 million pre money valuation, and you should raise a million bucks. And so put it at 5 million post at your stage. It's really early, you know, and the, we talked to this lawyer, one of the lawyers I work closely with, and he's like, No, no, this is probably 10 million, like valuation or 12. And I'm like, That is crazy. So the just recently, the values have been shooting up and up and up. And when you you know, when that's happening, first of all, if the values are too high, for early stage investors really hard to make a good multiple, like, it's just because most of these startups aren't going to make it. And if you will, and you get diluted along the way pretty massively as these startups grow towards unicorns, so things are a little out of whack. And they are out of whack. And they will just, I tell you, there will be it. The problem is that literally, the Fed has kept interest rates so low, for so long. And the banks have been given permission. And you can go look this up to really lend money like crazy without any limits, like they used to have limits, like they were, there were protections that a bank could only, you know, they had to have certain amounts of capital reserve, they basically took those away. So the bank's like, the more money they lend, the more money they make. So if if the if, and, you know, the bank, the directors of those banks, they get paid, they get bonuses based on growth. So their personal pocket book, they're incentivized to push out the loans even. So we're just seeing not just the Fed, but the whole financial system, you know, on overdrive flooding the economy with money, and where does this money go? It drives up every all these investments. Yeah, there will come a day of reckoning, and we will see a correction and that's just natural.

Matthew Dunn

Yeah, yeah, no, I tend to agree and, you know, my, my, my hope, broad sort of sociological, socio cultural hope would be that, that we get some good, valuable, useful experiments, out of the many that aren't necessarily going to make the curve, right. We want businesses that innovate, to change the world for us to come out of that mix. They're not all going to be,

Steven Hoffman

they're not all going to be but there will be there will be a lot of a lot of the next Googles and Facebooks of the future are coming out right now. So there's a lot of good invest. There are a lot of good if you invest, like I, you know, I'm an investor, right? So I'm like if you invest in a great company that provides exceptional value to the customers over the long term, you probably won't lose money, you know, even if there's a crash because that company will rebound. But if you're investing in one of these things where you really can't understand the value and you're just doing it because everybody else is doing it. That is exciting. tremely risky,

Matthew Dunn

right? Right, you should do that consciously knowing that you've got a good chance of losing a whole thing.

Steven Hoffman

Yeah, you might make money. I mean, people have been making money. But yeah, yeah, those things don't go forever.

Matthew Dunn

Well, the other thing I say to you know, when I talk to other people, or entrepreneurs or founders who are thinking about a startup, right, is, is you got to assume that investors are better in investing than you are. Right? Like the guy who does this all day like you has more experienced at it has done more of it. Have you have structures in your head, you know, like, you know how to size things up. Even you're surprised by valuations, which is really interesting to hear.

Steven Hoffman

Yeah, yeah. So even I mean, if you aren't sensitive to valuations, you're fooling yourself. You know, at the end of the day, the valuations determine a lot, you can only get so many multiples. Now we've seen these these unicorns going sky high. So even at high valuations, people are making money. Yeah, yeah. And, but, you know, that might not continue forever. So you and not all companies hit those valuations. And we're the ones that make the headlines, too. There's a lot of companies out there who never, you know, quite don't even come close to it. So I'm a venture investor, I work with hundreds of venture capitalists around the world, you know, we have a portfolio strategy, literally, the model for venture capital is that when we are looking at startups, we look at every startup to be what we call a fund maker, and a fund maker is that one startup in your portfolio of 10 or 20, companies, that just goes ballistic, that goes exponential growth through the roof. And that startup is usually worth more than all the other startups combined, right, like significantly more. So every arrow in our quiver, right, is aimed, you know, at a fund maker, and now most of them don't turn out that way. But we need one in there, because that returns the whole fund that you know, gives you the multiples you need. So that is, as an investor, it's a portfolio strategy as an individual, you need to look at it the same way, because you're not gonna, you're not gonna hit it, you know, you're not going to make all great investments, you need to average it out across a lot of different startups. And every one of these startups, you know, if you're a smart investor, you're probing deep, you're probing like, what does it start a path? Like? Is their model truly scalable? Like, do they have a potential to be one of these huge companies, and when I look at companies, like I have all these criteria that I look at, I want to see a startup. First of all, if you're doing something incrementally better than everybody else out there, you've lost the game, you're never going to be this fund maker, you're never going to be a unicorn, incrementally better. Nobody switches, like if you're using an email marketing platform, and and you're, you know, already integrated with it, and another one comes out, and they have a few extra features. So what, like, there's no way it's worth the work. But if somebody comes out, and they're exponentially better, two or three times better, you're like, Oh, you know, it's worth the hassle researching? Yeah. The only other way is that the whatever company out there provides a different value, like a fundamentally different value that, you know, I look at the world and, and there are new pockets of demand merging all the time, like in the world, underneath, they're sort of like volcanoes ready to explode, or oil, like a pent up oil ready to have a gusher. And the entrepreneurs out there really good entrepreneurs have not, they don't just dream up products, they hunt for demand, they are looking for the demand, when they find that demand, people need this thing, they need this thing, like we were just talking about now, like if we had a way where you could get better quality emails, right? You know, you would you would jump on board in funding that company or using that product? Because you'd be like, well, if they could really target these emails and get that data and make it simple, and the whole process the integration process simple. I would jump on that. If there's that demand out there. The great entrepreneurs, first identify the demand, then come up with the idea for, you know, how do we meet this best to meet this man? What new technologies? What new design business process innovations Can we put to actually meet this demand in a way nobody else has? And that creates a new value, boom, you have one of these unicorns,

Matthew Dunn

unicorns, now, but implicit in portfolio strategy, you'd want to have your filter set to try to find as many fund makers as possible, right? In theory, everyone you say yes to? You think could be? They have

Steven Hoffman

to be? Because if you tell me I'm going to have a linear growth company. Yeah, I'm not interested. Because, first of all, I may never get my money out of that company, most linear growth companies and never sell. And if they do, if there is an exit, it's not for the multiples. That would make any sense for the risk. I'm picking. Yeah, so we're looking for companies that would grow exponentially, either be acquired or IPO like it's that simple. And so there are a lot of there's 98% of the business out. There are Not exponential growth companies, they are linear growth company, they may transform at some point into an exponential, but they aren't right now. And too, and we have to filter all of those out. Mm hmm.

Matthew Dunn

Yeah. Which explains why I think it is about 2% of companies that go looking for funding, get funding.

Steven Hoffman

Yeah. Because those are the ones that meet our criteria. The other thing we really love, and you can probably relate to this is recurring revenue. Like, honestly, if you look at the great businesses out there, like the Amazons, the Facebook's, the Googles, the you name it, Microsoft, Apple, they all once they get a customer, right, they, they don't, that customer just doesn't disappear. Like they don't sell a product to them once, they literally are selling them over. And every time that customer engages, they're making more money, whether it's an ads on Facebook, or purchases on Amazon, yeah, they, they are getting a little bit of money over a long period of time for that customer, which adds up to a lot of money. Now the only other way, the only time you can get like unicorns that do one time sales, and you don't see that customer again, for 10 years, or whatever, is if it's a big ticket item, like a car, like, if it's a car, there's enough profit margin in there, that you can literally take that profit and go out and acquire a lot more customers. And that's what it's all about the cycle, right? Email Marketing, being part of it, right, this cycle of acquiring more customers. And then once you get those customers walking them in to whatever your platform, whatever, you have your service, and never letting them go keep providing more value than anybody else. And in the turn, they will reward you with more, right? more revenue.

Matthew Dunn

Right? Well, and one of the things about, you know, we're in the middle of is ginormous shifts to more and more digital economy. And we arguably, we all got our butts booted, six to 10 years, 10 years forward by the pandemic, you know, switching costs are different in the digital domain. And then in the analog physical domain, it's one thing to say, I'm going to drop Netflix and subscribe to Hulu, it's a different thing to say, I'm going to, you know, sell my jeep never. And you know, and by filling in the blanks, instead, I mean, it like shorter life cycles in the digital domain, it's harder to hang on to customers

Steven Hoffman

is much harder. And that's the other factor. So not just recurring revenue. But how do you lock them in? How do you make it so that this customer will never leave? And there are there's few different strategies for this. So one of the strategies is you make that customer integrate with you to a degree that it's really painful to move. So email marketing platforms, like once you're up and vetted, you know, to actually move those email addresses to another platform. And then you have to get everybody to re accept them. Yeah, right. Yeah. And that re accepting means a lot of them will drop them. Yeah, you're paying, you're locked in, like you're paying a huge switching cost, right? That, um, this marketing list. So that makes it much harder to switch email platforms and other things right, then a Netflix is easy, cancel, go to another one, right? The other one is that you stop. So sometimes you can do that, and with, you know, SAS platforms that need to be integrated, the more deep integration to, you know, usually, to large companies, enterprise companies, they, you know, like Oracle's surviving because literally people can extricate themselves from Oracle, right. The other way is to create a really robust ecosystem. So even though it's easy for them to switch from your product, it's hard, nobody else can replicate your ecosystem. Let me give you an example. Salesforce, right? Salesforce is product, their CRM product, it's decent, but it isn't the best at everything. It's it's kind of bulky, it's you know, it's it's, it still has a lot of legacy stuff, not the easiest to use. And there's other solutions out there that are leaner, faster, cheaper, but you don't get the ecosystem of Salesforce. So when you're in Salesforce, you start using all these third party applications and stuff. Yeah. And before you know it, none of them, you want to use enough of them. They're never all going to be available on somewhere else. So you're going to have to give up something that you have become that is really valuable to you. Locking you in to Salesforce. Yeah. So

Matthew Dunn

yeah, yeah, I mean, arguably, that's Microsoft. Microsoft played that strategy really well in the 90s. Right, like you once you became a Microsoft shop. Yeah, it was easier to just stay.

Steven Hoffman

Yeah, exactly. And then there's a third way. So there are three fundamental ways. And that is, you know, a Netflix let's say, or an Amazon literally provide more value than other servers. Yeah, right. Yeah. So in a Netflix, you know, you could it's so easy to switch out a Netflix but you know, they have the dish content there. And they are, that's why they invested so much in content because they're like the content is what will keep people with us if we have the hit shows HB. They saw HBO did that was the first one that really yeah, pioneer that in a big way. So, but HBO sort of Mitch, they could have been the Netflix of the world, they just didn't move fast enough. Netflix became Netflix. And they're still competition, right? Disney plus is gaining steam. There's Hulu, but it's not as good a moat around you as as other ones, but it's work, Amazon, they have an even better mode, because they have what's called a marketplace. And a marketplace means it has a network effect like Facebook, right? The more buyers there are, the more sellers come more sellers on there, the more value to the buyer. So each every if everybody participating in your network, like all your friends on Facebook, contributing their content that keeps you there, because you can't replicate that you can't bring them it's very hard for somebody else to offer that degree once they become a market leader. Yeah, so there are all these different ways that people are using to walk in customers.

Matthew Dunn

Now, you know, this just occurred to me as you were saying that, but being both an Amazon longtime amazon prime guy and a longtime Netflix subscriber, there's a little nuance difference, just focus on amazon prime video for a second. I've got stuff I've actually bought on amazon prime. And if I ever thought about switching, I'd be like, oh, but I you know, I bought this and I bought that. And I've got this perception of ownership that keeps me hooked in and Netflix today has not played that card yet.

Steven Hoffman

yet. That's an interesting one. Yeah, the Amazon has and Netflix hasn't Yeah, I don't, you know, you could probably still access your content, even if you stopped paying for Amazon. Yeah, I mean, because you purchase, you purchase that you own that. So I don't think that's linked to the prime subscription. But Amazon, so I don't think that's as big a deal for for people. Because you could just go off and subscribe to Hulu, and cancel your prime subscription and still get the stuff to get the stuff you bought you bought. But where where what Jeff Bezos did was that was so smart, is he said, We are literally going to provide more value to our customers than anybody else. And he started on date day one, like when he started doing his online bookstore. He made it easy to return products. Like I remember we were talking about history right? Back in the early days of Amazon, you know, other other on e commerce sites, you had to search and they made it as hard as possible to return a product because they didn't want to lose money. So every time they get a turn it would they were losing money. So they wouldn't make you jump through all these hoops. Amazon took the opposite approach. Let's make this as easy. Yes, we're gonna lose money in the short run. But what ended up happening and this is Jeff Bezos is genius is that people would stick with Amazon, and they would buy more products because they aren't afraid of returning. So he continually did this was shipping today shipping. He was pioneering that he did you know, the whole infrastructure of Amazon is geared towards efficiency. He everything he does in prime, you know, he says you subscribe to prime, you get amazon prime for free. You get all these freebies using Amazon that other people can't match. So his whole goal was like, how can I lock you in? He's locking you in more, not because it's not easy to buy from another ecommerce site because it is, but because Amazon provides you so much value.

Matthew Dunn

Yeah, yeah. They'd rather they'd rather gain the customer not worry about the return my Amazon login. No baloney is from 96. Yeah, there you go. Same logo. Same con picket sign on it was I happen to live in Seattle? Hey, there's this crazy guy selling books. I'm like, if it's books like Sign me up. And you know, back in the day, right when people were antsy as heck about e commerce transactions as early adopter testing, like ads, fine, right? Killed fine. Everyone's gonna buy stuff this way. Eventually.

Steven Hoffman

That's what I thought I was like, people were so worried about giving out your credit card. I'm like, Well, I could just you know, cancel. You're only like liable for 50 bucks. Yeah, exactly. What is it? What's the big deal about giving them my credit card? If I have to cancel, cancel,

Matthew Dunn

cancel, cancel, hey, I want to I wanted to ask you something completely off topic. And thank you for all that. Words of wisdom about startup man, this is gonna be a really hope is gonna be really helpful Episode Four, for some entrepreneurs out there who are going to build a unicorn on you jump from the world of television, to the world of tech. Talk to me about that.

Steven Hoffman

Yes. So, you know, I've always been a creative guy. So when I was a kid, I was making movies all the time with my friends and I made 50 movies. By the time I graduated high school, I was, you know, completely into building stuff and creating stuff when I actually went and studied electrical Computer Engineering on my father's advice, because back in the old days, he was like, son, computers are going to change everything. You should study this and I wasn't really into it, but I studied it. So I got an electrical computer engineering degree, and then I followed my dream. I went to graduate school at USC film school, and got my master's degree I went out into Hollywood, literally, nobody cared that I had a master's degree. didn't make any difference. But you know, I did the in those days, we didn't have email. So it was pre email days, like the Hollywood execs didn't have it. So I literally wrote letters, and we're talking about cold letters, I wrote cold letters to 150 of the top Hollywood executives across the whole industry. And out of this kind of cold email, or cold mail, and these days, I got three responses. Like one response was from the head of Disney's production. Another response was from the producer of Star Wars, Empire Strikes Back. And a third response was from television, a guy had produced hundreds of TV movies and miniseries called Chuck freeze, and Hollywood. And I kind of blew the first two interviews, but I landed the third job. And that and quickly, I rose up through the ranks of television became this television development executive in Hollywood. It was like an amazing experience. And then I saw the future. Like, because I had this tech background, I was like, games are going to be bigger than TV. And nobody then even thought this right. But I believed it because I understood I was a gamer, too. So I ended I even like my old Apple two, I was gaming. So I understood that games were going to be big. And at this point in time, Sega had just surpassed Nintendo as the number one video game company in the world, right? I met the founder of Sega who happens to be an American. He was in the service in Japan after World War Two. And it was called service games, Sega. And he met me and he says, We want to send somebody from Hollywood over there. And you have a background in technology, and you love games and computer games. We want to send you there. So I went to their headquarters. I came up with all these ideas and worked with their teams on new projects. And then I got the startup pitch. I was like, I can't start a company in Japan because Japan is too backwards for me to do this. I'm going to go back to Silicon Valley, my home, and I'm going to launch a game company and boom, we get back to zillionaire where I launched my first company,

Matthew Dunn

right? Wow, what a what a ride. What a strap.

Steven Hoffman

Yeah, those two worlds? Yes. And it's been really fun.

Matthew Dunn

What, what do you find similar? And what do you find different about, let's call it the tech sector, and the TV sector.

Steven Hoffman

So there are more similarities and differences. And I noticed this very early on. So in the in the television entertainment sector, it's hit driven business, like they have what are called blockbusters, which are our unicorns, I was gonna say, it's the same thing. And every studio when they're, they have a portfolio strategy, just like every venture capital and they're hoping that every film, that they greenlight becomes a blockbuster because, again, that's their unicorn and that will make all their money. And, you know, somebody who went to film school saw all of these great art films and foreign films and low budget films. You know, it's a shame because those films you know, reach a niche audience, but that isn't what the studio's are looking for. They want they want and you can see what the why why or half the movies, superhero movies, because they have proven that those movies attract viewers, not just in America, now. It's a global business. So they want films that that appeal to these action films appeal across cultural boundaries, right? Because it's action right? We all get it, you know, the so you know, they can in particularly China, like China is a huge market. So they are they when they make a film, these days for the US audience, they are making it not for the US audience they are making for the US and the Chinese audience. Yeah. And then everybody else can consume it, too. But those are the big mark. So this mentality, and the way that Hollywood works and entertainment works in the way that that's why it today, if you want something that isn't, as you know, blockbuster ish, you have to go to the services like Netflix, because they are able to target much more niche, right, and they are in television and cable channels, right? They are going much more niche. So that's why, in my mind, a lot of the best content today is you know, not in the theater that doesn't it originates from these other services, at least the content I like, right, really different interesting stuff. So we've seen this, this world, and you know, just like VCs are looking at metrics and data when they look at these startups, like what will be successful, you know, but it's Netflix is extremely sophisticated. And this is their edge you wanted to know, like there and when I said it was creating the best content out there. It's how do they do that? Right? They do that through big data. They are really good at analyzing their users preferences, and using that data to predict what they want next. what shows up Find what you know, and what titles to acquire. So Netflix power is that right now their big competitive advantage is basically AI and their data. It's that determines what content they'll make and and basically why people stick with them

Matthew Dunn

well, and they can run, they get to run a closed self enforcing or self reinforcing loop what you're saying. Yeah, and I mean, arguably Amazon at a broader scale different products said they're doing the same terrific, terrific at the same thing and you know it, it's it I read once, Reed Hastings said something like we're trying to make Netflix become HBO before HBO becomes Netflix. I think exactly what I was doing, I think was the quiff. Yeah. And you're like, Okay, HBO, some phenomenal content, some really gutsy calls on what to make but tougher for them to compete if they don't have that

Steven Hoffman

what they didn't get in online early enough. So they couldn't get they didn't get the data. Yeah, right. So Netflix first got the user base. Yeah. But you know, HBO is great at producing content the old way, like, just like executives, like I was an exact I was in that role. Right. greenlighting this should go, this shouldn't go. Netflix, HBO was great at that, like phenomenal. They had real talent there. But in today's world, you don't need that you do not need humans in the loop. can do it by algorithm. algorithms are much more accurate.

Matthew Dunn

Yeah, that's true. That's true. I mean, Google to wit, right. Yeah. Yeah, yeah,

Steven Hoffman

well, you can ask a friend where to search on the internet, like what would be a great place to go or you can go to Google and Google's gonna win most of the time

Matthew Dunn

and who's gonna win most of the time you know, faster, etc, etc, etc. And they're, they're also on an amazing self reinforcing loop right? They're not gonna they're not going to go away anytime soon. So

Steven Hoffman

when we're looking at companies to get back to that we're looking at all that stuff. You know, what, where are they? Where are they positioned? Can they monopolize the data in this area and use it as a competitive advantage?

Matthew Dunn

Yeah, that makes sense. That makes sense. Yeah, it does tend to doesn't stand to say that that there's a bit of a natural structure there not that that's going to mean winners in a space but not lots and lots of companies in the space right if you get a oh it's

Steven Hoffman

a winner take all Well yeah, yeah. Especially where it's, you know, scalable technology is concerned and data are concerned Yes. And these and what I said all these systems, these platforms are the reason the platforms are so successful, because they allow that company to be the winner and take it all. So you know, I tell people out there don't build a product, build a platform, you know, products or the old way of doing things, you know, think of think of a platform because that is what's going to allow you to become these unicorns. Right?

Matthew Dunn

Right. Right. Well, Wow, well, Steven, this was a wonderful conversation is expected Thank you. Wait, if someone's listening and wants to find out more they go to founder space comm is that the best place to

Steven Hoffman

go? Yes. Super easy to reach founder space comm if they want a fun kind of video on how to raise venture capital specifically going deeper, you have the 10 commandments of venture capital there. Okay? And I'll tell your audience, it's only available you know, to people we tell where the secret URL is. The Secret URL is founders space.com slash 10. Either the number 10 or t n either one will get you there

Matthew Dunn

Nice. Nice. Last thing Just a quick question. You're on we've just you said book number three Do you have another one in the works?

Steven Hoffman

Yeah, so basically here Here are the books so I did make elephants fly which is all about how the elephant that your big idea you get it off the ground? Like how do you get that big idea from surviving a startup is a came out this spring and that is really about you know, what we've been talking about, like everything on the show we've been talking about you know, how do you build a great business and survive and then I had a new book actually just come out, which is called the five forces that change everything and this is about how technology and if you're interested, we can have another episode on this, about how technology is going to transform every business on the planet and all of our lives. So everything from brain computer interfaces, you know, cooking our brains directly to the internet to genetic editing, you know, unraveling that the source code of life and creating new plants and animals and how that will impact us to nanotech. Space travel. AI.

Matthew Dunn

Well, okay, good. I'll put those on. I'll put all three on the stack. Seriously, my guest once again, because we're gonna wrap it up and respect his time has been Steven Hoffman, aka Captain Hoff, from founder space calm, Steven. It's been a delight.

Steven Hoffman

It has been my pleasure.

Matthew Dunn

Let me just hit the stop here.

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