A question I ask new entrepreneurs

I’m not an investor, although I have put some money into a few friend’s businesses. What I try to be instead is a helper — an advisor with no strings attached.

If someone wants to give me some equity I may take it, but I don’t ask for it and I generally don’t want it.

If someone asks me to help, and I like them, and I think I can help them, then that’s what I’ll do. Getting anything in return turns it into a deal and an obligation. I don’t want deals or obligations— I just want to help.

If I’m considering helping a new entrepreneur I’ll often ask them if they’ve ever worked retail. In a shoe store, a grocery store, a clothing shop, front of the house in a restaurant, etc. I want to know if they’ve had to work with the public. Sell to the public. Improvise with the public on the spot.

I want to know if they’ve ever had to make someone a customer. Or watched one walk away.

No retail experience doesn’t disqualify them, but it’s a bit of a red flag for me. I like people who’ve had to sell before. I like people who’ve worked retail. There’s no better lesson in business than the experience of dealing with the public in person.

If you think presenting to an investor is hard, try convincing a 70 year old to switch shoe brands or buy a different kind of peanut butter. Or trying to explain the subtle difference between two tennis rackets to a mother who has a 2 year old melting down at her feet and tugging aggressively on her purse. Or trying to explain why your shirts are worth $10 more than the exact same ones online.

A few months ago I met a guy who was running a pop-up tea shop here in Chicago. I’m a tea guy so I dropped in to check the place out. We had a great conversation — I think I spent a couple hours there. We kept in touch.

Recently we caught up again to talk tea and business. He’s going all-in — opening up his own tea shop here in town. Not too far from where I live, thankfully. I’ll be a happy customer.

He asked me if I’d get involved. I told him I’d help. I liked him, I think he’s got a good idea, and it’s a business I’d like to see open up. He’s got something. Very tough business, it’s going to be very hard to make the economics work — and he knows that — but he’s the guy to try.

But what really impressed me was the way he was planning on using his time over the next few months before his place was ready to open. He was planning on getting part time jobs at local tea and coffee spots to sharpen his feel for how customers buy these products. Not how the shops work, but how the customers work. How the public behaves.

I like that. A guy who’s going to get a part time job as research to start a business. Part of building his business is to go to work for someone else.

I’ve met a boatload of entrepreneurs, and I can tell you many of them would see that as beneath them. Part time jobs, or working for someone else, were things they used to do. Why do that again?

I see it differently. I see humility. I see a student. I see someone devoted to learning, observing patterns, honing his senses, and sharpening his mind until it’s go time. It’s a great way for him to spend his time.

He’s the kind of guy I like to help.

Warren Buffet on scheduling meetings

photo by Michael Prince for Forbes

I recently heard about Warren Buffet’s approach to scheduling meetings. I can’t confirm this is true (I’ve never met him), but I hear from a reputable source that he usually doesn’t set up meetings more than a day in advance.

If someone wants to see him, they are told to call and set up the meeting when they can see him tomorrow. So if you want to meet with him next Friday, you call next Thursday and say “Can I see Mr. Buffet tomorrow?”

I love the simplicity of the rule: I can see you today if you asked me yesterday, but I can’t fill up my schedule any further in advance. This way he can determine how he wants to spend his time within the context of the next 24 hours instead of booking things weeks or months in the future. Now his schedule is relevant instead of prescient.

I’m sure many people will say “well, he’s Warren Buffet so he can do that”. Yes he’s Warren Buffet, but no one granted him the power to do that or say that. He decided that.

How much is Basecamp worth? I don’t know and I don’t care.

I was recently speaking to a class at a local university and the topic of valuations came up. One student asked me what our valuation was. I gave her the honest answer: I haven’t a clue.

How is it possible that a successful software company today doesn’t know its worth? A valuation is what other people think your business is worth. I’ve only ever been interested in what our company is worth to us.

Startups these days are bantered about as if they were in a fantasy football bracket. Did you hear Lyft raised another $150 million at a $2.5 billion valuation? But Uber got tossed another $2.8 billion at a $41.2 billion valuation! Then there are the companies barely off the ground getting VC backing with 25x valuations, despite having no product or business model.

Entrepreneurs by nature are competitive. But fundraising has become the sport in place of the nuts and bolts of building a sustainable business.

The last time I considered Basecamp’s valuation was nearly a decade ago. We’d been approached by dozens of VC firms looking to invest. But with a solid product, a growing consumer base, and increasing profitability, we didn’t entertain any offers.

Then, in 2006, I got an email from Jeff Bezos’s personal assistant. Jeff wanted to meet. I’d long admired him for what he was building at Amazon, and how he generally sees the world. I took the meeting.

After a visit to Seattle and a few more calls, Jeff bought a small piece of our company. I didn’t take the cash out of some fantastical desire to turn Basecamp into a rocket ship. Instead, his purchasing shares from me and my co-founder took a little risk off the table and gave us direct access to the brain of one of today’s greatest living entrepreneurs.

In the years since, we’ve been approached by nearly 100 private investors, VCs, and private equity firms. They want to put money into our company, but we don’t want it. It’s not hubris; it’s the cost that comes with the cash. I want to deliver a product that our customers want, not one that our investors want. I want to grow our company according to our timetable, not one dictated by a board. For many startups, funding has worked to their detriment — unnecessarily raised stakes, a path to unnaturally rapid growth. Venture capital is not free money.

Years ago, during the investment discussion with Jeff, we had to place a financial value on our company. The process of constructing a valuation was pretty silly, to be honest. We drew up charts, made some educated guesses, negotiated back and forth, and ultimately came up with a figure. We made it up, as everyone does. Let’s just admit it right now: Financial projections are big, fat guesses. They are best-case scenarios. Since they’re hypothetical, why not pull a number out of a hat?

Jeff knows this. All investors know this. Yes, you can look at revenue and profit and multiples, but so many tech company projections these days aren’t based on anything real. They’re based on fantasy. And too often, the more profit you have, the lower your valuation is. Because nothing pops the valuation bubble like reality.

My not knowing how much our company is worth doesn’t affect our business on a daily basis. I know our revenue and our profit. I know how fast we respond to customer service inquiries and how many people signed up for Basecamp last week. Those are real numbers to me. A valuation is an invented number that ebbs and flows on the basis of how much someone else thinks you’re worth. It’s nothing more than a distraction.