Startup Acquisition Stories w/ Mark Davis – Managing Partner at Interplay

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Transcription-

Andrew Gazdecki:
All right. I’m with Mark Davis, the man, the myth, the legend from Interplay, and Mark, I’m super excited about this podcast, so thanks for joining me.

Mark Davis:
Yeah, thanks for having me, it’s awesome. Check out this.

Andrew Gazdecki:
I see the coffee cup, the Acquire mug.

Mark Davis:
I’m representing.

Andrew Gazdecki:
Are LOIs flying everywhere as you said it, or what?

Mark Davis:
Of course.

Andrew Gazdecki:
So Interplay, for those that aren’t familiar with Interplay, do you want to give maybe a two second background on what it is? I said two seconds, so try…

Mark Davis:
Yeah, I’ll keep it short. We’re a start up that…

Andrew Gazdecki:
One… two… I’m just messing with you.

Mark Davis:
Yeah. This is never going to work. The way we talk about is we say we’re a startup ecosystem. We’ve got five different divisions that all feed each other and help entrepreneurs. The whole thing is really centered around a belief, and I think this is one, Andrew, that you share. We believe entrepreneurs are the people who drive society forward, more so in many cases than nonprofits and government organizations. And so we are trying to build an institutional grade platform that will be here a hundred years after I’m dead, helping entrepreneurs.

Mark Davis:
And so we’ve got five different divisions of it. The cornerstone of it is an early stage venture capital fund, where we invest into C2B North American technology companies, we also do some LATAM. We are about to launch a blockchain fund, so that’s coming. We have a services platform, so seven companies we’ve co-founded that provide core operating services to entrepreneurs. These are things like commercial and health insurance, marketing, leadership training, accounting tax, CFO, law, business process outsourcing. That’s a 550 person team now and we provide services to about 15% of all venture back companies in America.

Mark Davis:
We’ve got an incubator where we coach pre-seed and post-seed companies and operations, about 15 companies a year that we work with. And the goal is really just to help entrepreneurs nail the business development, help with they’re setting up, getting the company on the rails and it’s a very hands on program, it’s like private tutoring. We have a foundry where the mandate there is the partner who oversees that is trying to launch five to 10 venture back companies a year. And then we have a multi-family office, which is a little bit less obvious how it fits into the mission, some of the others, but I’ll run down that if you’re open to it. We’ve got, it’s a standard family office in the sense that it’s trying to do a state tax asset management for people who have made money partners and other traditionally venture backed CEOs who have had liquidity, not all of them are venture backed, but a lot of entrepreneurial types are members of the family office, but there’s a really important mission in what the family office does that kind of jives with this whole thing.

Mark Davis:
Remember in college, I feel like there was three things that stuck, three things that carried with me for the last 20 something years that I remember. And one of them was, I took this writing course and the writing course itself wasn’t interesting, but we happen to be reading Andrew Carnegie. And one of the things Carnegie said, paraphrased is more or less that capitalism is really good at allocating resources to capable hands, my hands, your hands, but really falls apart when you and I retire because we put our money in bonds and the S&P and we’re essentially handing the money to bureaucrats. We’re not relocating it to the next generation of innovators.

Mark Davis:
So the social mandate of the family office is a great one, it’s keeping innovators money back in the hands in the next generation, through venture capital firms, through space technology investments, through life sciences and genetics, and all of those things fit to provide what we think is a great product for families that need that management, because it’s not just making money. I believe that’s actually where you make most of the money, people creating value, add value, but it’s also a great way to have a social impact and believe your money’s at work, working for society while you’re sleeping. So that’s what we do at Interplay.

Andrew Gazdecki:
So you got a lot going on. What’s your favorite part of the whole ecosystem? I was kind of like asking what your favorite kid is, but…

Mark Davis:
It totally is.

Andrew Gazdecki:
What part gets you most fired up these day?

Mark Davis:
The answer is, it’s a layer of it. It’s not one business line or the… I love everything we’re doing, I’m really passionate about, because I feel like it all moves the needle that matters. We’re 10 years in at Interplay and I don’t plan on retiring, so God willing, we have a long way ahead to keep building this and having impact. But the thing that gets me most fired up is brainstorming, and what’s great about this particular job for me is when I’m hearing company pitches, when I’m getting phone calls from founders or I’m ideating on a new business to start, all of those things are moments where you’re on that whiteboard, being creative.

Mark Davis:
And I think in a normal job as an executive in a company, you really have that breakthrough moment once a month maybe, maybe twice a month. But the beauty for me as a person who’s obsessed with that experience is that by virtue of being part of this bigger platform, I get pulled into that moment of ideation a couple times a day, and so I get to have higher frequency of living in those moments that give me goosebumps, get me all fired up about something cool we’re doing, or way we’re going to make someone’s job better or whatever it is, but that creative outlet’s awesome.

Andrew Gazdecki:
You get that feeling of finding product market fit every day.

Mark Davis:
Yeah. We don’t always figure it out, but to me that’s the most exciting adventure in entrepreneurship, it’s the brainstorm part.

Andrew Gazdecki:
Well, Mark, I love your mission, I love everything you’re doing, but what strikes me and what I’ve always admired about you is just how authentic you are in your mission. Because there’s a lot of firms that say the fluffy words, founder first, this and that and it’s all in good faith, what have you, but you’re so authentic about it. So how did you get into entrepreneurship? How did you stumble into this? What created this passion within you?

Mark Davis:
I think it’s not something I really chose. I don’t even think it happened. I best guess I have is it’s actually like some sort of DNA type thing you probably share it. My story is I’m a middle class kid from West Covina, Los Angeles, outskirts of nowhere, and I’ve been a lifelong entrepreneur. There’s not a lot of other entrepreneurs in my family, I wasn’t taught, but I was selling baseball cards in elementary, candy in junior high, computers in graduating seniors in high school.

Mark Davis:
I’m sure there’s a lot of people listening to this who have a similar story. I tried to start five companies in college, no idea what I was doing. I did my undergrad at Duke and the schools become very entrepreneurial since then but at the time was one of two entrepreneurs on campus, and I badly needed mentorship and didn’t get it. Came out, knew I needed to learn real business skills. Did a lab through consulting at Bain and then doing diligence and M and A transactions at KPMG, did my MBA Columbia, and then about 16 years ago was fortunate enough to land a venture capital job. Had some really great mentors, learned a taught up a lot about the business and in 10 years thought it was time to go out on my own and set up Interplay.

Andrew Gazdecki:
Nice. That job did story is shockingly similar to mine. I think I told you this, but I used to start a company every year in college, every summer, kind of knowing it would fail, but I got free time, and I wanted to learn and I was addicted to entrepreneurship from a very young age. So it’s interesting to see how those traits can add up.

Mark Davis:
What was your favorite one you did? What was the…?

Andrew Gazdecki:
The one that worked?

Mark Davis:
Oh, that’s good.

Andrew Gazdecki:
Well, I can tell you the four. One was a website design company for local apartment companies like, “Hey, rent my apartment for your students.” Or whatever, just so I could learn web design, so I learned web design. The second one was a more of a marketplace type, and this was actually with a friend, his name’s Kris Rudeegraap, CEO Sendoso now. That one didn’t work out, neither at the first one, and the second one was a job board that connected mobile developers, businesses, and the fourth one was a drag and drop mobile app builder. And the funny part about all those is same thing with Chico State, the entrepreneurship program wasn’t that developed, and I would apply to the business plan competition every single year and I’m proud to say I’ve won fourth, third, second, and first.

Andrew Gazdecki:
And then every time I would get second place, I’d have like a paragraph where I’m like, “Here’s why I should’ve won.” I was like that annoying entrepreneur kid. Literally I remember losing to a girl whose idea was to put chips in babies so you could track them or something like that. And I was like, “The capital requirements for this are so high. Is this even legal.” And I was lucky enough, I had a teacher, his name was Peter Straus, so he pulled me aside and recognized maybe let’s give this kid a little bit more attention or he is going to just keep emailing us. So that’s awesome. So.

Mark Davis:
That’s great man, I love this.

Andrew Gazdecki:
Fast forward to where you are today, there’s a lot going on with startups and just the environment changing. How are you absorbing that? What is your perspective? It’s July 13th, I believe this is the third biggest drop on the NASDAQ, probably not your first rodeo in terms of a downturn, but how do you…? I’m sure you’ve done this, but what advice are you giving entrepreneurs right now in terms of how to view a downturn, how to think through a downturn?

Mark Davis:
Yeah. So this is my third downturn, second one in a venture seat. I think the first thing I’m telling people is that this is normal. I think the extent to which people aren’t feeling a sense of panic or a hopelessness that comes with this, I think that’s not the right lens to look at it. The market’s like a wave, and sometimes it’s up and down, and you got to surf all different angles and so this is the downturn part of the wave. Now within the downturn market scenarios, there’s two types. I liken it to a car, there’s a type where you are intentionally shifting down gear, the people who are puppeteering the market, the Fed, are intentionally slowing the economy, and there’s a different type of downturn. It’s when the it’s when the engine breaks a piston pops and smokes coming out of the hood and that’s the downturn we had in 08′ and that was a cataclysmic downturn.

Mark Davis:
That was a downturn where we were not sure if the system still worked, there was questions about trust in the equity markets and the debt markets, trust of capital flows, no one really knew what was happening. This is much more of a downturn that was frankly predictable, and from my perspective on it, it’s a controlled scenario where the Fed is intentionally shrinking market by increasing interest rates. I can go through the whole, my macroeconomics professor will be happy. I could take it through the whole thread. I think this story really started, frankly, when we had a long bull market that eventually landed with a pandemic with stimulus. That triggered inflation and inevitably triggered the interest rate regime to change, which I think was probably going to happen anyway, and when that happens, it changes the economic flow of the whole community.

Mark Davis:
So what we’re going through now, I think is first up for foremost, normal and navigable. Now the tough reality of it is what happens in these dynamics is that the capital supply changes So for public companies, we all know their stock prices are down in the tech sector, that means they can’t raise money as fast, they also know that the market’s going to slow and it’s going to be lower revenue. So their projections that they had done in internal business planning no longer apply, and that’s going to result a bunch of layoffs, they can’t get outside capital and they’re going to grow as fast. So those two dynamics mean, “Hey, that plan we had, we’re going to hire a thousand people, no longer relevant. Let’s cut a thousand people.” So that will have a market impact, but there is a similar but different parallel impact happen in the private market and it’s driven by what we call the denominator effect.

Mark Davis:
The way the capital markets work for VCs is that they raise money generally from large institutions, as they get more and more mature as a venture fund, those institutions are pension funds, university endowments, insurance companies, and the people who manage those pools of capital, which are billions and billions of dollars typically, the way they do that is they’ve got a target allocation percentage they might say, “We want to be 20% venture.” And what happens in a down market when valuations come down in the publics, is as public equities decline the value of the whole portfolio for that manager shrink. So they might have had 10 billion, two months ago, which is now eight. Now here’s the problem, if they had done 20% of their capital already allocated venture, let’s say it’s 2 billion in a scenario. They’re now overweight, instead of being 2 billion of 10 billion, 20%, they’re now 2 billion of 8 billion, 25%. And so the numerator, the value of their venture portfolio doesn’t change that quickly, company valuations will come down but our mark to market is a little bit slower in the private markets.

Mark Davis:
We wait for outside data, revenue shifts or most commonly external valuations, which for venture could be 12, 18, 24 month cycles before a company raises money again. So our valuation’s going to stick it around 2 billion on their books, but their total portfolio is now eight. And so while venture hasn’t performed poorly, the reaction that they end up having is saying, “Hey, we’re overweight at venture. We’re not going to give any money to VCs for a while.” And VCs know this, and so the net result is VCs say, “Okay, well, it’s going to be really hard to raise capital, let’s hold our breath. Let’s instead of doing 10 deals this year, let’s do 10 deals over the next two years, five deals a year. So we can be raising in a more favorable economic environment when the LPs are going to be ready to give us cash again.” And the result is there’s a reduction in the amount of capital going into startups, affects valuations, affects hiring, affects everything.

Andrew Gazdecki:
That was super helpful. I never excelled in economics so thank you for that. I mean that sincerely. But in regards to just company building, I’m sure you’ve heard the theme of so many companies are usually built in downturns and I’m a big believer of that because constraints, when you’re building a business really helps you focus on the core part of your business. In terms of building companies compared to when it’s easy to get capital, when it’s not, how much do you think that comes into play in terms of building iconic companies?

Mark Davis:
There is a pattern, a lot of great companies have risen from the ashes of these markets. Probably a couple factors, I think there is what you’re saying some discipline. VCs, as they’re shifting their own investment frequency, they’re also looking for different things. Six months ago, 12 months ago, most VCs were looking for growth at all costs, almost irrationally. People have reverted back to fundamentals, which is where we always live at Interplay, we love looking for core, good unit economics, good fundamentals in the business. So it’s more important to have a healthy, functional economic story, knowing your LTV/CAC ratio makes sense, et cetera, good margins all the way through. Then it is to grow at an insane clip, maybe an outsized clip in this market. So the first thing that shifts for entrepreneurs that we give advice to is growth at all costs is no longer as critical as having a healthy business.

Mark Davis:
That doesn’t mean a profitable business because bottom line profitability is a choice to not reinvest money in growth, but there are moments where you’ll find entrepreneurs out there with a negative gross margin, that’s insane. You can never scale into profitability or a healthy company with negative gross margin unless it eventually writes itself. So I would say business fundamentals are back on the table. In this market, I would say to folks don’t panic, but understand there will be a flight to quality. Companies that don’t have the same durability or strength aren’t going to get a free pass right now, they’re going to die. That’s hard, it’s harsh, it’s going to be painful for a lot of people, but there is a beautiful silver lining to it on a macro perspective. It’s a process of society, humans, innovators, all incredible people on our teams, reorganizing around visions and things that will actually impact society.

Mark Davis:
So companies that aren’t going to make it anyway are now going to die more quickly. Those teams are going to be freed up to join the companies that have trajectory and momentum, and I hope that actually makes the companies are going to survive stronger. So I would say it’s a game of managing your cash a little bit differently, knowing that growth expectations aren’t as high, and that allows that there’s alignment between what the companies are expected to do and what the VCs are looking for in the next round. And it’s going to have some realities around the number of companies that get killed. But the good news is the most important is in my experience in 08′, which was a much more drastic financial event than what we’re experiencing now, the market kept moving companies that needed capital and were good and deserve capital continued to raise capital.

Mark Davis:
Maybe their valuations weren’t as high, maybe there was a little bit more dilution, but were going to see a good companies continue to get funded. And so at interplay we’re actively investing, we are not changing actually our deployment strategy at all for this market. We think it’s a good time to put in capital work, there’s going to be great companies being billed, as you said. I’m sure there will be market changing companies that are founded in this next couple year window. And the last thing I’ll say on that, just to kind of take it the last thread and bring it fully back to what you’re asking, why do we see great companies built in these markets? Probably a lot of factors, I think there’s great companies built in every market, but one thing that’s an interesting ingredient in these downturns is it really frees up talent. Executives who maybe would never had made the risk calculation to be entrepreneurs because they had big golden handcuff page, pay day’s coming, while their stock might be underwater.

Mark Davis:
Companies might crash, people who have a job that they know there’s no hope of a bonus might say, “Hey, the opportunity cost has never been lower for jumping in and starting that company that I’ve always been dreaming me out starting now.” Not all those would hit, but a lot of great people who maybe didn’t have the risk appetite for entrepreneurship. Maybe aren’t as insane as you and I are when we do it addictively, are going to come out and build wonderful organizations that we’ll be talking about in five or 10 years as they go public.

Andrew Gazdecki:
Yeah. I love that, and I love just the positive perspective because in a sense I agree with markets are cyclical, they go up and then they go down and they go up and they go down and this will probably go on for… Actually it will go on forever. But just that positive perspective in terms of looking at the good parts of it, rather than just focusing on the bad parts. I think it’s so important, especially as an entrepreneur, you’re going through so many things on a daily basis. If you’re checking the stock market, you’re checking some stuff that really probably doesn’t correlate to your business directly. Having that positive mindset, just staying focused on your core business and being a little bit more thoughtful with how you’re deploying your capital.

Andrew Gazdecki:
I think all that in the end will definitely lead to like you said, great companies, and I love the point you made in terms of. I agree, I think we will see a lot of entrepreneurs finally taking leap, just because they had a great job, and now they don’t, and now this is an opportunity for them to maybe chase this idea they’ve been thinking about for years and they’ve never really had that push that they needed. And I’ve always been under the belief that one of the biggest hindrance of entrepreneurship for a lot of people is just fear of failure because it’s hard, it’s super hard, and it’s even harder when you have a really good job it’s stable job. But when then it gets taken away you don’t really have too much to lose. It’s kind of starting a company in college, you just do it because what do you have to lose?

Mark Davis:
No downside except for free time.

Andrew Gazdecki:
Yeah. So I think that’s a really good way to look at it. In terms of companies that really get you excited aside from UNE economics. I know you mentioned you’re going to be launching a fund for different industry sectors. Just a question I’m curious about, what part of the tech or startup ecosystem are you really bullish on right now? Would it be B2B SAS, would it be blockchain? Maybe I’m asking you to pick a favorite again, but what’s maybe one sector that you’re really kind of looking at?

Mark Davis:
So we do B2B SAS, B2B marketplaces, consumer technology and we are launching a blockchain fund, so I think all of those continue to be super exciting spaces. I think where you pick the favorites, if you’re doing this right, is you look at the cycle of innovation and innovation is really coming from pain points, and you can’t experience every pain point with a finite amount of time in your life, in a finite amount of experiences. We’re all living on different journeys through this life. So there’s someone out working on a farm, experiencing different technological gaps then one I’m experiencing in my office here in Soho, New York city. And those experiences are really important because I can sit in an office all day and come up with spaces that I think are going to be areas where there’s opportunities for disruption and I do that.

Mark Davis:
But the reality is the real innovation, the real creativity is coming from people who are filling a pain point in the area where I’m not touching. So our method for looking for entrepreneurs is not to say, “Hey, we think the acquisition environment needs to be disrupted. Who’s doing that?” Very few VCs, and I think very little of the real innovation cycle actually happens that way. We try to find patterns, so when someone walks in and says, “Hey, there’s a better way to be smart on a farm and we need that software solution that you don’t know about.” We’re looking for patterns and heuristics in the way they’re thinking about that business to see if that is a business that we think is going to be successful or not.

Mark Davis:
And we let the entrepreneur teach us about that market and then we go get smart on it in our diligence process. So one of the favorite things about the role is we’re constantly learning, we’re learning from entrepreneurs who know their industries way better than us. The idea that VCs know their industry is better than the entrepreneurs is almost always ludicrous, there are exceptions. And we’re constantly learning from really sharp, smart people, and if you’re not in the VC job as a student, I don’t know how long you’re going to last. So that’s the mindset I think you have to have. If it’s okay Andrew, I wanted to add one thing to what you said before, a little bit of a tangent. It struck me, you were talking about people reading the news and panicking because of this market dynamic, I have a different approach for this. I’m going to say something a little bit contrarian here, and I think it will be helpful to a lot of folks, don’t read.

Andrew Gazdecki:
Yeah, go ahead. Do you want to hear kind of what I do?

Mark Davis:
Yeah, tell me.

Andrew Gazdecki:
I don’t know if this stock market has been up or down the past two weeks, I don’t check. I don’t own any crypto, I don’t have any risky investments, and my philosophy is I like to build businesses so much that I like to clear out every sort of distraction, or noise or something that would affect maybe my mood, like stock portfolios down a little bit. I’m not nearly as successful as you so looking at it probably wouldn’t hurt as much. Sorry, that was a dad joke.

Mark Davis:
Yeah, it’s all right.

Andrew Gazdecki:
But I try to just remain laser focused on what I’m building. Obviously with what I’m building there is some correlation, but I don’t look at the bottom markets I look at our internal metrics first and I look to see how we can improve those first before looking at what’s going on in the stock market. And it is kind of inevitable to not hear something if you’re on Twitter or just the internet in general, you’ll bump into some news article of it but I have no idea what’s going on from a macro perspective. I try to keep that focus super narrow because you only have so much energy and so much time in the day, and I’m a firm believer that focus is just one of the most powerful things you can apply to a business, and it’s just always worked for me and it reduces stress levels. Focus on what you can control, and then tune out all the noise and just execute. And that’s what I tell my team too, “Tune out the noise, we have a clear goal. We’re confident in it, let’s go.”

Mark Davis:
I think that’s so healthy, I think you’re a successful serial entrepreneur just by your comment. And the reality is that frame of mind, it’s something I started doing but I found validation through a book that was written that talked about this explicitly. The book is called The Contrarian’s Guide to Leadership and it’s written by a former president of the University of Southern California, so USC. And there’s different chapters on different things but there’s one chapter that really landed with me and the concept was, if you’re sitting there reading about your competitors, and pulling your hair out, and reading all the ups and downs of your stocks, pulling your hair out, how is it serving you? How is it helping you advance the things you need to do in your business? And some of that data is relevant, but the point that was made in the book, which I liked a lot was that if you try to consume less and very tactically… I do read headlines, but very focused.

Mark Davis:
What happens is when there’s other headlines out there that matter, if you surround yourself by great people, they’ll tell you when you need to know something and they become your filter. So you get a little bit of the things that are putting you in the emotional tail, spin around a political dynamic or something else that you have no control over they take that out of your day. But when a competitor does do something relevant, which is very infrequently, almost always the competitors have a little impact on your progress as an entrepreneur, it’s usually distraction paying attention to them, it will make its way to your desk. And so it’s a little bit extreme to say, don’t read, I obviously read, but I think I do a lot less than other people who are trying to stay abreast of every bit news item, every tweet. I do my quick scan, make sure I’m current on what’s going on in the world, but do not obsess over the flow of news.

Andrew Gazdecki:
Yeah, I couldn’t agree more with that. I guess reflecting back when I say don’t read anything you still want to be somewhat informed, like, “Okay, this is happening, it’s going down.”

Mark Davis:
But you’ll know that, because people tell you about that even if you didn’t read it, which of course you will.

Andrew Gazdecki:
Yeah, but I totally agree with not, every day, every hour, that sort of stuff that can just be unhealthy, especially if you’re actively running a business, you’re just stressing yourself out and bringing… I’m a firm believer that when you have a clear, positive mindset, you make better decisions, you’re funner to be around so you’re a better leader to your team. So that’s what’s always worked for me and then also I just have more fun while building. So I guess my next question is, you have so much going on, how do you manage all of this? That’s kind of one thing I was trying to wrap my head around as you said all that.

Mark Davis:
Yeah, great question. So I’ve got an incredible team, in the short answer. We have seven partners currently at Interplay and a lot of other people around the rim who are playing very important roles. I believe if you’re managed with transparency, consistency, you delegate but you hire really competent people and empower them, you can get a lot done. So I’m not working crazy hours doing what I’m doing, I don’t like to, I’m not a four hour work week guy, I don’t want to be. For me 40-50 hours a week is ideal and I’m probably doing 50-60 right now, but I’ve got people in the partnership, I try to think every partner could be someone who could take the firm over and run the whole thing. So they’re all awesome, it’s really easy to support them in the things they’re working on when they have such great capability, a lot of them have been CEOs before. So it’s just the caliber of the folks, it makes it really easy to scale.

Andrew Gazdecki:
Nice, I like that. Yeah, that’s pretty much the cure to everything is if you get the team right, everything else kind of solves itself, and I’ve had some debates around this, like you can give a bad idea to a great team and they’ll figure it out, and obviously a bad idea is a bad idea, but a great team evolves it and do a good idea, and eventually into a great idea. But if you give a great idea to a bad team, it’s going to be really hard to capitalize on that opportunity. So I’m definitely in the boat of team and culture and giving your team autonomy and encouragement to lead. Not only makes your job as the head of this firm, but the same for entrepreneurs as well, that are leading companies. So you got to build a team, set the cultures, set the pace, and trust your team and encourage them, support them.

Mark Davis:
Right, but that balance is kind of a catch 22, it’s a little bit of a trick. I deal with a lot of CEOs who have trouble delegating and it’s a big thing being able to delegate, sounds like you do it really well. But the thing is, delegation only works with the team’s competent, and you have to have both. You have to have a team that’s competent and a leader who’s willing to let go to scale, you can’t have one or the other, you have to have both. Coming back to what you were saying before about ideas and teams, I think you have to have a good idea and good team.

Andrew Gazdecki:
Yeah. The way I learned that though was the hard way, for my first business I had a really hard time letting go, I was young. A specific example was we were hiring a VP of marketing at the time, and I was three years out of college and the going rate, this was like 2013, let’s say, and salary 150 to 200 or something like that, and I was like, “I’m not paying that.” Because I was making like 30 grand the few years before, and obviously in hindsight that was a huge mistake.

Andrew Gazdecki:
But sometimes you learn the most through your mistakes, and that’s what I personally have really enjoyed about building Acquire, every mistake… It’s really hard to forget a big mistake, at least for me, it’s okay to make mistakes but I don’t think it’s okay to make them twice. It’s always okay to make mistakes but for me personally, my goal is to learn from mistakes and that’s, I think towards the tail end of business apps specifically, I really started learning the importance of building a bench, having a real team to help you. So it looks like you’re light year’s is ahead of me, if you’re managing 500 people and you’re rarely… Yeah, go ahead. Well,

Mark Davis:
Well I’ve got CEOs on each company, they’re doing it, but yeah, it’s just about good people in the middle. There was an article I read a long time ago that was making a comment that the people who are most successful tend to have an internal feedback loop, they make mistakes, they beat themselves up, dissect what happened and learn. Do you find you’re having an internal coaching conversation after you screw something up?

Andrew Gazdecki:
I’m trying to think about a recent mistake. I wake up early, so I’ll just go through like routine with you, maybe we can pull something out of here. I live on your time zone, I go to bed at 8:00/9:00 and then I wake up at 4:00/5:00. So I have a lot of time to look at my calendar, look at my day, reflect on the past day, especially on the weekends, I’ll do a calendar audit. I’m a big advocate of trying to work in your zone of genius as much as possible just because to go the distance like you have to build the business around a life that you can endure for a decade otherwise you’re just going to burn out or you’re going to build a job and company that you hate working at.

Andrew Gazdecki:
So I ruthlessly tried to just do fun podcasts like this, figure out ways to hand off one of my team and empower them. Because also delegation is hard, but at the same time you build a better company because when people join companies, they want to grow too. So it helps everybody. It helps you as the founder and then you delegate to someone now they feel empowered. So now they’re probably going to, if you do your job right and you’re not a rude person or something like that, you’re helping them grow professionally in their career, their tenure is going to be longer. So in terms of an internal feedback loop, I don’t have a formal one. I’ve done some anonymous 360 reviews with my whole team, where you just give me your honest feedback on how I’m doing. I think that’s really important for me, is just let me know my blind spots. Where am I weak? Where am I strong? I can tell you where I’m weak, if you’re curious.

Mark Davis:
Yeah tell me, what are your blind spots?

Andrew Gazdecki:
I’m a ready and fire type guy, so literally good idea is going out today and then my team will kind of hold me by the shirt like, “Whoa, wait.”

Mark Davis:
Classic entrepreneur, love it.

Andrew Gazdecki:
Yeah, and then also just like on the weekends, I’ll have the best ideas and I’ll have them prescheduled to send at a certain time on Monday, I’m kind of that type of person. I love startup so much, and I love moving, I love momentum, I talk about speed of execution a lot because I believe that to be the biggest, if not the main driver of… Or the biggest advantage startups have. So that’s my biggest weakness, and then my biggest strength from my team would be culture building, just creating a fun environment that people trust and feel safe in.

Andrew Gazdecki:
And I can forward you the email if you don’t believe me, I also have a…

Mark Davis:
I believe you, yeah.

Andrew Gazdecki:
I have a CEO coach that ran it for me and it was really enlightening and I recommend a lot of entrepreneurs do the same, because you’ll hear good feedback and that could be your feedback loop. Like, “Hey you did this, this one time.” And sometimes it could sting, but I’ve always found that A players… Let’s go here, this is just kind of a random tangent, but the quote, “Hire great people and leave them alone.” I don’t personally subscribe to that at all, I’ve always found that A players want to know, they want to know what they’re doing wrong more than anything, they want constructive feedback. They want to know how to get better. They want to know where they stand with you. They do not want to be left alone. So when I get my feedback, I want to know where I suck, I want to know what I’m doing wrong, and it’s nothing personal, it’s just stuff that I need to work on. What’s your thoughts on that?

Mark Davis:
I agree on it, I think there’s a big difference between delegation and abdication. I think abdication isn’t the way to build a high functioning organization. I think you need to give people the space to not only do, but to think and to guide, but you do need to provide them with your input and bumper rails and support along the way and then it goes both ways. I view my job as one where I support my partners, I support the entrepreneurs we invest in. I view myself as a person whose job is to help everyone else be successful in their jobs, and if everyone goes up that chain, eventually we’ve got a really high functioning organization.

Mark Davis:
The way I can get better, the same as you is I ask for a lot of feedback from everyone I work with I don’t care what title there is, they have or where they are in the organization. I feel everyone’s teaching everybody something and when you stop paying attention, you stop learning and that’s when you start to get timed out in this game. I love when people on my team tell me, hey, I sucked at that. “Hey Mark, you really screw that up. Let’s change this, this and that.” Some people are more confident doing it than others, I know there’s a power dynamic when someone’s at the top of the organization, but I’m grateful for it. So I think not everyone is, but I think it’s an important part of being in this long term and getting better, no one’s perfect.

Andrew Gazdecki:
That’s why you’re badass, I want to come work for you now, Mark.

Mark Davis:
Likewise.

Andrew Gazdecki:
I got a couple more questions. This is just a total question on the top of my head. What’s a quote that a similar, maybe common view, that I think a lot of entrepreneurs have that maybe you might disagree with. I know that’s a hard one so I’ll give you…

Mark Davis:
Like you, I have many weaknesses, my worst of all my things is my memory and recall so I write everything down. I’ll take a layup, I’ll actually take the thing you said before. I think there is an ongoing debate and it’s probably frivolous to have it, about whether it’s the idea or the team, and everyone will say… One of the phrases is, ideas are a dime, a dozen, it’s all about execution. Well, I agree with the execution part, but there are a lot of really smart, competent execute operators executing against really stupid ideas, and they’re running into a brick wall, and the team thing holds presuming that the team will figure out an idea is bad, and innovate and get to a good one.

Mark Davis:
But I do believe ideas have a lot of value, and so when I’m looking at companies to start and everything else, I think you got to have it all. You got to have everything and that’s why there’s such a low success rate in startups, is because you can’t will it to be with one dimension of what makes a company great. You have a shot of willing to be when you have every dimension lined up, otherwise it would be a lot easier.

Andrew Gazdecki:
WI completely agree with that, and I think it comes in interesting cases and just from pulling up my past business apps, I didn’t have any experience at all. I literally had no sales experience, marketing experience, but it worked out because… This is my next question. What would you say the most important factor is in terms of a startup succeeding? And there’s actually a scientific research that’s been done around this, so I’d get your take and I’ll share you…

Mark Davis:
Yeah, I’m sure someone has a better answer. I’ll answer a couple ways and these will be my guts. I think you need all of the ingredients of real idea, someone’s business model, everything else, market, you need all of that. The team is the number one thing that’s the fixed item typically, that you don’t want to be read adjusting early on. Within a team, the characteristics that I think make people really successful as entrepreneurs, all three things that you have in spades and why you were probably successful despite having no experience in college, it’s humility, organizational skills and work ethic. And if you have those three things, you’ll keep pedaling and people will tell you to turn left and right, and you’ll learn and you’ll figure it out. Any of those three can be a major weakling in the game.

Mark Davis:
The one I’ll add to this question, which is probably not in the study or commonly asked about or talked about, is I also think in our venture backed world, how you finance your company is a big determinant of how much money the entrepreneur actually makes. Now that may not be the definition of success. It might be how big the company is, but a lot of entrepreneurs are out there trying to raise venture capital when they have businesses that should not raise venture capital. And I do think there is a framework for how to look at this, I feel like it’s my greatest thought piece contribution to the ecosystem. It’s first chapter in my book and there’s a business school or two that teaches it now, but I create a little two by two…

Andrew Gazdecki:
I’ve read it.

Mark Davis:
…that gets into this. Wow, you read it. I’m sorry.

Andrew Gazdecki:
No, it was great and I agree with you. Yeah, I think a lot of entrepreneurs tend to focus on, raise capital, get in these magazines, hire a bunch of people, blow their companies up, negative unit economics. And they’re not really building a business, they’re really just in the business of raising venture capital, and I think that can lead to some bad outcomes. So I agree with you there completely, but I’m going to go back to the first piece.

Mark Davis:
What’s the answer?

Andrew Gazdecki:
In terms of what it is?

Mark Davis:
Yeah.

Andrew Gazdecki:
So there’s a really good TED Talk and it goes over analysis of all these different companies that succeeded and failed, all the same business model, all well funded, stellar teams, and as market timing. So bringing back my original example I would like to think I worked really hard, but it was also right place, right time, iPhone just came out. So that’s where you can say market timing with a great idea with a [inaudible 00:46:18] Obviously a great team will take it way farther, but market time, the best example would probably be YouTube didn’t take off until flash cloud for smaller video sizes but there’s multiple attempts for that. There’s a number of different businesses, I think you could probably go through your entire portfolio and look at businesses…

Mark Davis:
Facebooks before Facebook that ate it because the bandwidth wasn’t there, I have some friends who are some of those founders.

Andrew Gazdecki:
Yeah. Are you talking about Friendster?

Mark Davis:
Even before yeah, there’s a…

Andrew Gazdecki:
I read this great post on Friendster, the number one reason that they failed, and look this up if you’re listening, but they had amassed so much technical debt, and the founders were seduced into the… They were just basically at every event talking about their business and they weren’t really focused on the business per se. This was a core post, I believe from someone deep in the company, but really fascinating post in terms of their timing was a little early and building things as you know, 10 years ago, it was way harder than it is today. And I think technical debt slowed Friendster down to a point where it was almost unusable, and everybody moved to MySpace and then everybody moves to Facebook. It’s a total tangent, but…

Mark Davis:
That’s okay, but I want to come back to the main point. I’m going to make an academic argument. So it’s not worth too much discussion probably.

Andrew Gazdecki:
Don’t look at me.

Mark Davis:
Fair. But no look, market timing, isn’t that part of the idea? It’s not just what you’re building, it’s when you’re building it, how it fits into the ecosystem, whether the technology can support it. Isn’t Acquire happening at the right time?

Andrew Gazdecki:
Yeah. If I ever get a quote, this is the quote I want.

Mark Davis:
Here we go.

Andrew Gazdecki:
As an entrepreneur you should make a non obvious bet to everybody else that’s obvious to you, that will become obvious over time. So what you’re doing, and this was part of Acquire, I thought there’s going to be a lot more businesses being created to starters who are being democratized. Entrepreneurship through acquisition seems to be a trend that’s rising, started reading about a lot of people building a hundred million, billion dollar plus portfolios of companies that weren’t Google, Apple, Facebook, the typical people or companies you think of acquiring. And I said, “This is going to be a thing. Instead of just starting businesses, you can buy one, and then people are creating more online businesses than ever and they’re going to need a place to some.” So that was obvious to me. Obviously you can always get it wrong, but you’re making a bet and I made that bet, and sometimes you get it right, sometimes you get it wrong.

Mark Davis:
Right, but part of the idea, there was the timing. I mean, if you had tried to start this company in 2001, when the market’s falling apart, there’s not tons of internet adoption. People are worried about privacy at a different level, they’re not going to share company information, no shot. So you’re writing a macro wave. So I think the idea is this is not the common viewpoint in the starter community, but I think ideas are super valuable and super important, and I think they can really unlock the potential of a great operator.

Andrew Gazdecki:
I agree with that. Well, Mark, I know we’re getting to the end of our time here. Anything else you wanted to add to this conversation? This has been super fun, just off the cuff, always love chatting with you.

Mark Davis:
I’d love to be in here, I appreciate it. For everyone listening if you’re not using Acquire yet you should be telling all of your friends about it.

Andrew Gazdecki:
No, you got to plug yourself, man. So Mark…

Mark Davis:
You sell me, I’ll sell you.

Andrew Gazdecki:
For everybody listening, if they want to learn more about Interplay or yourself where can they find you?

Mark Davis:
Okay, Interplay.vc you can find pretty much everything. My podcast is there, which I’ve been grateful to have andrew on. We’ve got information about the incubator, the entire program is completely transparent on the website. Our foundry, if you want to run a company, don’t have an idea, don’t know what to do, but think you got the chops, please apply. If you’re looking to raise capital for your company, that’s the front door, reach out to us. You can literally click through the website, and it will get to us and we will review it. But that’s kind of the inbound hub, and if you’re looking for a job, you want to join a portfolio company or you like what we’re doing at Interplay, everything we’ve hubbed through interplay.vc. So you can access all of it, it’s very open, it’s very accessible.

Andrew Gazdecki:
Right on. Mark, you’re awesome, thanks so much for joining me on this podcast and congrats on all your success, man. It truly is inspiring and it comes from such an authentic place so I’m routing for you man.

Mark Davis:
Appreciate you saying that,

Andrew Gazdecki:
All right man, cheers.

Mark Davis:
Thank you.