B. Pagels-Minor: Achieving Real Profit Via Product-Market Fit & The SEC's New Rules, as Explained To 8th Graders - D.F.A., or Please Do... #15:
Plus, a newly-revised whitepaper that will show you how to use A.I., to find LPs!
I was first introduced to B. Pagels-Minor by my friend Matt Bradley, founder/CEO of LetsGlo. B’s career has had a really cool and interesting trajectory since 2021, and their path into the finance world is a bit like mine - B didn’t come from the traditional finance background, but instead, has tons of expertise in the product stack (Netflix), 2 years as an engineering program manager at Apple, and has done lots of really cool board of directors work (YWCA Metropolitan Chicago, Howard Brown Health).
In this newsletter, often, we focus a bit much on investing and not so much on building the great products and highly sustainable businesses that investors dream of building. Today, we’re peeling back the curtain on what really makes great companies tick. It was pleasure to sit down with B. Pagels-Minor and work through some of the toughest concepts in product development, people management, employee retention and more. Read on, and enjoy the insights.
1. Holistic Business Optimization:
You emphasize the importance of holistic optimization in business success, encompassing people management, employee retention, technical acumen, and product-market fit. Can you share some practical strategies that investors should look for in companies aiming for long-term growth?
When building a healthy businesses, there’s a drive to optimize every aspect of a company. This means continuous improvement, even in areas like employee retention. Let's examine qualities that in companies that nail business optimization:
Technical Excellence: Companies putting technical excellence front and center manage stay ahead of the curve. A shining example is Netflix. Even though their content might not outshine all competitors, they focus on improving their algorithm, delivering top-notch video quality with minimal data usage, and pioneering in other tech areas.
Putting Customers First: The up-and-coming generation has shown that what consumers want can change on a dime. Time and time again, companies that go the extra mile to make customers happy are the ones that shine the brightest in this era.
Leaders Who Care About People: The "Great Resignation" trend didn't just start with the pandemic; it's been building up for a while. Companies that focus on growing leaders who can lead dynamic, engaged teams are more valuable than those who think big paychecks or cool projects are enough.
Attracting and Keeping Top Talent: The new breed of skilled workers is probably the trickiest. They're not just looking at money, job titles, remote work options, or famous company names. So, companies that crack the code on bringing in and holding onto these employees from day one are in a league of their own.
The Non-Obvious Obvious: Operational Efficiency: Some folks were surprised when Tim Cook stepped into Apple's top spot, and some folks weren’t. But it wasn't shocking because I'd become sure that the best sign of a company's success is its focus on running smoothly. Every company eventually hits a point where its product has reached its peak audience, so focusing on efficiency is like giving yourself a launchpad for making intelligent moves that keep the company moving.
Having a Plan and Being Ready to Change: It’s not reasonable for every founder to have a 300-year plan as Softbank's CEO did, but what's clear is that companies that plan for the future from the start not only know where they're going, they're also ready to adapt when things don't go as planned. Preparing for whatever's ahead is the best way to ensure everyone's on the same page, especially during tough times.
Making a Product That Fits the Market: What separates winners from losers is how well their product fits the market. Product-market fit means customers are using your product in an explosive way, and they're willing to pay a price that makesyour product profitable. The companies that figure out what that sweet spot is for their product are the ones that can give themselves a reality check to make sure they're on track.
2. Investing in Employee Retention and People Management:
How do you see the role of employee retention and people management in driving company value? What signs should investors look for to assess a company's strength in these areas?
In the ever-evolving business landscape, the inability to properly manage human resources translates into losses exceeding $1 trillion. This often slips under the radar. Yet, propelling employee retention and nurturing professional growth has the potential to be a game-changer, reshaping a company's trajectory. Here’s how:
Curbing Turnover: While a little employee turnover is normal, especially in nascent startups with modest compensation structures, abnormally high attrition often signals deeper cultural problems.
Fostering a Supportive Culture: When dissecting a company's dedication to enabling its workforce, I delve into employee surveys, Glassdoor reviews, and online interactions. The existence of a psychologically safe space, where dissent is welcomed, and individuals feel at ease, bodes well for future success.
Nurturing Professional Advancement: The lack of growth avenues frequently precipitates departures. Especially in startups with lean hierarchies, companies that facilitate diversification of skills across employees, enhancing their value and job satisfaction, shine through.
Competing with Rewards: Drawing from my nonprofit experience, I scrutinize how companies tackle this facet. An anecdote springs to mind: a CEO ingeniously converted credit card points into gift cards, a testament to firms' resourcefulness to acknowledge and retain talent.
Effective Leadership: A well-known adage remains pertinent: Employees tend to leave poor managers rather than companies. This underscores the significance of nurturing proficient leaders. Startups buoyed by capable leaders retain their teams and bolster their chances of attaining the elusive Product-Market Fit.
3. Evaluating Product-Market Fit:
Product-market fit is often cited as a critical factor in a company's success. From an investor's perspective, how can one evaluate a company's product-market fit, and what are the potential risks and rewards associated with investing in companies at different stages of achieving this fit?
Mthoughts immediately gravitate toward the intriguing case of Clubhouse. During the early phases of the pandemic, there was palpable anticipation that Clubhouse could potentially overthrow giants like Facebook and Twitter.
Yet, today, its prominence has fallen. This serves as a poignant reminder that relying on the buzz surrounding an app warrants caution. It underscores the necessity for a systematic approach to distinguish between fleeting trends and ventures with real potential. It's akin to adopting the Warren Buffet school of thought in business assessment. As I delve into company evaluations, several factors invariably come to the forefront:
Addressing Genuine Needs: While the allure of moonshot concepts is undeniable, products that consistently tackle everyday challenges perform reliably across diverse market conditions, usually. HI lean toward businesses that address big pain points within a discernible market.
Market Dynamics: Navigating market demand is nuanced. It often defies simple categorization. I’ve invested in a software firm that specializes in high-definition camera lenses for drones. Although their customer base might be relatively modest, their potential revenue could be billions. Here, the essence of market demand encompasses the financial potential and the innovative approach to problem-solving.
Endorsement from Customers: A cardinal principle is to engage directly with users who have experienced the product firsthand. The goal’s is to identify individuals who get tangible value from the product while avidly discussing ways to enhance it further. The degree of customer excitement and engagement serves as a strong indicator ofhow sticky the product is.
Differentiation in the Market: Discerning the company's unique positioning vis-à-vis competitors is pivotal. It’s equally crucial to evaluate the potential for attaining superior product-market fit versus their rivals.
Robust Sales Pipeline: At the heart of it, confidence in the product's trajectory hinges on a burgeoning customer base eagerly awaiting expansion opportunities.
Qualitative Usage Metrics: Beyond the quantitative data, delving into qualitative aspects with numerical metrics yields profound insights. For instance, consider ChatGPT. While its daily user numbers might not have skyrocketed in the past quarter, nuanced data reveals a surge in query types and volume within the same user cohort. This signposts the fine-tuning of the ideal customer profile and signifies the ability to hone in on monetizable features.
4. Impact of the Dave Chappelle Incident on Netflix and American Workplaces:
The incident involving Dave Chappelle sparked discussions about LGBTQIA representation and inclusivity. In your view, did this incident create any lasting change within Netflix or American workplaces at large for LGBTQIA employees? What lessons can be drawn from this situation?
Around six months after the incident, Netflix revised its culture memo and other documents to mirror its updated stance on numerous subjects. While some interpreted this as a setback, I saw it as an overdue clarification of their support for LGBTQIA employees. There’s a growing trend for companies to overtly delineate their positions on backing LGBTQIA employees, which enhances transparency about which workplaces genuinely offer security and which do not. It's disheartening to witness the company I was once enthusiastic about working for transforming so dramatically. However, such transparency might never have emerged without the incident.
Distilling many lessons from this episode is complex, but one prevailing insight is the ongoing rebellion of workers, which holds significant significance. Employees aren't solely contributors; they are also consumers and often stakeholders in their organizations. Thus, there's a valid impetus for workers to challenge the status quo and hold their employers to account. Surrendering the endeavor to propel companies forward would be a misstep, as the surge in consumer activism underscores that consumers will take up the mantle; if we don't actively act, consumers will take up the mantle.
Simultaneously, we observe the stark disparities in opinions on addressing historically biased content, raising questions about whether present-day decisions alienate or garner support for companies. In this context, it's surprising that more companies aren't concerned about how Gen Z will scrutinize their conduct, given that this cohort is graduating and poised to become the predominant consumer demographic. Additionally, studies indicate that up to 1 in 6 of Gen Z identifies as LGBTQIA, suggesting that this generation, potentially the largest in history, will be less tolerant of employers or products with a tarnished record concerning this community.
The Dave Chappelle incident catalyzed broader conversations on inclusivity and the evolving dynamics between companies and their workforce in a world marked by growing social consciousness.
5. Balancing Ethical Considerations with Business Growth: While ethics may not be your primary focus, it's an area that many investors are increasingly considering. How do you see ethical considerations fitting into the broader picture of business optimization and growth? Are there ways that ethical alignment can contribute to long-term success?
The recent setbacks, including the high-profile collapse of FTX and other prominent startups, along with the unraveling of Ponzi schemes like Bernie Madoff's, have underscored the urgent need for increased transparency within the investment industry.. The historical landscape has often allowed opacity, hiding the true workings of the investment realm. Observing these developments, I advocate for enhanced moral obligations to foster transparency. Recent SEC proposals targeting the venture capital domain resonate deeply with me. Investors are entitled to clear-cut insights into the entities they entrust their capital to.
This philosophy has been the bedrock upon which DVRGNT Ventures was fashioned. My initial forays into setting up the firm revolved around consultations with back-office service providers, seeking solutions to ensure my investors gained unfettered visibility into the intricacies of their investments. I believe this commitment to transparency will be a defining hallmark for premier firms in the long run. After all, if the sole objective were to fulfill fiduciary responsibilities by securing substantial returns for investors, there would be no rationale for withholding transparency.
In a landscape where ethical considerations and financial prudence converge, the current landscape underscores the necessity for candid insights and the imperative forging a future defined by accountability and open communication.
A New Whitepaper To Show You How To Use AI to Find LPs!
At this point, there are eight investment funds working with Lead Zeppelin, and these clients have raised a total of $40M. It’s a big decision, deciding to work with a third party, to help your team get LPs or investors for your fund or investment vehicle.
The “secret sauce”? It’s pretty simple. Lead Zeppelin uses a lot of A.I. in the demand generation and lead generation stack. If you’d like to learn how it’s done, and also learn a number of prompts that you can use, here’s the whitepaper that spells it out.
The way it works is simple. Clients choose a plan, and then every day they receive somewhere between 1 and 2 prospective investors each day, and then meet with those investors on Zoom or in-person. These investors are typically LPs, UHNWis, family offices, depending on the precise personas the firm has specified.
To see how we do it, check out this whitepaper. The investment firms typically do a brief intake call to get to know the potential investor, and if it’s a good mutual fit, they continue the conversation.
To learn more, feel free to check out Lead Zeppelin’s pricing page or book an intake call.
The Top 10 New SEC Rules That Empower LPs, As Explained To Eighth Graders
Portrait of the author as a young Metallica Fan (8th grade), 1990
I saw the new piece from Pitchbook the other day, and thought it was pretty insightful, and it definitely had some key insights about how the pending SEC rules can strengthen LP power in your fund.
That said, I didn't really think it was too easily digestible to a room full of 14-year-olds, and believe me, most of my founder and investor buddies have the attention span of 14-year-olds.
So, I sat down with my man Jeep (my nickname for Chat-GPT) and we hammered out some distinct and simple explanations for the rules, and now all of the teenagers in your life will understand them too.
1. Prohibition on Preferential Terms: *No Special Treats for Some Friends*
- The new rule says you can't give extra candy to just one friend if it means less candy for everyone else. This is to make sure it's fair for everyone. The SEC's concern here is that they want to make sure that fund managers don't give special deals to certain investors (Limited Partners or LPs) that could hurt other investors in the fund.
2. Quarterly Financial Statements: *Report Cards Every 3 Months*
- Fund managers have to give a "report card" to their investors every three months. This report card will show how the money is doing.
3. Fairness or Valuation Opinion: *Get a Second Opinion for Big Trades*
- If a fund manager wants to make a big trade, they have to ask an expert if it's a fair deal. It's like asking a teacher to check your homework before you turn it in.
4. Liability Rule Removed: *No Blaming Others for Mistakes*
- Originally, there was a rule that would have made fund managers get in big trouble if they made a mistake. But that rule got taken out, so they won't get in as much trouble now. Does this mean that there are some things that can go wrong? Heck yeah! There's now less accountability, greater investor risk, trust issues because fund managers aren't being held to the same legal standards as they were before, greater potential for unethical behavior, and if enough fund managers act unethically, there's even potential for market instability.
5. Material Negative Effect: *Be Clear About What's "Bad"*
- The new rule talks about things that could be "bad" for investors but doesn't clearly say what "bad" means. It's like a teacher saying "don't be disruptive" but not explaining what that means.
6. Disclosure and Exceptions: *Tell Everyone the Rules*
- If a fund manager wants to give special treatment to one investor, they have to tell everyone and offer it to everyone. It's like if a teacher has extra credit, they have to offer it to the whole class.
7. Legacy Provision: *Old Deals Are Safe*
- If you made a deal with your friends last year to trade snacks, you don't have to change it because of new cafeteria rules. The same goes for fund managers; old deals with investors don't have to change.
8. Transparency in LP-GP Power Balance: *Everyone Knows the Game*
- The new rules make it so everyone knows what kinds of deals are being made. It's like if everyone in a game knows the rules, so it's fair for everyone.
9. Additional Reporting Requirements: *Show All the Costs*
- Fund managers have to show all the costs involved, like if you have to show your parents all the candy you traded and what you got in return.
10. Restricted Activities and Exceptions: *Some Rules Can Be Bent, With Permission*
- Some things that were not allowed before can be okay now if everyone agrees. It's like saying, "Okay, you can trade your dessert, but only if everyone in the family agrees it's fair."
We hope you enjoyed this excerpt from the Lead Zeppelin blog and that you had a happy and safe Labor Day. See you next week!