[Podcast] Backward Entrepreneur: Real Advice About Starting Your Business

Unconventional Entrepreneurship Wisdom

What does it take to go from an Idea to $20 Million?

Sure, there is a lot of advice about starting a business…

Business schools try to prepare you, many people have advice for you, but listen to those that have done it. It’s nothing like the textbooks say.

Michael has “been there, done that” taking multiple businesses from idea to exit, generating millions of dollars in the sale and acquisition. If you want to learn from anyone who is an entrepreneur, you can;t do better than Mike. Having worked with him on many of these ventures, it was a treat to get his “behind the scenes” view of decisions, operations, and disciplines that he used to start, grow, manage, and exit.

I interview Michael Stebbins about his new book, Backward Entrepreneur to explore the concept of shaping your business around your natural tendencies and the power of customer feedback. Michael shares valuable insights, drawing on personal experiences and successful strategies. From understanding customer needs to creating adaptable business models, get ready to gain practical tips and inspiration to take your entrepreneurial journey to new heights.

So grab a cup of coffee and join us as we uncover the secrets of the backward entrepreneur!

Content in this episode:

06:39 Customer perception matters, but not always right.

15:16 Selective optimism burdens with abundant ideas. Rank, give away or pursue generously.

20:22 Sustainability in business, the goal explained.

23:22 Costs to make, sell, acquire; streamline processes.

26:23 Simple way to achieve success: know your audience.

31:21 Getting the truth from customers is crucial.

42:41 Tests determine your natural tendencies; adapt business accordingly.

45:04 Delaying investments reveals hidden strategies behind success.

48:05 Pay yourself when it aids business growth.

Show Notes:

Show Transcript

Matt: Well hello and welcome to another edition of The Endless Coffee Cup podcast. As always, I’m your host, Matt Bailey. I hope you’ve got a hot, fresh cup of coffee brewed up, or tea, as in the case of our next guest, Mike Stebbins. Mike is a tea drinker, but that does not stop him from making a stop by the Endless Coffee Cup.

Mike, how are you doing today?

Mike: I’m getting caffeinated.

Matt: Great. Great. Mike, you have been on the show, but it’s been a while. I think the last time you were on my show, I was in your living room and we recorded a podcast.

Mike: There’s a photo of that somewhere.

Matt: Yeah. Yeah. So we’ve done a couple, but not recently because you’ve obviously been busy, and you have written a new book. I’m excited to talk about this on the podcast. It’s the Backwards Entrepreneur. What do you mean by a backward entrepreneur?

Mike: Funny thing too, Matt, is we did an informal poll as to whether backward plural or backward singular, was the right name and I had used backward, plural for years thinking as we were writing this, cause it took a few years to write this.

In the informal pull backward was the proper way to say it, but most people use the phrase backwards. So we ended up dropping the S and I still call it backwards entrepreneur. The name came up and I tell this it’s in the prologue in the story. It’s actually in the description on Amazon where that came up because I never put a name to this methodology I used to build companies. And, John Marshall and I had built several companies together, I don’t know which one we were at.

But Matt, we were sharing a cheap folding table, probably the one sitting here to my left. In an office with a sloping floor and bad air conditioning, and I’m typing away on my laptop, and John’s working and he says something to the effect of, you know, Michael and his charming British accent.

Matt: Oh, yes.

Mike: Which I’m not gonna try to fake

Matt: He can say anything. Yeah.

Mike: Yeah, exactly. And he says you tend to back into strategies and I was wounded John that sounds like an insult and he quickly said no not at all. He says it’s made us a fortune. He says you need to teach it to other people.

And what he was talking about was this methodology that I would before I made a product before I decided what was in the product, before I decided what the pricing was, or even how it was going to be presented, I would call people. And instead of just asking the lame question, would you buy this? To which everybody says, yes. And let’s hang up the phone.

I would say, what would you not buy, or maybe a more qualified question would be what budget would you take to buy this? And the answer for our first product ideas was typically none. I couldn’t get approval for it. Now, they’d always compliment the idea. Oh, great idea. Everybody’s polite. They just want off the phone, Matt.

They just want off the phone. They want to make you feel good and get off the phone. And so if you ask a qualifying question that gets their brain off of, I want to get off the phone. I want to make this person feel good. Then you can start getting real answers. And so I think in the example I give in the book, the situation was we were thinking we were going to teach just web analytics and courses. And folks said I wouldn’t take that from any budget. But if you taught paid search advertising, or if you taught SEO, I could take that from my advertising budget and I would buy that.

And so what happened is the customers were telling us what they would buy and how we needed to describe it to them. So they would buy it.

Their great idea or how excited we are as founders about some particular product or business idea informs what we do and what we say. And then the customers aren’t ready for that. And so we meet an untimely failure sometimes two years and two bank accounts later.

And so backing into strategies was a habit that I had formed over the years because I had seen too many failures. And I think you have to stuff your pride a little bit of excitement about your beautiful, precious idea and let potential customers walk all over it in a very honest and revealing way that basically ends up saying your precious idea isn’t going to work.

And unless you’re willing to do something in a way, that the customers or potential customers understand and are willing to part with their hard-earned money. And their internal budget fights to buy it or on the consumer side, just open the wallet and take that pain on their own budget, these things won’t come to fruition unless they tell us how we need to make it and do it. Now just a quick qualifier on that Matt, a little giveaway in the book. It says, finish this classic sentence. The customer is always what?

Matt: Wrong.

Mike: And most of the time, right?

Matt: Let me put it this way. A good friend of mine, she’s been on the podcast a couple of times, she runs an agency, and she told me the other day. She says I have no worries about losing any work to AI. She goes because my clients cannot describe what they want. And so if they can’t do it to me, they can’t do it, to ChatGPT.

Mike: So that famous attribute, the customer is always right. Is attributed to Selfridge, who it’s a department store, I think in London. At the turn of the century, give or take. And I think the intent was right. It was to take care of the customer and to make sure their perception was good. And I have to say, that statement is true always when it has to do with the customer’s perception.

You can’t argue with the customer’s perception, okay? If they feel like your company is horrible or great, it’s really hard to argue with that. However, the customer is usually wrong when it comes to how to run your business.

And so when I hear customers say, you should, you want to listen and you want to consider it. But generally, you as the founder are responsible for how you run your business, how you implement, and what you do. So while we listen to our customers as to what they will buy. And how they need to hear about our product in order to buy it. Those things are sacred, right? But how we implement and how we do that is up to us, the founders.

Matt: Yeah, absolutely. Let me take a quick step back and let’s establish a few things here. Number one, the name of the book is from idea to 20 million. And the funny thing is, as I’m reading this book. And I’m I’ve worked with you now, I think on three of the companies. So I’ve had a front-row seat to how you’ve built, managed sold, each of those ventures.

So you’ve got the credibility when it comes to building a business. You’re exiting the business and you’re bringing a completely different way of approach. I almost have an anti-MBA approach. So you know, Mike, what’s your credibility in this field? What gives you the authority to write this book?

Mike: First off, when you need authority, my answer to people is to take it. That’s another matter. You start a certification body, what were your qualifications for that? We asked where the certification body was. And then you fulfill it. One of the qualifiers in the book is the 20 million part. And that is an accurate number in terms of the valuation of some of the businesses that have been acquired.

In some cases I would just put it this way, we were lucky to reinvest some of the payout in the combined entity, and that paid off well. But I put that top limit on it because really that’s the limit of my expertise. Taking a company public to the tunes of hundreds of millions, getting venture capital, and a, 300 X return that’s not my expertise.

I’m a big fan. I love watching people do that, but that isn’t really what I wanted to share. What I wanted to share was in the, lower to the middle niche of something that, works well. In fact, you’ll see in the scaling section that, I’m a little bit cautious about VC venture capital investment. I’m not against it, but it definitely has its costs.

But in terms of the companies, we can start with, I grew up in a family that had an independent business. As I revealed for the first time on one of your earlier podcasts, my earliest career was as an auto mechanic.

And watched Dad run the family business and it was successful. Lots of employees, lots of happy customers. Lease payments, parts, inventory, payroll taxes, EPA containment of chemicals, government regulation. And it’s just got a rooting in that.

Then Matt, I had kids and even though I had just this eagerness to run my own thing, I decided to wait until the kids were 18 before I ran my own company. So I was involved in large companies. Silicon Graphics, Fujitsu, small companies, startups, but usually in an executive role. Okay. Never CEO. I joined ClickTrax, I believe it was in 2004. John Marshall was CEO of ClickTrax. I think that’s probably about the time you and I met.

My role at ClickTrax was to grow it to acquisition. But John was CEO, he carried the burden. And so together we built that to acquisition. Halsey, I think it was J. L. Halsey who bought that for close to the number that’s mentioned in the book there. That’s publicized. And then when we got that acquired, it was really cute because at the closing dinner, Lisa, John’s wife, puts her hand on mine and she says, Michael, thank you.

She goes, you’ve done really well for us. And she said the next one’s yours. She said I want my husband back. And I just really thought that was a neat thing. And it also thought left the burden or the weight of the burden of being the CEO or the main, leader of an entity was pretty heavy, right?

We started market motive together. Switched roles this time John was COO, I believe I mean something, right? We had quite an overlap in our skills, which was good and bad. Built that to acquisition. During that time I went out and acquired a website called Brainwaves Toys. We have a warehouse here in Santa Cruz County, that sells education toys.

And I don’t know if you worked with that site, but a lot of the things we were teaching in market motive became the basis for digital marketing for this e-commerce company. And it also was the pin cushion voodoo test. So we got it banned from Twitter, it was just, that we tested all the limits, but somehow it climbed articles were written about it.

It was doing so well, Matt, that we had to sell it. Because we were losing our Christmases and shipping toys, and it was distracting us. Like a good idea will distract you from your main objective. And so we sold it for a very favorable multiple, and market motive was acquired. That’s pretty much, public news.

From that, I started OMCP and grew that for four years or more. And that became a standards body. Quite ubiquitous. A lot of universities, you contributed quite a bit to that, Matt. I appreciate that. And it’s time for another venture. And so that one, I wanted a group who had really, taken it to the next level in terms of community.

And that was NISM. So they acquired OMCP, I think it was last October. And great relationship with Jennifer and the NISM folks. They were the right people to take it. I’m really pleased to see it growing much faster than it would have with my partial attention. So those are the companies I can talk about. The rest of them have been clients that we’ve helped grow the companies to acquisition. And I think there are a few more on the horizon.

Matt: Cool. I know every time you and I get together, we probably spend at least half a day just telling each other our ideas. And it’s one of the things I look forward to, Stacey knows that as well as every once in a while. She just blurts out. She’s you just need to sit down with Mike. That’s why you guys just need some time together.

Mike: Out on the deck.

Matt: Yeah, your head’s just filling up with all this stuff and that’s what you’re doing in the book is, one of the things is you have a lot of ideas and you need to have them shot down. You need to have, someone there to poke holes in them.

Otherwise, like you said, you just become so much in love with them. That important time of just, that initial reaction, and that’s what I like about what you’ve done in the book and that’s what we do together is let’s push it a little further. Let’s just not shoot it down. Let’s evaluate it and start to ask those questions, which gets to, the gauntlet. I love explaining the gauntlet. First, let’s get into some of the ideas, but then how does that lead into the gauntlet?

Mike: Yeah so first off, I realized that not everybody suffers from, addiction to ideas. Karen, my wife, noticed this on day five of a vacation. I can’t take it anymore. I’m looking at development real estate and business opportunities everywhere. And basically what I learned to do was write them down.

But it’s interesting, Matt because I’m going out and speaking on these topics. I’m teaching this kind of stuff. And when I started doing this earlier, I noticed a few people would look at their shoes when I would talk about all these ideas. And it dawned on me that not everybody has this. It’s not a gift in some ways. It’s a burden because each idea or what I call selective optimism, each idea seems like it’s going to be a winner. And it’s very painful to, have so many ideas because you don’t want them to die.

And Yeah. So the first half of chapter one, sorry, chapter two is how to rank your ideas to know which ones need attention. And by the way, the ones that don’t make it through the gauntlet, which I’ll describe in a second here, the ones that don’t make it through the gauntlet, need to be given away to somebody.

You don’t need to hide it or put it in the closet so nobody else can benefit from it. If you’re not going to pursue it, then be generous with it. And I think there was somebody who used to teach that, every business idea you have, even if it was going to be the one you pursue, share it with everybody.

That made me nervous, but the thought process behind that is sound because really it’s the bank accounts and the investment and the effort that you put into these that separate you from so many other people.

Like I say, ideas are a dime a dozen. It’s an entrepreneur’s, talent to be able to set aside all but the one. And to focus on the one it’s also an entrepreneur’s, talent to take what we imagine into reality. And that journey was a difficult one.

I get a lot of dreamers. I mentioned in the book how frustrated I would get when people would present an unvetted idea. And I called myself the benevolent grim reaper. I would shoot ideas down and I felt like I was doing people a real favor, right? But when I saw the slumped shoulders, and somebody walking away, this is when Karen piped up and she said, we want to consider a different approach. She said, maybe ask them to tell you more. And then shoot down the idea.

Matt: I love what you said about giving them away because I think also part of an entrepreneur’s makeup is developing other entrepreneurs. The reason you’re doing this is because you want to change something, you want to improve something, and that naturally extends to people. And so I love that idea of just, most of my ideas, it’s time.

I have no time to do any of that. And so I can easily shoot it down or I can run it by Stacey and she’ll shoot it down for me because I have no time to do that. I’m not allowed to do it. And yeah I love that idea of just, giving it away. Don’t just hoard it. There are like you said, there are people that would love to come up with an idea, they just need that push. Maybe not as creative, but they’ve got the tools ready. They just need, something to do.

Mike: I’m going to bring up the idea gauntlet here, so I don’t misquote it. So I’m going to search my own website here, Matt. I’m going to growingtwice. com. And, you’d think I’d have this memorized, there are four components. Here we go. They’re really simple. So there are four components to the idea gauntlet. The idea here is that we take. A business or product idea and we run it through four tests and they’re detailed more in the book, but here are the four tests. Okay.

Number one is what we call the fortified beach test. And I have to say, this is the quickest one to take down an idea, right? Is somebody else already doing this well enough? And enough means that it’s good enough for people to buy, they’re satisfied, there’s not a whole bunch of pain. Number two is what we call the sustainability test. Is it likely to be profitable to make, promote, and sell to a market that I can reach? There’s a lot in that question.

Okay. Number two, or number three, sorry, number three is a protection test. Does it need some type of protection, like a patent? And is it protectable? and then number four is the funding test. Is it probable that I can get the required capital, for this idea? And if it passes all four, then it’s likely that it’s worth your time and attention. If it doesn’t give it to somebody else.

Matt: I love those four aspects because it’s competition, it’s the future of the sustainability question, but also legal and monetary. There are four aspects of it that I think are so critical that sometimes as entrepreneurs, like you said, we get in love with the idea.

And we get focused on maybe one or two of those areas that there’s an opportunity and I love how you said this in the book because it drives me nuts when people say they’ve got a million followers, if we just get 1 percent of that, how many times have I heard that? And I have to tell people, you cannot. Look at it that way.

It’s not a simple math equation. And when you’re talking about social media, you should be looking at 0.0001 percent of those million might do something. Yeah that 1 percent is far removed from when we are today.

Mike: Yeah. And sustainable is fine. In a lot of cases, the goal here, especially from the methods from idea to 20 million isn’t necessarily to walk away, soaked with income and wealth. It’s in some cases to have a sustainable business. And I talked about that in the scalability chapter. Why do you want to scale?

In fact, that reminds me of Matt. Long ago, I was vetting and I was talking to you as one of the stakeholders in OMCP. And I said, Matt, what question would you put on an exam? You get hired. You’re going to remember this. I asked, what question would you put on the exam to measure digital marketing skills? And your answer, Mr. Flippant was why? And I’m like, that doesn’t work for multiple-choice, Matt.

But when you’re assessing scaling your business and what it’ll take to do that, that is one of the questions. Why do you want to scale it? Is it to change more lives? Is it to make more money? Do you really want to do this? Because maybe a lifestyle business is what you want. Maybe you’re at a point in your life where that is more rewarding than trying to really put the pedal to the metal. So why is a very valid question when it comes to…

Matt: That’s what I told you, it needs to be an essay. You can’t test, and here I’m going to rant about multiple-choice question tests. Because it doesn’t measure true knowledge and intent. And, a prime example is we were talking to a client. They’d been through multiple agencies, and one of the first questions I asked him, I’m like what do you want to do with this business?

What’s your goal? And he looked at me. He’s like no, one’s ever asked that. And then we found out his goal was to be acquired within three years. So I’m like, okay, SEO is out of the picture. That’s a waste of time. Everything’s got to be paid immediately and he’s just looking around. If I don’t know where you want to be, then that way, especially in this world of digital marketing, building a business, do you want to make a million? Do you want to sell? Or do you want your name to be in the headlines? When you know that, then you’re going to approach things very differently.

Mike: Yeah in the first chapter it asks that it’s like I will know I’m a successful entrepreneur when fill in the blank.

Matt: If you want to be, in the news every day, then do what Elon did. You’ll be talked about it.

Mike: You’re absolutely right. And that is actually I think that’s the first exercise in the book and in each chapter as you’ve seen Matt has little napkin-size exercises and I’m a big fan of it’s got napkins here, right? It’s a big fan of it, it needs to fit on a napkin, right? The basis for every business that I formed started with a napkin sketch.

Although I’m a successful entrepreneur, when finish the sentence, this is sustainable to make and market, with these numbers. Here’s my cost to make them. Here’s my cost to sell them. Here’s my cost to acquire. And, these should be simple, not waste a bunch of time.

In fact, that’s why a lot of times the subtitle, the book, when I change it, in descriptions and the like is the fast track to 20 million because you don’t spend a whole lot of time on this stuff. There’s a chapter in here about guiding statements.

And, people say you got to have a mission statement. You have to have a whole bunch of guiding statements and, it’s yeah, those are good. They’re important. Put them up on the wall, but don’t waste a whole bunch of time. No, you do. You do need a guiding statement, otherwise, you’re all over the place. And you, remember seeing them up on the walls at the last few companies people will waste so much time and thrash and have committee meetings and outside consultants and the like. And it says, look napkin sketch, couple of hours, have some people pay attention to this, put it up on the wall, and move on.

Matt: Yeah. And I love the story of one person who had it early. And your advice to them was, but you’re solid in your direction. You know what you want. You know what you’re doing. Don’t worry. That’s like me and it’s funny because you did this.

I think a couple of years ago, you even said to me that Matt you back into things. I was like, yeah, I do.

That was a compliment.

And I did. I took it as a compliment. But the same way, I look at those guiding statements that as a solo entrepreneur, I have much more freedom to keep in my head. I know you ask me to verbalize it, it’ll probably take me a paragraph.

And I even feel like, it’s still under constant refinement. It’s still being developed. It’s still going on. So if I put it on a wall, it’s going to be different two months later. But it’s generally the same. It’s generally the same goal and the same aim. It’s just the words are going to change how we do it or something like that. And so I love it when you say don’t stress about it. That should be a very easy thing. When someone asks you why are you doing this?

Mike: One of the simplest versions of that in the chapter is I borrowed from Rand and that was BX2Y to Why? Okay. And Avinash, who we founded some of these businesses with, taught the same thing. People need to know what to expect from you and your social persona as well. I know that when I go read something written by Avinash, it’s going to be the clever application of analytics to a business strategy.

Very reliable, very good stuff. I’m sure we could name a bunch of other people where we know what to expect. So the simplest one is to which audience. Am I what solution? And you can put that on the wall.

Fits on a napkin. And then move on. It’s a fast track to 20 million because after doing this so many times and helping others do it, you learn very quickly what sucks up the time and doesn’t need to. And you can set those things aside or at least give them a nod and then pay attention to them later as you build out.

Matt: Yeah. Absolutely. And one of the things that has always impressed me, I love the story you gave about when you were at MarketMotive. And you just started calling students and talking to them. Why did you sign up? And I love it because it was a beautiful case study in research and that’s the advice that you give in the book.

And it’s something you do, which is talking to people. And I think part of the reason people hesitate to do that is because, like you said, they come up with a very basic question. One that doesn’t challenge, one that doesn’t create thought. You really are good at coming up with questions.

The questions you pose in the book. The questions that you’ve always asked. And I love the story of talking to students and the assumption was they signed up in January, and February, cause it was a brand new year. But the reality, and I tell this all the time, was that they just got through being with a month or two of family and they wanted to change their life because they were being compared to an older brother, and older sister.

I share that story, especially when I’m over in the Middle East, I’ll share that story and that means something to them because it a very much a part of their culture of, your older brother’s a doctor. Boy, that resonates with people, but it’s because you asked the right questions and you were actually talking to customers. How important is that?

Mike: I don’t think there’s any incubator or business advisor who doesn’t recommend talking to customers, but the key is the way we ask the questions. And by the way that? I teach in the book is not the only way. There are other great ways to do this. It’s just what worked for me.

So to answer the question, it’s the way you ask, that gets the brain away from thinking about the question. Here’s an example. Actually, I opened a lot of my sessions with this. When I hire, I will ask somebody, what are three things that would cause you to get up, throw down your laptop, and walk out of this business forever? Okay.

And after the protest, I’d never do that. I’m responding blah blah blah. So the first one is always I would call it reading off the card, right? Oh, if somebody was abusive or if there was something, that was a lack of integrity or something like that It’s okay. good.

What’s the second one? And then, the people who really did their research can read off the second card. But when you get to the third one, almost every time, Matt, the eyes go up and to the left, and they actually have to immerse themselves into the feelings and the scenarios of what would really rankle them enough to get up and leave. And one gal said, man, if there was a smell of food, or if I had to work in cubicles. Look up over the sea of cubicles as somebody is burning popcorn in the kitchen. And I’m like, you’re not going to be happy.

Mike: So it’s the same thing when we’re doing research and asking questions about a product or why something is important to somebody. A good example is asking a potential customer to first off you say, think of somebody important in your life. You don’t need to tell me their name, right? But it’s a cousin, a sister, your mom, whatever. How would you teach them to decide how to buy this product? Now what’s happening in the brain is they’re thinking of their sister or their mom. And there’s concern, there’s empathy, there’s care, and it takes away from the, I’m just going to say the right thing and move on, okay.

And all of a sudden they have this vision, hopefully, not always, but most of the time they have this vision of teaching their mom how to buy the widget that you’re selling. And your mom makes sure if you buy a garage door opener that it has the little sensors to make sure that if little Mikey walks under, it’s not going to close on him. Now you’re hearing the real stuff. Okay.

And so it’s not only talking to customers about how you ask and what we’re doing is getting the brain into a state where it’s telling us the truth. And not trying to get off the phone with the right answer and that’s such a strong motivation for people. If you have any kind of reputation and you’re on the phone with somebody or they’re wowed, oh, it’s an executive at this company or their startup, they’re calling me the customer, anything like that.

People just have this innate need to please or to, inject their own ego or opinion into it. You should, or something like that. So I laid out in the book specific methodologies for how to extract those things. And to get that emotional, unfiltered answer that helps you decide what you do and what you say about what you do.

Somebody pointed out, I think it was Rand who reviewed the book, he said to be aware, and somebody else actually here in Santa Cruz pointed out, they said to be aware that not everybody has the time and ability to do this kind of survey. And even though the CEO and the founders should talk to customers, it is an option for them to hire expert help to do this with them and for them.

And to be honest I hadn’t really encountered that I was me I was always fighting tooth and nail and by the way, a lot of founders will not want to do this to do the customer calls and I would do it with them. But it was a valid point. In case somebody is really struggling, you go through the book. You, I think I added it in there, but go through the questions and you’re really struggling to get potential customers to talk to you in that emotional state, that unfiltered state, then, maybe consider having somebody help you.

Matt: We’ve even done podcasts about how to ask questions. I think it’s a skill like any other that has to be developed. There are frameworks you can use. To develop and you laid one out in the book, which I thought was wonderful, but it is a skill and it’s a skill that is really going to help you. It’ll help you with employees. It will help you in your day-to-day relationships. It has helped me immensely to learn how to ask the right questions with raising kids. You can maintain your emotions and ask the right questions. it is amazing what that does to relationships.

Mike: Describe the scenario that you most fear and want to avoid. Yeah. And first one might be off the card, but I’ll tell you the second one isn’t.

Matt: No, not at all. Love that one about what would make you leave because by about that third one, they’re going to find a pain point. Of something that either they did quit because of something or they’ve been in a situation where there’s fear there and that’s going to bring it out and you want to find out what that is. And it also helps you find out what’s going to motivate this person.

Mike: We do ask what would make you stay forever, by the way.

Matt: If someone says, I don’t get recognized for the work I’m doing. You flip that around, they need recognition. And that’s a big pleaser right there. So you can flip the questions back and forth, but get what you’re saying is, it’s, when you ask people for three things, that is a powerful method of immediately pulling them out of the immediate situation into, as you said, now the eyes are going off, I got to think of something and it moves the conversation in a completely different way.

Mike: One of the hiring questions first off, we would always have somebody interview with one of our employees before they would interview with me if that was necessary and I would tell them really get the employee to tell you what it’s like to work for me.

You may not like it. And so if they made it to my office, I’d say so what did you learn? And they said they’d always say the same thing that you change your mind a lot. It’s like I do. And so I would say, look, the goal of this is to make sure you’re happy. It is not a win-lose. I said, you’re interviewing us. Okay.

So I’d ask how many times you think you could handle your precious idea getting shot down here before you would not find it to be a comfortable place to work. And I got to tell you that it was my own little bias that if they said, Oh, endless,

Matt: Yeah.

Mike: I’m sorry. Then you have no pride in your work. But if they were honest and they said probably two or three times, then we would want to save them from the agony of working at one of my companies. Okay. But if they said between 8 to 12 times. Okay, this is somebody who has some maturity, they’re able to separate their identity from a good idea, or maybe even able to fight for their idea and be persuasive. But to me, that was a sweet spot. Now, there are all kinds of flaws in that questioning system, but it would generally give us a trend.

Is this person ready to work at a company where our methodologies change dynamically? And why do they change dynamically? Because we’re backing into strategies.

Matt: Yeah and that’s a thing as the founder. Let me ask you that same question, Mike, how many times were your ideas shut down as the CEO?

Mike: Not very often.

Matt: Come on now.

Mike: That’s probably why my employees were frustrated sometimes.

Matt: Come on.

Mike: No, it’s, I think customers would shut them down and the staff would definitely, we were very open to staff input, I think every Friday. If I had that right at my companies, we would meet and everybody would have a say. But the way I set it up. I said look, I will listen and weigh all of your input and it will have an effect, but you will probably not get your idea the way you see it.

And a lot of people like, I won’t say which company, but a lot of times we were on the hairy edge of making payroll. And, people come in and they come up with a very good idea that required us to spend, let’s say two million in investment. And I could not look these employees in the eye and say, we’re about to go broke, right?

Because that’s not something you’re supposed to tell them. And so their idea would get shut down. We also had a lot of people who were pushing market motives to get into the get-rich-quick schemes. I will confess for the first time on a podcast, Matt, those were tempting to me.

Matt: Oh, absolutely.

Mike: They drove me mad because I’d see my colleagues in the industry claiming to have, what was it? 10, 000 people sign up for 10,000 a year and their servers went down. And felt like I needed to believe some of this and it made me feel like I was missing out. A shiny idea goes floating by, shoot it down, focus.

And I have to tell you in those instances, it was really valuable to have good co-founders. Because they would look at me and John would grit his teeth sometimes and say it is hard work and dedication that gets us to that point, not a get-rich-quick scheme. Like, I needed to hear that.

Matt: Absolutely. And that’s the shiny object. That’s the panacea that especially when you’re frustrated is going to distract you. But I think overall, going back to what you said, you were honest that I’m going to listen. I’m going to consider it. And what happens may not be the form but you were honest with them, but I’m going to listen. It’s going to be a part of what we decide. And I think that honesty is what an employee wants knowing that, okay, that’s going to happen.

Mike: But there is a limit anyone should have where if every idea they come up with and they really put their heart and soul into it and it doesn’t work can be really discouraging. Now, what I would do in cases like that because I got to say in some ways, Matt, that’s what drove me to become a founder and a CEO is that I was tired of my ideas getting shot down.

And I thought I was going to go prove this myself. I got to give credit to the last one of the companies that I worked for before I ventured out on my own, called me and complimented me. He said, Michael, he goes, I got to congratulate you. You beat us at our own game. And he said you had all these ideas.

What a big person to do that. That was Dr. Frank DeRemer did that. May he rest in peace. He passed away years ago, but he was the founder of a company called Metaware, a compiler company. And that’s driving me mad, Matt, in these meetings. I always felt like I was in the wrong meeting because I’m like, that’s not the way this should work. We should do X.

So I went and did it. And it worked, I’m just touched by the memory that he was willing to acknowledge that, but yes, in these situations, if somebody really was getting shut down, I would take them aside and say, look, your idea has merit.

There are some reasons that I’m not allowed to disclose cause it would make you uncomfortable as to why I can’t implement it. And I said it’s completely unfair. I said, just, let me tell you this way. If we had good funding, we would definitely pursue that. But right now we have to focus on this one thing. And that would, they’d still be bummed, but at least they’d know it wasn’t just because of a random shootdown.

Matt: Or do you think it’s a bad idea?

Mike: Correct.

Matt: Great idea. Yeah. It’s a fantastic idea. If we had money.

Mike: If we had timing, right?

Matt: One of the things you talk about is as an entrepreneur, you talk about the thrill and the mundane. And I described having a business once as when I was a kid, we lived on a hill and the school was down the hill. And I would ride my bike to school and there were times I had a 10-speed bike and I could go down the hill without hands, and there were times where it was just a little too fast that, I know I’m going way too fast, faster than I should if something happens, I’m a mess, but yet, wow, what a feeling.

And that kind of went to what you were describing, surfing things like that, that entrepreneurship gives you this thrill, this high excitement, but there’s always a counterpart to it that tends to be ignored. And I love it that right on the onset, of the book, you’re asking, what do you hate doing? Let’s look at that.

Mike: Yeah. And here it is. I’m looking it up real quick. So it says upon success. You like how we assume success? Upon success, will your role still consist of doing what you love? And then right on the same slide, it says can you sustain the mundane until you can pay someone else to do it?

Matt: My advice to people is there are two things. Number one, when you love what you do, it’s amazing. What happens when you have to manage what you love? It’s a completely different world.

I told people when I was in the military, as soon as I, was promoted to sergeant, and I was in charge of people, in charge of things, my life changed. I hated it. I wanted to get demoted and go back out in the field. It was… it’s different to manage what you love, and not do those day-to-day activities.

Mike: Yeah. And there are some tests in the first chapter that help you decide, what your natural tendencies are. What your abilities, what your habits are, and you’ll tend to gravitate towards those. And pretty hard habits you can change, but the other things, not so much. And yeah, you can resist those, but resistance takes energy.

And so for those things that are less likely to change your natural attributes, your tendencies, you need to just acknowledge them. And shape your business around those. And that means hiring people who have the strengths where you don’t, or outsourcing them. Or, as somebody who reviewed the book pointed out, they said, oftentimes it’s important to shape a business model, like maybe solopreneur. That makes sense for your strengths. So yeah, it’s definitely, there’s a nice test in there. One of the efforts actually I won’t tell you what the surprise is. Just take the test.

Matt: Okay, we’ve got a few minutes left and I think Mike we’re gonna have to do two more to cover the rest of some of this context. I just think it’s super content. We’ve got a lot of business owners who listen we have people who are considering going into business listening and this is just because our entrepreneurship shows tend to do really well compared to others. So definitely we’re going to continue this but the one thing that jumped out to me is you know, you moved right into office space idea, mission, vision, office space.

And I love how you pointed out don’t get distracted by the big, shiny office. What are the three most important things when looking for office space, Mike?

Mike: Let’s see if I can think I can remember it. I think I said it needs to be near good food.

Matt: That, yes. Walkable distance. Walkable distance to good food, I would add. Yeah.

Mike: You know what? I’d have to look it up, Matt. Can you remind me?

Matt: Oh my goodness. Considering our early conversation before I hit, record. Good AC.

Mike: No, I described that our initial offices and almost every startup had sloping floors. We use folding tables and we had bad AC my claim was I’d do it again, except for the bad AC.

Matt: Absolutely.

Mike: Yeah. And I think the overall point there is, that you can put off so many investments. You could put off so many things that take time. I gotta tell you, there’s a scene in a movie that features Rodney Dangerfield and it’s called Back to School. And while the movie’s probably pretty trashy, there’s a scene in there where the guy, some wealthy guy portrayed by Rodney Dangerfield, is forced or volunteers to go back to school and finish school.

And he is sitting in a lecture hall. The professor’s teaching some business thing, and Dangerfield and his character are getting more and more frustrated. And finally, he bursts out and says, that isn’t the way it works at all.

And he disrupts the whole class, and the professor is very flustered, and he says, and the professor’s oh, how does it really work? And Dangerfield’s character goes first you gotta grease the palms of these guys in city council, and then everybody knows you gotta make a contribution to this union, and stuff like that.

And at first, the whole class is horrified. Okay. And then all of a sudden they realize, this is the real stuff. This is how it really works, as irreverent and as horrible as it was, and all of a sudden they all pick up their pens and start writing notes furiously because somebody who has gone the route is telling them how it really works, and I think that’s the intent in the book, is to sort out what can be delayed?

It’s get rid of the backlit logo. If you don’t need somebody sitting at a desk board in front, it’s like working out of your garage, working out of the shed in the back, working out of a cheap office until you have the means to, grow or it facilitates creativity of, your employees.

And it’s the same thing with saying other things are important. Like I cannot emphasize enough a good corporate setup with a very expensive attorney. The first 10 or 20, 000 that I had in capital for starting one of the businesses all in to the attorney.

What about your office? Eh, we were thinking of a place above an automotive shop, it was the best decision, Matt. And it’s just so it’s what are the order of priorities in backward entrepreneurs? It seemed backward. Why would you pay all of your capital to an attorney to set up your business? Granted, it had made it through the idea gauntlet, okay, and the market was validated, but at that point, no, we didn’t go shopping logos.

Matt: And it’s so easy to get distracted, especially with the high visibility office space. The latest office furniture. It amazes me and we talked a little bit about VCs that’s where VC money goes.

Mike: Yeah.

Matt: Goes to that and I love where you said that’s where things go to die.

Mike: Oh gosh. The place here in Scotts Valley. Yeah. It is so fancy. And yeah I remember it was some like three times a square foot than anything else in the county and my, it was nice.

Matt: Yeah. Yeah, And that’s where all your, capital goes. It’s just amazing when you sit down and look at the percentage of revenue and then how much goes to lease, how much goes to furniture, how much goes to these types of things that are necessary to productivity.

Mike: Or did they grow the business? It’s the same thing with, when do I pay myself? Will you pay yourself as soon and as much as you can when it doesn’t inhibit the growth of the business? When it doesn’t inhibit growth, and that means paying your employees well first, right? And are your employees productive? Then pay yourself. should you pay yourself a lot? Sure. If it doesn’t inhibit the growth of the company.

Matt: That’s great. Mike. Hey, this has been an absolutely amazing conversation. I love the book. I highly recommend it. For those of you on the video, Mike had his copy. I’ve got mine Backward Entrepreneur. I know I have to keep, I still want to say that s.

Mike: So do I. Yeah, It was for years. We were saying that, and it’s okay if you do.

Matt: Okay. All right. Even for those of you who have a business, it’s still a great read. It’s going to challenge a couple of things and it’ll probably give you some ideas for growth. Mike, thanks for taking the time to come in.

Mike: Then a pleasure always Matt.

Matt: And thank you dear listener for tuning in. I hope you have at least one cup of coffee down through this. But, stay tuned. We’re going to have Mike on a lot more. We’re going to talk through a little bit more of the principles in the book, but thank you so much for tuning in. I look forward to our next cup of coffee on the Endless Coffee Cup Podcast.