Bill Gross, is an original gangsta of LA tech and entrepreneurship. Gross gave the keynote to today’s LA Demo Day entitled, “The Best Advice I’ve Ever Received.”
The inaugural event was one that brought together more than 1,500 members of the Los Angeles startup and technology ecosystem and gave the stage to 16 startups to pitch investors and recruit employees and users. The 16 judges that rotated through four panels included a local who’s who of LA VCs, angels, and successful entrepreneurs (more on these companies in a later post).
In the last 40 years, Gross has founded and invested in more than 100 companies, the majority of which occurred within his Pasadena incubator, IdeaLab. Sixty of those companies were successful, with 35 IPOs or acquisitions and 25 more currently operating within IdeaLab. All told, Gross’s companies have raised more than $3.5 billion of total financing.
What this all boils down to is experience and perspective. Gross shared that wisdom in five salient pieces of advice for startup entrepreneurs and some interesting stories around each.
1. Test, Test, Test
Long before the Lean Startup movement gained popularity, Gross was testing his early hypotheses. As a high school student, he was able to earn $40,000 in profit and pay his way through CalTec by selling kits to make solar engines through Popular Science Magazine. The key to his success in this venture was AB-testing various $25 ad variations in the magazine’s classifieds section. Gross called it some of the earliest CPA and CPC testing.
Later in his career, he launched CarsDirect.com in 1998 to validate the hypothesis that he wasn’t the only person who would be brave enough to buy a car online. After 24-hours of the site going live, he had sold four cars at $1,000 over invoice that he didn’t even own yet. He had to then go to local dealerships and negotiate purchases that would not lose him money.
2. Find the Right Partners
Gross explained this point in terms of the investors he brought on board his companies, but it obviously extends to all manner of business partners. Throughout his early half-dozen capital raises, he focused on creating bidding wars for his company. Without fail, he then ignored the advice of his advisors each time and chose the investor who offered the best financial deal terms, regardless of other considerations.
After repeatedly learning the lesson that this was a failing model, Gross now advises all his companies to seek investors who first and foremost really believe in their goals and objectives.
3. Don’t Believe Your Own Press
This one’s fairly straightforward, although somewhat tough to hear as a member of the press. What Gross boiled it down to is when people talking about your company are saying it’s bad, it’s rarely as bad as they say. Even more so, when people are saying that you are infallible, it’s never as good as they say. We’ve all heard the clichés that startups are marathons and roller-coasters. But in terms of maintaining a sense of urgency and belief, this is some important advice.
4. Acquire Complementary Skills
Gross said that the biggest killer of companies he has started and invested in is not the idea, it’s the mix of people. Gross described four work personality types that are required to build a sustainable business as: Entrepreneur (E), Producer (P), Administrator (A), and Integrator (I). He says that the absence or excess of any one of these attributes is detrimental.
Nearly all companies start with an entrepreneur and visionary. Often times, the founder(s) have a bit of producer in them as well. Administrators typically come on later in growth cycles to add systems and procedures that are critical for long term sustainability. Lastly, but most importantly he argued, integrators are the gel of a team that allows these competing personalities to work together cohesively.
Specifically, Gross argued that IdeaLab’s greatest failure has been the lack of enough integrators who are key in balancing his strong but scattered entrepreneurial personality with that of the administrators, who he knows are essential but loathes dealing with.
5. Focus, Focus, Focus
Rather than implying that founders should socialize less and work more (although he may feel that way), Gross was pointing out that it’s often easier to sell a product that intensely appeals to a narrow market than one that loosely appeals to a broad one. Early in his career, he proved this point while selling educational software.
He discovered that parents making purchasing decisions wanted to know that the product was perfect for THEIR kid. That left his marketing slogan at the time, “Perfect for ages 8-80” dead in the water. To combat this, Gross tested a product called “Jump Start for Kindergarten” and market only to 5-year olds. This product made $5 million in its first year and lead to a franchise for each grade. When originally proposed, the idea was shot down by every sales, marketing, and finance executive at the company as being too narrow. The end result, which came to be only through testing, was the most successful product in company history.
The takeaway lesson is that a more focused product sells better. Tangentially, he said that startups can often use focus as a secret weapon to outmaneuver larger companies. Gross’ closing advice on the subject was: “Focus is always better, even if it’s the wrong focus.”