#30: What a venture-backed startup looks like with Dave Sisk
August 19, 2020 • 55:02
SPEAKERS
Aaron Spatz, Host, America’s Entrepreneur
Dave Sisk, Co-Founder and CEO, Streamline Innovations
Aaron 00:05
I’m Aaron Spatz and this is The Veterans Business Podcast. A podcast centered around the stories of US military veterans and their adventures in the business world following their time in service, its stories of challenges and obstacles and an inside look at how veterans find their life’s work, their purpose in their post-military lives.
Welcome to The Veterans Business Podcast. I’m so excited you taking the time to tune in. If you’re listening on Apple or Spotify, please remember that you can actually tune in now on YouTube. You can watch these amazing interviews with these amazing guests. And I just want to thank you so much for joining. If you haven’t already done so, feel free to subscribe. And that way, you’re just tracking on new content and new episodes every week. Every Wednesday, a new episode airs. So I’m excited to introduce to you our guest today. Our guest is Dave Sisk. Dave is a veteran Army officer. He’s a veteran of both OIF and OEF. David’s had a varied background. He’s the co-founder and CEO of Streamline Innovations, a technology solutions company that serves oil and gas, wastewater utilities, and industrial processes. Dave, thank you so much for joining the show.
Dave 01:19
Yeah, thanks for having me. We appreciate the time.
Aaron 01:22
Absolutely, man. So if you wouldn’t mind, just share with us just a quick bit about who you are, where you come from, what compelled you to join the military and we’ll just leap off from there.
Dave 01:33
Sure. So grew up in in the Houston area, and obviously, even though my family wasn’t really in oil and gas, I had a lot of friends and classmates whose families were involved and so definitely knew that a lot of that background growing up. But in terms of the military side, it’s kind of an interesting story. I had a seventh grade English teacher who randomly one day told me that she thought I should go to West Point and I didn’t know anything about it at the time. My grandfather served during World War II and my father served in the National Guard, but you know, I hadn’t been thinking about it up until that point. And then when she said that and I looked into it, I really I liked the tradition. I like the legacy of the institution and never really looked back, kind of set my mind on it then. And then I was thinking about it up until the point where I went.
And then, you know, went through West Point, was a mechanical engineer there. And then graduated, went into the Corps of Engineers and served as an engineer officer. And as you probably know, the engineers are divided into kind of two different groups – the guys who get to build stuff and the guys who get to blow stuff up. And I was one of the builders. And so I got the privilege of leading our soldiers in Iraq and Afghanistan and had a really cool job. We built the forward operating bases and so lots of civil and construction and it was, you know, being a soldier and being an engineer and being a constructor. So it was a really, really fun job.
Aaron 03:53
Yeah. Well, I mean, and pretty, pretty crazy job too because it’s like how many projects can we knock out in one time? So I can only imagine just the volume of work, the tempo, the timelines, and I mean, obviously, there was a ton of FOBs and patrol bases and things that needed to be built. And so, I mean, roughly, how many of those projects were you responsible for?
Dave 04:22
So in Iraq, I had 46 soldiers and we had electricians and plumbers and carpenters and we did a bunch of different construction projects. We probably did 15 or 20 small jobs, anywhere from supporting the Iraqi police, to pretty large jobs, building entire brigade headquarters in Southern Iraq. We’re talking kind of tens of thousands of square feet of temporary buildings. And then I was the S4 or battalion logistics officer in Afghanistan.
And I remember one time, you know, we had about 22 ongoing projects at one time, spread out over 700 miles of Afghanistan, $350 million. Just, I mean, it was a huge effort. We had about 1,100 soldiers in our battalion and we were certainly there when numbers were rising in Iraq in terms of troop counts. And then we were there for the front end of the surge in Afghanistan. And so, you know, we were privileged to kind of be there at the right time, working with combat and commanders to help them think through how they develop their strategy of putting soldiers into play on the battlefield and got to do some cool stuff – dropping armored D9 and dozers on the tops of mountains and pushing up berms and just all that kind of stuff.
Aaron 05:59
That’s crazy. Wow. Well, so you served a number of years in the Army, and then kind of walk us through what motivated you to get out and then kind of take us a little bit of a side-by-side on your journey to getting to where you are now.
Dave 06:18
Yeah. So there were a lot of factors in my decision to get out. I think there are for a lot of people. And I certainly, you know, when I was at West Point, I didn’t really have a perception of how much I’d like the Army. But while I was in the Army, I loved the Army and I really enjoyed the job. I got married in December of 2007, deployed in April, and I was deployed for 16 months. And that did weigh pretty heavily on me. And my wife had to be obviously very patient with that and she’s not in military background. It worked out great. She actually did some graduate work.
But it was many guys obviously do. And obviously, it’s incredible what our soldiers are willing and able to do. But I was a little bit hesitant looking into the future for many different deployments and the attacks I would have on the family side. And there were some other things I think, for me, certainly, as a soldier, you have to differentiate between the call to defend your nation and the privilege that that comes with from maybe your personal views on some of the strategic decisions that are made. And so I definitely had some thoughts about how we should be doing or what we shouldn’t be doing maybe as a nation. And that probably weighed a little bit on my decision as well. But I was about five and a half years active, spent about three years in the reserve, ended up doing a command in the reserve, really enjoyed the reserves and looked back very fondly on my time in service.
Aaron 08:39
That’s awesome. Yeah. I mean, you hit on a pretty important topic because I think there’s a number of reasons why people get out. Take us along a little bit of your entrepreneurial journey. I know you’ve had a number of different things you’ve done through your career. And I’d just love to hear more about where did the entrepreneur bug come from? What kind of caused you, provoked you to want to start to go into business?
Dave 09:07
Yeah. Well, I think a lot of my journey, I certainly wasn’t the kind of guy who set up a baseball card business at age eleven or anything like that. But I had a business with my brothers in high school, lawns and pressure washing. Some of the key high school jobs. But actually, I would say a lot of my journey has been more around just curiosity. Certainly, when I was in the military, one of the things that I had always thought about is what does the other side of life journey look like? And obviously, there’s thoughtful prayer about that and really seeking wise counsel from people that you trust, and from a spiritual sense, those who are mentors. But I think I would characterize a lot of the things in my life as based on kind of curiosity to learn new things.
I spent some time in seminary, did some graduate degree there. And a lot of that was about gaining a better understanding of spiritual things and really dedicating a lot of time to that. I would say my entrepreneurial journey sort of started in that same way, where after the Army and after seminary, I went to a role where I was an engineer at an oil and gas, very successful oil and gas company, and they’ve done very well and I was very happy there. I was well taken care of. But I always had an urge or interest in what it would look like to do my own thing. And that urge and interest started within probably a year or so of me moving to that new company.
And I think part of it, too, is every soldier that gets out kind of goes through a journey. And I’ve had a lot of different people talk a lot about that journey and some people have an easy transition and others have harder. And I think, for me, I mean, as you know, if you’re asked to have a lot of responsibility and you have a very fast-paced life on a deployment and moving from that into a role where I was primarily responsible for myself and my brand new daughter at the time. But it definitely was a different pace. And so part of me thought, man, it’d be interesting to explore in the sense of both my own entrepreneurial journey as well as just that sense of wanting to lead.
And so it actually came through family. I had an idea to start a new company in Dallas and presented it to my wife’s cousin who said, “Hey, actually, we’re about to start a new company. You should come join us.” And so I got the chance to be kind of the third employee at a venture-backed startup. And that was a very unique opportunity. I mean, incredible opportunity. I mean, I learned so many things that you do and so many things you don’t do just in that process. And I would just encourage anybody, you know, they say – I know there are people, I think it was the founders of Home Depot. It’s been three or four years really refining their business model and that sort of thing. Many people do that and they take a long time to think about it. And it’s really hard until you take that leap of faith and you realize very quickly kind of that that learning process starts.
And so I had a wonderful time at the company that was very early at and drove a lot of the product strategy at that company – or in the early days. And they went on to do a big institutional funding round. And I was doing my MBA at night and finished that and actually had an opportunity to shift into the private equity space, which was always something that was intriguing to me. And the one thing I would say about startups is a lot of times they can accelerate pretty dramatically the learning curve on what it means to run a business. And so I had some of the right answers that the private equity firm was looking for and spent a few months consulting with them on some different projects.
And actually, the founders of the first company that I helped start came to me with a new concept and it was around a technology. They said they thought it would be applicable for oil and gas customers. And so that’s kind of where Streamline began. That was with that relationship and that actually ultimately brought me to the place where I was starting my own company.
Aaron 15:01
Wow. No, that’s a fascinating story. Especially being employee number three with a venture-backed startup. Because I think a lot of us have heard those stories. At least these are stories that I study and I enjoy learning about because you’ve got the two models of companies. You have the venture-backed and you got the bootstrapped. And so when it’s venture-backed, man, it is like, okay, we need to go hire everybody, we need to go do everything now. And it is like an all-out sprint – at least that’s the perception I have of it on the outside looking in. Is that more or less right?
Dave 15:38
Yes, absolutely. I mean, I would say that the great thing about venture-backed companies is they can move very fast. They’ve got the capital to actually go build products. And so many times, products take a long time to build. And so if you have the capital ahead of time and you can inorganically kind of develop the product and get it to market. You speed up the entire cycle of creating ultimately what everyone’s after, which is your customer acquisition cost being less than your customer lifetime value in a meaningful way for those ratios.
And so that’s great. The downside or the danger often with startups is you really have to know that you’ve got solid product market fit and really have a lot of confidence around exactly what you’re building and understand the value proposition to the customer and how deep that actually drives an organization forward. Because when you take other people’s money, the bar is very high and only increasingly so. And so you obviously have to move fast, you have to be very adaptive. You have to respond to the customers. And there’s very little room for – when you think about meeting the customer’s need, you have to be excellent in almost every category, because if you’re not, they’ll just use the next thing or do the next thing, right? And as a startup, you don’t have a reputation that you’re building off of. You don’t have a legacy of processes that take care of the day-to-day. And so you have to make sure that you’re all over all those things.
Aaron 17:41
Wow. Yeah, no, I’m just thinking about the speed function of a venture-backed company. So what does that do then for like team dynamics in terms of like, okay, managing expectations from the financiers versus the ability to drive harder and longer and faster from a team standpoint. So how do you manage that tension?
Dave 18:11
Yeah. I mean, so depending on the stage, right? I mean, I think if you think about, you know, if you’re going for institutional funding, whether that’s venture capital, private equity, typically, a lot of the things that will drive whether or not somebody will invest in you are all about their mandate, right? And so if you have a private equity firm, for instance, that only invest in companies that have greater than a $10 million EBITDA, right? Even if you’re the greatest company in the world, but you’re not there yet, they’re not going to invest in you. Some of them have a mandatory majority ownership structure, where they have to have majority ownership. Some of them have – on the venture side, companies that are looking to invest in an idea and a team. And I probably actually put them in the reverse order, a team and an idea. Those types of firms understand that the brackets are very large in terms of what you tell them you can deliver. So they understand for the first few years, you’re really trying to tighten up the message, the product, and what you ultimately can deliver. And there’s more patience for that.
But you know, my experience has been in order to employ the venture model, you’ve got to have domain expertise, people who have been in a very similar role or in a very similar space before and know how to execute. You’ve got to have very intelligent people and often you’ve got to have a lot of the things that would take time to learn in other businesses have to fall in place pretty quickly in terms of just being able to manage your customers, manage your invoicing, just stay on top of the business. A lot of that’s going to happen a lot faster.
Aaron 20:12
Nice. Yeah. No, I’m just curious. Yeah. Those are just a couple of quick thoughts I had. And we may come back and pick at that, thread a little bit more, but I’d love to hear more about the story of what you’re doing now. And you said that it kind of came about as a relationship. And then to talk us through that. Talk us through how that came to be and then how you managed that company in the early, you know, that first year of just trying to make sure that you’re making money and being able to float.
Dave 20:50
Yep. Yeah. I mean, and so one thing I will say, too, is I have been feeling more recently talking about this as important, especially, you know, I have a heart for veteran entrepreneurs and folks who are interested in this type of business line and work who are veterans. But it is somewhat of a dark art, the startup world, to understand the financial structures. And I mean, I’m speaking as a guy who went through business school and there were just a lot of things they don’t teach you.
And so as far as Streamline goes, the founders of this previous company came to me and said, “Hey.” Those other founders had network engineering expertise. They had software engineering expertise, and I was kind of the original core of the oil and gas side of the equation. And so they came back to me and said, “Hey, you’ve got this experience. Go check out this other technology, that kind of was friend of a friend in San Antonio had this technology.” They said, “Can you check it out and kind of do some diligence for us?”
So it actually started as an exploratory exercise on my part. And then pretty quickly, I realized that the actual chemistry and the technology was differentiated enough where I felt like it could make a meaningful impact on the market. There were very early on in the process, in conversations with actually what would end up being our anchor customer but a friend of mine who was an engineer at a large oil and gas company. I realized that the market was pretty big for this type of product.
And so the actual process of getting it from, okay, I’ve validated this as a product knowing that it would take a lot to bring the entire concept together to getting ink on paper and getting an exclusive license for this chemistry worldwide and having the runway to have an investible platform. Took about nine or ten months. So it wasn’t a short span. And beyond that, I wanted to get through the pilot phase with this initial customer to actually validate the chemistry, even if it was in an unsustainable long-term type of technology wrapper, right?
So I guess I should maybe get a couple seconds on Streamline. What we have is a technology that removes a very specific contaminant found in the natural gas and then produced in wastewater. And this contaminant is dangerous to breathe. It can be very deadly, even in low concentrations, and it always has to be removed from natural gas in order for it to be sold.
Aaron 24:20
You’re talking about H2S, right?
Dave 24:21
Yes, that’s right. Hydrogen sulfide. And if you’re in the old patch, you know H2S very well. A lot of people know H2S who were in the industry. Everybody knows sulfur and fertilizer. And the sulfur, lot of people don’t realize that 80% or 90% of the world’s sulfur actually comes out of the oil and gas industry. And a lot of it is this compound or actually longer chain hydrocarbons that have this sulfur compounds in them, and ultimately get treated in refineries and generate that.
And so the chemistry that we knew worked well required treating vessels and sulfur filtration technology and a lot of things that had to kind of come together. But our initial customer was spending a lot over a year to treat this and they knew that we could help them save a good amount of money by getting this technology over the finish line. In the oil and gas space, and particularly in shale, saving money is very important for folks, especially now, but has been for several years. And so we really went through a pretty extensive commercialization process with that first customer. And it was only then when we had validation of the technology working that we actually went and started the process of raising money. We’ve gone through four rounds at this point of raising money to commercialize the product.
Aaron 26:03
Wow. So where does the sort of the company stand now in relation to operations and kind of revenue that you’re doing and how large is your team now at this point?
Dave 26:16
So we have just over 50 employees. We’ve got a base in San Antonio with offices in South Texas and West Texas. You know, everybody has had a really rough year in oil and gas. But actually, a lot of our relationships are built on long-term contracts. And because our treating technology is critical, most of our plants have really not seen much of a change for the year. We’ll probably do about 60 million this year in revenue. We have a lot of really promising opportunity in the future, lots of different plants in Texas, in South and West Texas and New Mexico, but a lot internationally. So that part of our business is just starting to take shape as well. So I’m excited. I’m thankful, I’m extremely thankful for where we are, given where oil and gas is and where our nation is right now. And it’s a tough time, but yeah, we’ve been blessed.
Aaron 27:32
Well, so take me through your decision process then of taking on outside investment. So is it one of those things where you realize that in order to get from where you are to where you want to be, it’s going to take a lot of extra resources that you don’t have. So you feel like it’s worth it to give up some portion of the company or it’s worth it to make that process happen.
Dave 27:58
Yeah. So a lot of the decision is in how big do you think you can grow, how applicable the technology is to whatever industry you’re going after. In our case, our plants, our model is one where we actually offer our entire plant and the chemistry and operations all as a package to customers. It’s like a fee for service structure. And so we knew that it was going to be very capital intensive. We raised the first tranche in really an effort to just finish the commercialization process and validate the technology. Once we felt like we had enough data – and that’s the one thing was startups. You never have enough information. You’re making decisions with 70% of the information all the time.
But that initial tranche, that was done through private placement with a lot of investors and family offices in San Antonio, in Dallas that had knowledge of the industry, understood what we were trying to go after, and kind of bought the dream, right? And believe that we could get there. And yeah, I mean, that’s a lot of it in the beginning. So pre-revenue, you know, pre-product, a lot of times all they have to validate is, yeah, you’re addressing a very big market. We understand why you’re saying your technology is going to be successful and we believe the team enough to know that they will find a way to get to the point where it’s commercial.
Aaron 29:43
Wow.
Dave 29:4
Yeah. And then beyond that, we went back to those investors for a second round and then our third round was an institutional round, where we brought in two different private equity firms who knew the energy space well. One of them is more of a venture firm that is focused on technology and they really did the technical due diligence. And then the other is a very reputable private equity firm with stellar managing partners and a team that came alongside to continue to fund the development.
Aaron 30:27
So bear with me here for a second. Because what I really want to do is, for those that just don’t know this process of this role very well, we hear about it anecdotally, you’ll see kind of the end. It’s like catching a movie after it’s already halfway through, right? But you never really took the time to understand or I guess you didn’t have the privilege of seeing where the beginnings came from and the struggles and the reality of it all. So if you don’t mind, again, this is just completely dependent upon how comfortable you are, and if not, it’s all good. But in those early days, though, as you’re getting started and as you’re looking to raise money, is this a situation where you’re depending on your wife’s income to feed your family? Or are you guys just going all-in on something or you’re working three extra jobs at night to figure this thing out? Talk us through that a little bit, if you don’t mind.
Dave 31:28
Yeah, sure. Well, you know, in our case, no, we did kind of go without the salary for the time that took us to get this license complete, which was about nine months. And my wife is in a lot of ways the opposite of me in the sense that she’s very risk-averse. And so much of this is believing in the dream but she’s also incredibly supportive and we prayed about it. And so I had a clear enough path because my co-founder, the family that had the technology was a part of this. And so they had committed funds as well – basically, angel funds – to get us to our first round.
And so once we got over the hump of actually legally protecting the intellectual property and that type of thing, we had some initial funds to do that pilot, right? And so that was incredibly important part of the process. I think if we had tried to raise money before actually going to that customer and actually a very successful 90-day pilot and actually having the money to rent the trucks to be on the sites, to do all that kind of stuff, it would have changed the actual cap table in a way that would have been detrimental, I think, to the overall organization.
And so it’s all about step changes in a startup. And so what you have to do is you have to go and do a lot of research to understand the market, how much it’s going to take for you to get your technology to the market, and then also, what those returns look like long-term for investors. And so it’s all based on kind of pro forma financials. Obviously, you don’t have any revenue to speak of in the beginning. What we have been able to achieve so far is we know we get to the next milestone and we have meaningful revenue, but it’s not as much in terms of earnings, but we’ve proven out the model. And then the next step up, we have both revenue and earnings, but we’re asking for a very high multiple on those earnings because we’re promising to deliver a whole bunch more of those earnings, right?
And so the folks who invest have to believe deeply in the core of your financial model and what you think you can achieved within reason. Everybody knows that things change, right? And believe that you can generate a meaningful return, and in every level, that return changes. So those initial angel investors better do really well on their investment if it’s success because they take a lot of risks. The next layer up, a little bit different, a little bit less of a return because there’s less risk and so on.
And when you get to the private equity, venture capital type money, and probably venture capital is more looking for, say, like a 10X return on their money or more. Private equity, the general rule is kind of 3X to 5X in three to five years, right? And so thinking in terms of that structure is what we were looking to do in terms of what we were trying to achieve.
Aaron 35:31
Wow. So then you’re taking that information in and then that is informing your structure needs. So knowing that, okay, in order to achieve X amount of revenue or X amount of net or whatever the metric is that you’re measuring, then that’s kind of determining, okay, well, we need to make sure we’re asking for this much so we can have the funding or the team or the materials or whatever the case may be, right? Am I going about the right way?
Dave 36:02
Yes, absolutely. I mean, so a lot of our institutional round was about basically bringing in enough money where we could then become solid from a point of bringing in financing partners. And so we needed enough money on our balance sheet to then access the debt markets to then continue construction. And actually, some of that strategy has actually changed just given the way the oil and gas market has migrated over the past year. But certainly, we learn every day at Streamline of how the technology fits, what the real core of the technology is, and then other areas where it’s more applicable, less applicable, and refine the message, refine the model. So that’s definitely still happening for us. But it’s almost like the educated guesses get tighter and tighter as you grow the technology.
Aaron 37:21
That makes sense.
Dave 37:21
And just in general, I’d say, if you think about a lot of times the venture and private equity model is used when you know that you’re going to need capital. If you’re providing a service, if you’re providing something that’s a lot less capital intensive, if you’re building an accounting firm, and you can basically have contract bookkeepers that you pass through to the customer, it’s a less intensive model. You can build a great business doing that. You may need some initial investment. But depending on what you’re offering, that’ll really dictate a lot of kind of what you’re doing to raise those funds.
Aaron 38:02
Wow. And then we’ll move on from all this after this next question. But for those that are then, I think, in this cycle or in this process of developing a new idea or a new technology, I mean, it’s probably a really obvious answer, but I’m going to ask it anyway just because I feel like I need to ask it. But in terms of seeking out investors, I mean, obviously, you’re heavily networking with people that you probably had some relationships from some of the previous stuff you’d done, right? It sounds like that’s kind of carried you through with a lot of different opportunities. And then how does that process get started? Someone’s like, “Okay, I’ve got a great idea,” now what?
Dave 38:48
Right. Yeah, absolutely. Yeah, that’s the hard part, right? It’s actually getting over the finish line. And my experience was very unlike other folks who I know – I think it’s Marc Lore, who’s the CEO at a Walmart eCommerce, founder of Jet, right? He talks about how his initial concept for Diapers.com and he went through 200 investors, 200 potential angel investors. And so a lot of times, it takes a long time to talk to enough people to raise the money. But often what you’ll find is once you have somebody who has high net worth and has a really good head on their shoulders, believe in the concept, they will introduce you to their friends. Be unabashed about asking for that. Do you have anybody else that you think could invest in the company? And you will get access to their network and then you basically drill down those lines of folks that continue to connect you.
I mean, think about it as every good conversation you have, even if they choose not to invest, they can probably introduce you to one or two people that may want to also give a pitch, right? And you’ll get better at your pitch as you go through. I was very fortunate because my co-founder already had relationships with a lot of our investors. So she was actually able to organize a ton of that and pre-pave the way. But investors, especially when you have wealthy folks, they are not dumb, right? A lot of them are very sharp and you really have to know what you’re talking about. They’re going to ask you a lot of good questions.
In terms of just kind of mechanics, Guy Kawasaki has a really good kind of list of ten slides that you need to think about and have. And actually, I was given that by somebody else, but I’ve used it and it’s been very successful in ways to kind of frame up your business for investors. And then beyond that, I would just say you’re not going to know everything on the front end, but you need to be able to speak, not just from the top down, but from the bottom up. And so what that means is you can’t just say, “Hey, I’ve got an idea for a new type of mechanical pencil. You know, the whole world uses pencils, right? And it gets less so now, but whole world uses pencils. And so I got this idea. If I just get 5% of the world’s pencil, mechanical pencil consumption, we’re all going to be super rich.”
That doesn’t really work that well in real conversations. People want to understand, “Hey, it’s going to cost me $6 to get a new customer and I’m going to make $12 off that customer over the lifetime of that relationship. And so the model scales, right? And they’re going to want to know how many of those customers you think you can win in year one, year two, et cetera. And then they’re going to want to know what are the big risks, especially in the beginning. List out the risks, right? First and foremost, I want you guys to understand, here are the risks that we could run into as a business. Competition could come in and undercut us. Just make sure you’re clear on that.
And then I think once you’ve got a critical core lead investor, somebody who, if you’re going to raise a million dollars, has given you a meaningful amount of that $200,000, right? Then you’re going to say, okay, that’s kind of – it’s amazing how much sometimes that causes things to fall in place. So you really need that first core investor to believe in you. Because not only they introduce you to your friends, but other people start to feel comfortable that you’ve got backing.
Aaron 43:03
It’s like nobody wants to be first, right? They want to see somebody else be willing to jump in. Then once they’re like, okay, if he’s going in then I’m going in.
Dave 43:12
Exactly. That’s exactly right. And I don’t do a good enough job with it, but I know that some of the mentorship that I received over the years, you know, you’ve got to create some sense of urgency and some competition in that, right? Hey, we’re moving fast. Because people want to feel that energy as well.
Aaron 43:37
Absolutely.
Dave 43:37
I mean, you have to believe deeply in what you’re doing and believe that you can achieve it because people see that pretty clearly,
Aaron 43:44
Oh, yeah. You know, hey, we were raising X amount this round, we only got so much room. We’re going to close this in the next 30 days. Creating a little bit of scarcity, right? You’re creating a little bit of scarcity.
Dave 43:57
That’s right. That’s right. There you go.
Aaron 44:01
Yep. Talk me through then the cost of customer acquisition piece, right? I mean, that’s kind of a world that I live in being marketing and branding. It’s like you’re always trying to drive that cost down and lifetime value up.
Dave 44:17
Yeah, that’s right.
Aaron 44:19
So talk me through then in a startup environment, how are you proving out cost of customer acquisition? How do you spitball that one?
Dave 44:29
Yes. It is a tough one. But I would say that as an example, like for one of our systems, our systems are very expensive, multi-year contracts. It’s an intense sales process and it does generate a lot. It’s an expensive process. And so for that reason, and I say expensive, I mean, relative to other technologies. Actually, our core value proposition that we’re cheaper, but we’re talking about big absolute dollars here, right? And so we had to do less of that because one sale often would make up for a lot in terms of actual customer acquisition costs. Where businesses get in trouble is if they have a large number of nodes, endpoint sales, or large number of customers that they’re trying to access, especially in the consumer space. Defining and making sure that those ratios line up are extremely important.
And there’s all different types of businesses where you’ve got to make sure that if you’re building a marketplace, that you need ensure that you have the ability to get to the network effects that you need and you can build both sides in the marketplace. And what does that look like in costs? I think one of the biggest hacks that has come for me, and there’s a lot of practical tips, like Upwork is a really great platform. If you’re a startup and you need cheap services from people who actually know the vertical that you need help in.
But if you can find an expert, domain expert in a specific category who really knows the space well, and they can – you know, it’s funny. I go even back to the Army days of, you know, I remember early kind of right after becoming a second lieutenant and you don’t know anything, and you’re just there. And one of the big things was don’t reinvent the wheel on anything. We already have a process. And sometimes, the Army can get them in trouble with that, but I take that to heart on a lot of things. Go find an expert.
If you want to start a company that focuses on luxury swimming pools, go find somebody who does swimming pools and knows that business well. If you want to start an artificial intelligence company, find the best person in your town that knows artificial intelligence and try to bring them on your team. And you will find that so much of startups burn so much capital trying to learn, right? And investors know that and they pay for the learning curve, right? If you can hack that learning curve, that’s incredibly important. And I will say on customer acquisition costs, that’s an incredibly important part of this, to be able to really define that. If you think your ratio is tight, making sure that you really know what you need to do to kind of get to the level where you can start to really return money to investors.
Aaron 47:47
Yeah, yeah. No, I love that. Thanks for all that insight. Because, yeah, I realize those can be some rather sensitive questions so I appreciate you going there.
Dave 48:00
Yeah, absolutely.
Aaron 48:01
So just a couple of questions left and then we’ll wrap this up. But if there’s any big mistakes that you feel like you’d love to share, big lessons learned, things that you’re like, man, that would’ve been great to know back at day one or day 30, I would love to hear some of that.
Dave 48:23
Yep. You know, I think, for me, so many of the lessons learned that I’ve had have actually helped me so much. And I think that’s just a part of life. Like in a startup, you’re going to learn lessons and make big mistakes. I think, for me, one of the big things that I’ve learned to do or try to do more of is spend time with your customers. Even once you have two customers, three customers, you start getting distracted. It is so important to get their feedback in that infant stage of your company, to really, really dig in with those customers and understand what their experience is, what their expectations are, how you can make the product better. Because it’s amazing how much time you can spend building a product that you think in your head that they want, that may not be what they want, right? And so that’s super important.
I would say, just in general, there are different lifecycles in every business, and at different levels, different things have to have to happen. And it’s important to keep an eye on where the business is and when you need to make improvements or changes or basically when you need to step up your game in certain areas, staying on top of those things, not letting them fester because – and it’s not that people let them fester. It’s just that you got a lot to do, right? And so you’ve got to continue to get forward momentum in key areas that need help. Because sometimes if you let it go too long, those key things that you want to get right to your organization, and therefore maybe get a little perfectionistic about, you just need to start getting them done. Because if you don’t, not getting them done can actually cost you quite a bit.
And then I guess the last part, too, which I think everybody needs to hear if they’re thinking about startups. It is not as glamorous as sometimes it’s made out to be. There are definitely hard parts about being an entrepreneur – very hard. Years without vacations, really tough to strike work-life balance sometimes, a lot of odd hours that you have to work, especially if you travel. It’s hard to stay really healthy if you travel a lot because it’s harder to work out. And a lot of times people who are very industrious can build careers where that industriousness pays off more handsomely sometimes than being an entrepreneur, for sure. And so I tend to consider myself like a little bit less industrious than many. But I know that so many people are incredibly industrious and very good at executing work and those types of people tend to do really well in Corporate America.
So unless you really have a bug and a command or curiosity for what it’s really like, I would just say, it’s worth thinking about what your life would be like if you stuck it out, work hard, and kind of make your way up. Now the flip side of that is if you really have the bug for it, you may always regret not doing it. So you got to balance it with, right?
Aaron 52:04
Yeah, right. No, those were some sage words of advice, man. I love that. Yeah. Thanks for sharing that. And that was actually my last question for you. And so we’ll just jump through that But yeah, I would love to give this last segment back to you. I’d love to just see if there’s anything else that’s on your chest that you’d love to just impart to the audience, this would be it.
Dave 52:28
Well, I really appreciate the time and I would just say that anybody who’s looking for advice, especially if you’re a veteran, you’re working on your own thing and you just want thoughts around specifically kind of the venture financing and the structures needed for that, I would be happy to. Anybody, feel free to reach out on LinkedIn or email me. I just enjoy helping people try to figure that kind of stuff out. So I would love to do that.
Aaron 53:05
No, that’s terrific, Dave, thank you. And I just want to thank you for spending some time with me, for sharing some of your insights, some of your stories. It’s been incredibly fascinating. And so no, just thank you. Thank you so much.
Dave 53:20
Yeah, Aaron, anytime. Happy to do it anytime.
Aaron 53:25
Man, what a great interview. I really enjoyed Dave’s perspective. He’s just so easygoing and you can tell he’s been through a lot and he’s seen quite a bit, but I just loved hearing his story. I just felt like the more that we kept going into his background, the deep, the more rich this whole thing got. It was really fascinating. So very, very grateful to him, really appreciative of just sharing all lessons there. And I would encourage you to go back. Definitely, there’s a ton little golden nuggets. I was trying to write a bunch of them down. I can’t even make up my own writing now. But you know, things related to taking on investors, the whole funding space, and ensuring there’s a solid product market fit. Some of the mistakes he’s made.
And then that’s one thing that I did want to speak to is I think it’s so important to realize that even the mistakes that you make, those are learning opportunities. And I know it sounds cliche, but it is so, so true and so important that every time we fail or we screw up or whatever, that’s just another lesson learned. That’s another tool for your tool bag because now you know what doesn’t work. And so it can help you avoid making some mistakes in the future.
But I’d encourage you to connect with Dave, connect with this company, see what they’re doing. If you’re in the oil and gas or utility space, certainly worth checking out. So anyway, thank you so much for watching. I would love a subscribe if you are watching us on YouTube and you’ve made it this far, but I’m really, really grateful for your viewership, for your listenership. And look forward to seeing you again next week. See you.