March 22, 2023

E107: Mark Achler: Venturing Into Venture Capital: An Insightful Look Into The Exit Process.

E107: Mark Achler: Venturing Into Venture Capital: An Insightful Look Into The Exit Process.

In this episode, they talked about Mark's book, Exit Right. The book focuses on how to sell a business. Mark has sold companies as a CEO, invested in over a hundred businesses, and been on dozens of boards. He also shared why some transactions fail,...

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In this episode, they talked about Mark's book, Exit Right. The book focuses on how to sell a business. Mark has sold companies as a CEO, invested in over a hundred businesses, and been on dozens of boards. He also shared why some transactions fail, what makes a good client, and more. He wanted to provide real stories and advice to help entrepreneurs navigate the process and make better decisions.

An early employee of Apple and Head of Innovation at Redbox, Mark Achler has been creating and investing in tech startups since 1986. Today, he is a founding partner of MATH Venture Partners, a technology venture capital fund, and an adjunct professor at the Northwestern Kellogg School of Management. Mert Iseri co-founded SwipeSense, a healthcare technology company acquired by SC Johnson in 2020. He also co-founded Design for America—using design thinking for social impact—which won the National Design Award in 2018. Together, they wrote Exit Right to be the definitive guide on exits, delivering the best possible results for you and your company.

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[00:00:00] Ron Skelton: Hello and welcome to How2Exit. Today we're here with Mark Achler. He is the founding partner at Math Venture Partners, which is a venture capitalist group, right? 

[00:00:11] Mark Achler: Yeah. But yeah, we invest in early stage technology companies. 

[00:00:15] Ron Skelton: Awesome. That's really cool. So, what got you into that space? Kind of, I always like to start off with origin. So I was reading on your profile, you started at Apple, but give us your origin story. How did you get into this? How did you go, get into the VC world? 

[00:00:28] Mark Achler: Yeah. So I always caution you be careful asking an old guy who has adult ADD. My joke is I think I've had a very fun and eclectic career.. And my wife thinks I can't hold a job. My dad and I started one of the very first computer retail stores in the country in 1980. So we were an Apple and IBM, independent IBM store when IBM first came out. And a couple years go by [00:01:00] and, some good buddies of mine at Apple recruited me. And I ended up being the worldwide introduction manager for the Apple IIc. This is a long, long time ago. This is 1983 and I helped, introduce the one of the original Apple two-, the Apple IIc. Came back to Chicago because my wife is from Chicago.

[00:01:23] We just had our 40th wedding anniversary. 

[00:01:26] Ron Skelton: Wow. Cool. 

[00:01:27] Mark Achler: And she said, if you wanna stay married to me, I'm gonna be in Chicago where my family is as right. And family comes first. So I moved back to Chicago and we, I became an entrepreneur. And so I started, in 1986, we started, this company that built the first object-oriented programming language for a personal computer as a second prac ever for Microsoft Windows. I was the early guy. We built that up. We took in venture capital back in, [00:02:00] 1987 when I think maybe there were 20 VC firms in the entire country. Built that up, sold it to Symantec, had a second company. The second company failed miserably. It was, educational software company we're way too early.

[00:02:14] My third company, I got really lucky. We were a, a game development tools company, and I started this company in August and we sold it in May. We had a bidding war between Intel and Sega and IBM and at the very last second, Bill Gates broker a deal between us and SoftBank, and we were SoftBank's second acquisition in the United States, this is in 1995. And I got to that point where I had the freedom and the flexibility sort of to chart my own course. I started off life, as a high school history teacher, and I had this vision, this passion that I love teaching. I love kids. And I thought, whenever I got to that place where I had a little bit of [00:03:00] freedom, I'd go back and teach.

[00:03:02] And I got to that point and I did some soul searching and I realized, what I was really good at and what really passionate about was help was being an entrepreneur and helping entrepreneurs. And I felt that the best way to leverage my experience and my capital was across multiple companies, not just one company at a time. And so I started my first venture capital fund. And in the late 1990s, 96, 97, 98, it was a lot of fun. We had some companies go public. It was the dot com days, life was good. And then of course the shoe dropped. And this was actually a really interesting story. We raised our second fund in January, we closed our second fund in January of 2000.

[00:03:53] And of course the dot com crash happened in March and we did it a couple years. We deployed about half of our [00:04:00] capital and we just realized it was brutal. It was just like it was a great time to be an investor and I'm gonna come back to today, there's some parallels to today. Because the entrepreneurs who survived were actually real entrepreneurs. They were real business people. They knew how to do more with less, the great survived valuations were significantly better terms, were better for investors. But if you didn't have enough capital to see your companies through to the other side, you were just gonna get wiped out. And we went back to our LPs, our investors, and we said, we don't believe in the model.

[00:04:39] We don't think it's working. We were gonna do something very unheard of. We released our LPs of half of their commitments and we stopped taking fees. And it would've been really easy. It would've just easy to milk it and to just kept on going and kept on taking fees. And I ended up sitting on some boards for another 11, 12 years [00:05:00] without any compensation, because it was the right thing to do for our investors, for our LPs. So then after that, I started, my fourth company, ended up being my most successful company. I was a co-founder of a healthcare company that ended up doing very, very well. And then I took a job. I was 50 years old and a good buddy of mine was the CEO of Redbox, and it was just starting to take off and he asked me to help him grow and scale the business, and I became, The Chief Innovation Officer for Redbox. I have some great stories about that. Literally we took the company from startup to over 2.5 billion in revenue in about five years.

[00:05:48] Ron Skelton: That's impressive. 

[00:05:49] Mark Achler: Crazy growth. And then I also became the interim chief marketing officer for the company, and then they had run its course and I started my next venture capital [00:06:00] fund, Math Venture Partners with a good buddy of mine. And so, I've had this really wild and eclectic career. I'm also a professor at Northwestern, at their Kellogg, their MBA school, their Kellogg School of Management. I've been doing that for 10 years and I love it. The reason why we're talking is I wrote a book called Exit Right. How to sell your business. And so I'm happy to talk to you about whatever interests you. 

[00:06:25] Ron Skelton: Let's talk about like, the exit process. Our audience is primarily buying, building, and exiting companies. And, you have some unique experiences. Sounds like, out of all those, has any of your projects went public?

[00:06:38] Mark Achler: Yeah, a couple. And, I've been, as a CEO, I have sold some companies. As a venture capitalist, I have invested in over a hundred companies, set on dozens of boards and have had many companies go through transactions. And I'm saying this with humility, I felt like I had a pretty good [00:07:00] handle on the whole process. And then we had, something happened. There's an entrepreneur, my co-author of this book, a guy named Mert Iseri, was selling his business. And while we weren't an investor, I was his mentor, I was his go-to coach. I was the guy at 10 o'clock at night talking him off the ceiling when things went bad. There's always, in any transaction, there's always moments in, it's an emotional journey, right?

[00:07:25] There's an emotional arc, and there's always moments in time where things are looking pretty tense. And he had a successful transaction. He sold it SC Johnson, big giant company. And a couple days after a transaction we're having breakfast and Mert is just bitching. I was just like, rah, rah, rah. It was a really tough transaction. And I said, Mert, I was like, dude, one, let's celebrate. It should be joyful. You just spent 10 years of your life, you just had [00:08:00] a great transaction. And I said, I understand it could have gone better, but in the spirit of giving back, in the spirit of helping, why don't you write it all down while it's still raw, while it's still fresh?

[00:08:15] Right? And the next time SC Johnson buys, in this case, it was a tech software company. It was a tech company and SC Johnson, they could buy CPG companies all day long. They could buy supply chain and warehouses, no problem. But it was the first time they had really bought a tech company. And there's some nuances there. And I said, so the next time SC Johnson buys a tech company, now that you're on the inside, you can say, Hey guys, this is what I experienced. Here's how we can make the process better. And outpoured, outvomited 10 pages. Just like, and I looked at it and I went, huh. [00:09:00] All entrepreneurs, all business owners, we spend so much of our time building our businesses, raising money if you have to raise money and a very relatively short amount of time in the exit process.

[00:09:14] And most people, especially if they haven't done it before, there's a lot of real wisdom out there and best practices. And so we decided to, to write a book, to give back. And in that journey, we interviewed dozens of CEOs, big companies, medium sized companies, small companies, and we said to them, all right, tell us the real stuff. Like tell us if you had a, an adult child who was selling a company, what would you tell them? Like what are those hard lessons learned? We got some great stories, good stories and bad stories, but we got some lot of wisdom. And I'm a big believer in empathy. So we talk to all the stakeholders.

[00:09:59] We talked [00:10:00] to bankers, we talked to M and A attorneys who specialize in focus in transactions, and we asked them, tell us some examples of great transactions and why. What made it such a good transaction? Tell us some examples of transactions that fail. And many transactions fail, post transaction. And like what makes a good client and why? What is it about them? Because, you've worked with many CEOs, some of them you love and some of them you would never work with again. Like why? What are the attributes? And then most importantly, we talk to the heads of corp dev. So I come from a technical world, so I went to Google and Apple and Meta and Amazon and Twitch and like 30 different companies.

[00:10:52] And I talked to their corp dev people and I said, what do you wish CEOs knew before they came to talk to you? [00:11:00] And like, give us examples of good transactions and why. Give us examples of transactions that didn't work and why. And, I thought because I'd gone through this many times, as a board member, as an investor, as a CEO, I thought like I had a good handle on it. And I have to tell you, I learned so much. It was really a joy. I had so much fun writing this book. 

[00:11:27] Ron Skelton: What were some of the common threads? I mean, I know they're in the book, but, give everybody a teaser on the book. What were some of the common threads for the good, the good transactions and the bad transactions?

[00:11:38] Mark Achler: Well, we came up with this acronym we call FAIR. And FAIR stand, like everybody wants a fair deal, right? So FAIR stands for, fit as in cultural fit. Alignment, alignment not only internally amongst all your stakeholders, but the [00:12:00] acquiring company, making sure that all the stakeholders and the acquiring company are aligned on this transaction.

[00:12:06] We talk about a lot about why transactions don't happen, and alignment's, a big piece of it. Integration, like integration is the ugly stepchild. Everybody says, yeah, yeah, we'll worry about integration after the transaction. So we, we have a lot to talk about in terms of integration and most importantly, rationale. And the rationale is why is one plus one equal a hundred? Like, can you explain why this transaction makes sense in simple enough terms that even your grandmother would understand it and coming up with, and I have all sorts of great examples of rationale. So fit, alignment, integration, rationale, FAIR. That's sort of the, the framework we used. 

[00:12:56] Ron Skelton: So inside of that framework, is there some things that are just like [00:13:00] huge red flags that things aren't gonna work? 

[00:13:02] Mark Achler: Yeah. Let's go through each one of them. So fit, cultural fit. As you know, having worked in multiple companies, every company has a different value system. Every company has a different way of treating customers. The question is, when decisions are made, what is the decision making process of how do decisions get made? Is it top down authoritarian? Is it, kumbaya? We're gonna do it together. And oftentimes, especially in the world I come from, which is more the technology world, early, smaller startup companies oftentimes have a very, very different culture, than the much larger established corporate entities. In terms of decision making, speed. And so the way we summarize it is, imagine you're on an airplane, a long airplane ride, and [00:14:00] you're sitting next to the person you're gonna have to be working with.

[00:14:03] After the end of five hours, are you energized or you just can't wait to get off the plane and get away from the guy? Is there a good cultural fit? That's one. The second is alignment. And I mean, by that is on your side, there's lots of stakeholders. If you have a board of directors, sometimes it's, you're a sole owner. But if you have a board of directors, is your board of directors all aligned about what you're trying to do? Oftentimes different investors or classes of investors have different motivations or different timeframes or time horizons. So how do you build alignment among your investor group, amongst your board, amongst your partners if you have partner or your key managers?

[00:14:56] Sometimes we can talk about transparency. [00:15:00] When do you talk to people? When do you talk to your team about a potential, we can talk about that, but how do you build alignment? And oftentimes too, we've seen transactions where there's a champion from the acquiring company who really wants to get this deal done. And you as the CEO, you think, yeah, I've got this champion, he's got my back. He's that champion, or she, that champion is going to, circle the wagons and make sure that this deal gets done. And many times, the CFO, is not aligned with the VP of sales. The CEO isn't on board or the CEO wants to do it, but the board of directors doesn't wanna do it.

[00:15:39] Or like, making sure, one of the themes that we talked about in the book, a great CEO knows when to delegate because you can't scale a business without hiring the best people and delegating, but there's [00:16:00] some things you just can't delegate. You can't, like, you wanna hire the very best m and a attorney, you possibly can. Somebody who really knows the ins and out, like you don't wanna hire your uncle like you, who's a nice guy, good business attorney, but not an m and a attorney, right? You wanna hire the expert. And I'll use that as an example. Even when you hire the expert who's gonna give you their best advice, ultimately it's up to the CEO, it's your call, your judgment to give instructions to. It's the same thing when with alignment. Yes, you have to trust your champion, who's the person taking point on the other side?

[00:16:43] But you as the CEO, it's your job to also make sure and double check and build relationships outside of your champion to make sure everybody in the organization is aligned. The next thing is [00:17:00] integration. So I said it was the ugly stepchild. Nobody likes to talk about integration. But once again, in my world, oftentimes transactions have a future component to it. Earnouts, right? And those earnouts are oftentimes pretty material. And once you, once that transaction's done, you're not in control like you have no, you're not in control of budget. You're not in control of hiring and resources. You're not in control of integrating with the sales force of the acquiring company.

[00:17:40] There's all these things that you, in order for that earn out to happen, you're going to need the acquiring company to fulfill the promises that they made. And so what I say to entrepreneurs before the transaction's done, [00:18:00] even before the term sheet is done, because the term sheet is often one page or two pages, very simple. It's just basically the headline. The headline is, we are gonna buy you for X. But if the integration plan is not written, articulated, and put down in writing, then you're putting at risk that component of the earnout, if there's an earnout to the transaction. And I also believe that CEOs are, I believe in servant leadership.

[00:18:35] So I, I believe a CEO has a greater calling. The CEO's job is more than just to make as much money as possible for the CEO. Or to make as much money as possible for all shareholders, as important as that is. But as a servant leader, your job is to make sure that your employees are well taken care of, that your customers are well taken care of, [00:19:00] right? That an integration piece of it. So I think of it as, I think of life as a much longer time horizon. I think in terms of decades, not moments in time. So if a transaction is a moment in time, I wanna know what happens post-transaction. And the question I ask CEOs is, if you're an entrepreneur, chances are you're gonna do more than one company.

[00:19:29] And the question is, will your employees, will your management team, will your employees come to work for your next, for you and your next company? Will your investors wanna give you money for your next company? Right? Will your customers stay loyal to you? And so legacy matters. And then the last piece of it is rationale. And Ron, I know I'm talking too much, so. 

[00:19:58] Ron Skelton: No, you're not. Absolutely not. [00:20:00] 

[00:20:00] Mark Achler: So let me give you a couple stories of rationale that I think your listeners will really, enjoy. So what I mean by rationale, when people sell businesses most, 99% of the time, the rationale is looking backwards. And what I mean by that is, here's our financials. This is what we did in revenue. This is what we did in EBITDA, this is our profitability. And you're gonna gimme a multiple off of a historic number. And may, depends on the industry, depends on the business, and, whatever that multiple is. But that's, looking backwards. Looking forwards, what I wanna know is if I take my product or my customer base and I put it into your product and your company, what's gonna happen? Like, why are you doing this? Am I plugging a [00:21:00] hole in your product line? And, like, is that gonna improve, if I take my product and sell it into your customer base and my sales gonna go up?

[00:21:09] If I plug a hole in your product line, is that gonna improve? Here's what businesses care about. They care about new customers acquiring new customers. They care about upselling existing customers, more products, services, and they really care about retention. And so am I going to improve any of those categories, particularly retention in my world, the technology world. And that's what, I wanna know about the future. Let me give you two stories. My partner at Math Venture Partners, a guy named Troy Henikoff. Troy is a great guy. We've been friends for 20 years. I was his lead investor. He was the CEO of a company called Sure Payroll. And I was the lead investor and chairman of the board of that company.

[00:21:57] And we had a great outcome. We worked through lots of ups and [00:22:00] downs together. We really got the measure of one another. And Troy, when he started off in life, his very first company was a little dev shop. Was a little development tool, a little bit development company. And he got to about a million in revenue. And he did a project for Hyatt. It was a inventory management, asset tracking product project. And he retained the intellectual property rights for it. And he went to Medline. Medline, the big hospital supply company. And he wanted us to do some programming work for them to do this, inventory management system.

[00:22:36] And Medline said, yeah, we want that, but we wanna buy you. And Troy went, no, I'm not for sale. I have a great little company, I'm really happy. No thank you. And, they said, okay, we'll give you $2 million. We'll give you two x top line revenue. Which was crazy cuz usually it's a first services company. It was nuts. And this was in like in [00:23:00] 1991. And Troy went, no thank you. That's great. Anyway, they come back a week later, he said, no, we really wanna buy you. And they offer him 3 million. He goes, nah, like not interested. Finally, they come back a week later and they offer him $5 million, for a $1 million services company.

[00:23:16] And Troy's thinking, well, alright. Like fine, like I'm the smartest human being on the planet. Okay, if you like done. But he never asked them why. Why would you overpay that much money? Do you know why? So Medline at the time, they had a one year contract with their hospitals that they supplied. And they said to their hospitals, look, we have this inventory management system, it's great. We'll give it to you for free, if, instead of a one year contract, you sign a three year contract. Do you know that in the first year they'd signed up [00:24:00] over a hundred million dollars of incremental revenue? Off of that little inventory management software. 

[00:24:07] Ron Skelton: Yeah. It offered them an ability to scale that they didn't have. 

[00:24:11] Mark Achler: And can you, I mean, first of all, what's the multiple of Medline? What's that worth? And that was just year one. What about year two, year three, year four? Like, they probably, Troy could have probably sold that for a hundred million dollars and they would've paid it. Because he didn't understand the rationale. He didn't ask the question, well, why are you wanting to buy this? How are you going to use it? Right. The same thing could be said for a more popular story would be, Pinterest. When Mark Zuckerberg bought Pinterest for just under a billion dollars in 2012, everybody thought he was insane. It's like you're crazy. Why? I'm sorry, I said Pinterest. I didn't mean Pinterest.

[00:24:52] I meant Instagram. Sorry about that. So I had a brain fart. So Instagram, like, why would you pay? This is a company with almost zero revenue, [00:25:00] but the rationale, like today, Instagram did over 20 billion of EBITDA for Meta. What nobody understood was two things. One, you take the user base, the customer base of Instagram, and you put it against the sales force of Meta like magic. And at the time, Meta was very heavily into, desktop but not mobile. And Instagram was all mobile. And Instagram was the engine that got Facebook into mobile. And so strategically it was incredibly important and relevant, right? So that's the rationale. How is one plus one equal a hundred? 

[00:25:45] Ron Skelton: I got it. I got it. So when you're out there looking at deals and you're looking at things to fund, how do you identify something that has that type of potential? Like this could be a game changer for this industry, [00:26:00] right? You're looking, I call it unicorn hunting. We don't do that a lot in our space. We're looking for brick and mortar, steady income. Most of us in this space, we have some money to invest, but not at the grand scale you have. So we can't spread it across the a hundred companies. We gotta pick one. And the reason we pick one that's already generating revenue at profits and stuff is because it's ours to screw up, not ours, to grow and create something out of it already has product market fit.

[00:26:22] It already is making money and, I jokingly say it's ours to screw up as opposed to ours to try to figure out. That said, what are some of the key things, I know there's a gut feel. I know there's got, there's some instinct cuz you've been doing this around. You can tell, the founders have, but there's, I call it the founder's edge cuz I, I've been around it. Right. I've been interviewed, I came from the tech world. I've interviewed in front of, you were talking about company cultures earlier. I've interviewed at one of the biggest, antivirus, I won't say who it is, it's not Symantec, but at one of the other, one of the guys was head-to-head with him.

[00:26:53] One of the computer security companies walked in there. I was interviewing with one of the top guys, won't say his name. He [00:27:00] had a change of clothes hanging up in a zipper bag on a coat hangar and a sleeping bag on the floor. And so I asked him, I said, what happened? He goes, sometimes we just get into things and we have to be, we're here. You're gonna be here for two to three days at a time sometimes. We just get into working on things and we're working long as we're away. And the way he approached it, I was like, yeah, this ain't for me. I turn around within a few weeks, I go down and I interview for, or I got an offer to go to, talk you do a little bit about this before the show. I got an offer to go to Excite. Well, I walk, doing the tour, walking through Excite, I seen sleeping bags underneath people's desk, but I also seen full-blown liquor cabinets up and the, site was a different culture. It's a different environment.

[00:27:40] They had kegers on Fridays at least once or twice a month. Everybody had a liquor, liquor cabinet at their desk, for after hours of course. And it was, the kind of set the thing, there's a guy there that worked there, drove the, shaggy Scooby-Doo van, right? One or two of the buildings had the kids slides to go from the second floor to the first, so you could leave a meet meeting and get [00:28:00] in a big plastic swirling slide and go down to the, the next floor to, to get to your next meeting faster. It was just a fun different type of culture. Right. So the difference is, hey, you're gonna have to sleep here sometimes. And we're, I hate to use this word phrase cause it's kind of crude, but balls to the wall all the time. It is one thing, but, you go to the next one and you're like, yeah, we do that.

[00:28:17] We celebrate our wins, we have fun too, right? And I wasn't even a big drinker. I just love the fact that they worked hard and they played hard. 

[00:28:24] Mark Achler: Well, culture is really important. A actually, one of the classes I teach at Northwestern's called Building Innovation Teams and Culture. It is, I think it's really essential. I think it's a really important, if you're gonna spend as much time as we do in our work, it's the culture should, you should be comfortable in the culture. And I also have, and once again, sorry for the language. I have a no asshole's rule. It's just life is just too short to deal with people you don't share values with. It's just, it's never worth it. As an investor and I [00:29:00] talked to four or five entrepreneurs every day. If you are running a technology company and you do not have a technology background, you better damn well learn. Because how else are you, I can't tell you, there's financial debt and there's technology debt, and I can't tell you in my world how many entrepreneur, non-technology entrepreneurs made really bad decisions because they didn't understand. 

[00:29:29] Ron Skelton: Well, in this case, we were not only an email comp company. We sold to other email companies. So when he goes on a sales call or a sales call wants to talk to the CEO, they're running multimillion user email systems. And if he doesn't understand that, he's just, he's an alien in a conversation. He's should just be a martian that doesn't understand the language. Right. And he just didn't get that.

[00:29:52] I told him, most of the people you're gonna talk to can't do what I just did. And explain this down at a user level, right. Most of these guys are just gonna [00:30:00] expect you to understand, what SMTP is and all the different protocols and how they work, and the fact that you're a man in the middle. Like we're, we're doing an interaction. We basically, our tool got in the middle of that exchange, that protocol, right? And, it was anti-spam, anti-virus type of thing. And, we were looking for certain things inside of that exchange. But anyway, he just didn't get it. And, he didn't stay around long.

[00:30:22] He was an interim CEO, but, I was like, like going back to just having conversations in the unspoken things. He had been there for two months and nobody had told him this. Right. And he called me in the office because like, Hey, I kind of need to learn this. Can you explain how it works? And then he didn't get it, and he put it on me. I was like, yeah. The unspoken thing here is we all know you don't get email right now. All right. And it's got, it's hurting you. 

[00:30:46] Mark Achler: Yeah, of course. No, you did the right thing. You did the right thing for him, whether or not he appreciated it. 

[00:30:51] Ron Skelton: Yeah. That's okay. Yeah. And that's not the only time. There's a reason why I'm an entrepreneur, and I'm, I make a really horrible employee. Right. It doesn't bother me bit to tell [00:31:00] you what's going on.

[00:31:01] Mark Achler: I'm the same way. There's a VC called Brad Felt. Famous guy, really good guy and a friend. And he has a saying, which I really like, which is brutal, honesty, delivered, kindly. Yeah, I'm gonna tell you exactly how I feel. I'll try to be nice about it, but I'm gonna tell you exactly how I feel. 

[00:31:21] Ron Skelton: It's interesting as well. I had a little startup that felt miserable. You're talking about one of your startups that felt miserably. I started an, I don't know if I've ever shared this on this show. I started an online dating service that I put a ton of my own money into, and, I thought I created something that the market needed, and there was no product market fit. It was called It got featured in the Wall Street Journal. I did some other stuff. We were keeping people, we did background checks. That's why it got featured. We were doing full blown, for security reasons. We kept people honest in their profiles too, though, we had a weighted algorithm that would check, and basically it was a survey system that would, two or three people would end up going on dates, with the same [00:32:00] people.

[00:32:00] They would survey them, they would check the honesty of their profile, right? They said they were a blonde, but two guys said, nah, I've seen the roots. Right. That type of thing. More superficial, I mean, less superficial than that. Problem is that, I learned fairly quickly that there's a chicken and egg problem inside of the, dating sites things. Meaning that, nobody wants to be the first lonely soul in a, in a dating site. Right. 

[00:32:22] Mark Achler: You know what's interesting? Everybody talks about market fit. I actually think it's much more nuanced than that. So I think product is table stakes. Like you have to have just world-class, great product. But I call it PBC. So product, business model and customer acquisition. So I have a saying, which is the greatest product in the world without customers, is a great product. It's not a business. And so many entrepreneurs, they focus on solving the problem. They build theoretically a great product, but they don't understand sales.[00:33:00] 

[00:33:00] They don't understand customer acquisition. They don't understand the nuances, nuances of a business model. And I'll give you an example of business model. Everybody understands watching a movie. Well, the course of a hundred years, we went from watching a movie, it's the same thing watching a movie. We watched it in a movie theater, and then television came along and we watched movies on television, and then Cable came along, then H B O came along and VHS and now all of a sudden you could rent a movie instead of going to a movie theater. And then DVDs came along and, oh, you could buy a movie. And then Netflix came along and you could get a movie on a DVD through the mail.

[00:33:40] And Redbox came along and now you could rent it in, in front of your grocery store. And now we stream. It's the same thing. It's watching a movie, but the business model has changed dramatically over time. Right. And like, I'll give you [00:34:00] a very, I'll give your listeners a very simple example. When Blockbuster was around and we rented movies from Blockbuster, there was a fee to rent a movie, and then there was a late fee. And everybody hated the late fee. Like it was just, ah, late fee. And then Redbox came along and we said, you know what, it's a dollar a day. Now it's two bucks a day, or whatever it is.

[00:34:24] But when we first started it was a dollar a day. It's a dollar a day. There's no late fees. Keep it as many days as you want to. It's on you. It's a buck a day. That difference, that's the difference in the business model. That's the nuance, right? We made basically the same amount of money that Blockbuster made, but instead of 3 95 and a late fee, it was a buck a day. It's on you. So business model matters. And at the end of the day, customer acquisition is like the, [00:35:00] it's all about leverage in the sales model. And when I invest, I look for entrepreneurs who not only can build a great product, but know how to sell it. 

[00:35:13] Ron Skelton: It's interesting as we were talking about brutal honesty. So I went out and pitched the VCs that raised money to market. I built the thing on my dime and, one investor, two investors, smaller ones, but mostly my dime. So I spent a year and a half, two years in, like, I had a full-blown team in India, like 26 people. We were writing code, right? We got the thing up and running, proof of market. We've got a few friends of mine that, to use it. They liked it. Dozens, not hundreds. And then I went the VC route to raise money, to take it to market. And, they were basically, it was interesting enough, I got the audience, I got to do the pitch, which that's a step, right?

[00:35:45] Cause a lot of times you just don't get that even. Problem was, is, a harmony, I just received like a hundred, $110 million in funding. And they're like, we just don't want to go against that. And the second thing was, is one of the guys was really brutally [00:36:00] honest with me. He is like, number one, I don't think anybody wants to be kept honest within their profile. I was joking, my pitch was, I solved the Mr. Potatohead problem or the Mrs. Potatohead problem. You show up at a date and it kind of looks like the person, you were gonna go there. But, they're like nobody, it sounds, what do you call it? What's the word I'm looking for? Idealistic. It sounds like something everybody would want, but in honesty, he goes, I just don't think people really wanna be kept honest in their profiles. They're lying for a reason. Right. And, 

[00:36:24] Mark Achler: That's so interesting. One of my investment thesis is about trust. I believe there's a deficit of trust in the world, and I think people really do appreciate trust. But it's really, it's interesting. I'll use Redbox as an example. When we went to launch Redbox, we did all sorts of surveys and customer intercepts and, user focus groups. And we said, what do you want? And their context was Blockbuster. And so they went, we want choice. Like the number one thing they said is, we want every movie [00:37:00] ever made. We want choice. Cuz that's sort of what they were, how they were. I guess that was the blockbuster model. But it turns out we had real data from Blockbuster in over 90% of the rentals were from the 30 day wall, the brand new releases.

[00:37:17] So even though they thought they wanted choice, their actions were different. And I think the VC who gave you that feedback, the insight is oftentimes even when they believe it, even when they say, I want integrity. Like I want in this case, I wanna know that person is who they say they're going to be. Their actions might be different than even what they think. 

[00:37:43] Ron Skelton: He had better insight than I had known when he said it to me. I didn't realize he was an early investor, a couple of the other bigger, dating sites. He had insight that I didn't know. He said, and the second thing he said to me is, you don't really have a business yet cuz you don't have any customers, but you have a product here. Why don't you go pitch the big guys [00:38:00] and if they turn you away, there's a reason. Cuz they, they've been doing this for a while and some things happened in my life actually. My mom had passed away of a heart attack and I was looking at some changes. Like, do I need to move back to Oklahoma at this point to be close to my father?

[00:38:13] And this is before he, he got sick. I told you I moved there for him. There was about an 18 month period between those two. And, I started kind of shutting things down cuz I was traveling back and forth dealing with that. And it gave me time to think. Right? And in that thought process, like, I reached out, I can't say who cuz, NDAs and stuff. Let's just say I reached out to one of the top four, three of the doctor reached out to three of the top four. One of 'em entertained me with a conversation. One of 'em, two of 'em did. One of 'em gave me a phone call and the other one actually I went out cuz when I was back here, I went out to their site, sat down with their product development team, told 'em what I'd built, offered to sell 'em the con, stuff as, cause we had a patent pending on some of the algorithms and stuff.

[00:38:49] Anyway, offered to sell 'em what we were building or become part of them and help 'em integrate it into theirs. And they said, we wanted to hear this from him. We wanted to tell you this cuz that VC, but he told me, they told me. So the VC, this is [00:39:00] how he found out he had insights into this. He told us about what you did and said, I just wanted to look you straight in the eyes and tell you that we looked at this three years ago and we surveyed our customers and stuff. And we honestly don't think our customers would, they think we'd run from it. Right. Anything we've ever put in place to install integrity into the, what people are saying about themselves in these profiles has backfired on us. They just don't want it. And then hearing it from them, I was like, wow, I spent, it was a very, very valuable lesson to learn in that process. But the, it's the unspoken gorilla in the room.

[00:39:32] I'm positive later on that I had two or three of my developers, cuz I brought in some people who'd worked on those other companies. They knew. Right. They actually, they told me later, it's like, yeah, I was there at so-and-so company when we shot this idea down, but I wanted to see if you could pull it off. I was like, and you didn't tell me. 

[00:39:50] Mark Achler: Well, most companies fail. And there's a reason why most companies fail. 

[00:39:55] Ron Skelton: Let's get back to the exit side of things because, we're off on this little tangent here, but it's [00:40:00] beneficial to everybody. But on the exit side of things, as a venture capitalist, how do you know, or what's the indicators that something should be sold to a strategic partner, like sold into a Google, sold into, a big guy, as a strategic purchase sold to a big holding company or taken public? Is there some indicator as far as how it's structured or the trajectory of it that tells you this probably should be an I P O versus I'm gonna sell this to one of the big dogs? 

[00:40:30] Mark Achler: We could spend hours talking about that, but sort of the, the gross generality is, first of all, 99.9% of all companies do are not even remotely capable of going public. Very, very few companies go public. Like if you think about the number of companies that get started versus the number of companies who ultimately go public, that path is very, very slim. And going public, there are pros and cons. [00:41:00] So it is not a panacea. First of all, once you're public, you're now subject to public scrutiny. And the level of transparency and regulation that sits on top of publicly traded companies is, a check and balance. But it's also a burden for sure. And it also limits, it starts to focus companies on the short term, on the quarter and less, gives less flexibility for longer term.

[00:41:33] It takes some courageous CEOs who are willing to focus their company's resources on a longer term vision and not just make the quarter. There's benefits to a publicly traded company as well. And so the, in terms of liquidity, in terms of valuation, but at the end of the day, the real question going back to the concept of servant leadership, which is what is the best home [00:42:00] for my employees, my product, my customers? Like where is that going to flourish and live? And what kind of resources? As companies get to that stage, growth companies get to that stage where they actually have the choice, they have the flexibility. Then the question really becomes more of what would happen if we have more resources.

[00:42:29] Can we take this company to a next level? And then what are the pros and cons to those different paths? And if you have investors, those investors probably been with you for a while. If you're big enough to even consider going public, chances are you have investors. And chances are they've been there for many years. And when you take other people's money, you're also taking our agenda and our agenda's really clear. It's like we [00:43:00] wanna make x return in y number of years. And so the longer a company goes, the more pressure starts to build for when are we gonna have a liquidation event.

[00:43:11] Ron Skelton: So I got it. It's somehow it's been ingrained in the entrepreneur dream that every one of us wants to take a company public someday. Right. That is like the envision for everybody who wears the hat of entrepreneur. And I don't think it's logical. 

[00:43:28] Mark Achler: It's not. I mean, there are some cases we're going public. Makes complete sense. In terms of, providing liquidity, in terms of valuation, in terms of, the revenue that you can drive, the money you can raise to support your future goals and dreams. But in most cases, going public is not the end all, be all. And I know many a CEO who had that dream, who became CEOs of publicly traded companies and who just hated it. [00:44:00] Just, just like hated not only the regulatory, the reporting, but also, how it reshaped their actions going for and limited in some ways their scope and focused their scope much more on the short term. 

[00:44:20] Ron Skelton: In my mind, I would, I don't care if a company is making hundreds of millions or billions of dollars. The day I take a company public, the day I, the only reason I would take a company public is when I'm ready to be done with it. And the reason I think the public market has a severe flaw and it, I'm gonna share this with you and I'm, cuz I really want your opinion on that. When you take a couple company public, I don't care if it's a, been producing a billion dollars a year, it's about growth. You can't set stagnant on the open market as a public company.

[00:44:50] And it's, to me, that is absolutely idiotic. A company's chunking out a billion dollars a year. Now there's companies out there chunking out a billion dollars a year in [00:45:00] profit, and if they don't have an increased quarter, over a quarter, , their stock price suffers. Why can't it just be a perpetual money machine? Why can't they just do what they do well without always having to be increasing and improving, increasing? And the reason is the way the stock market's made. People buy in at x they expect it to increase, right? I think there's an inherent flaw in a publicly traded companies in that, people are coming in at your peak level and expecting you to improve.

[00:45:28] Mark Achler: Yeah, I agree. Completely agree. There is value for sure. But yeah, that's not for me. I would not sign up for that. 

[00:45:37] Ron Skelton: And it's a tough gig. I have a lot of respect for, CEOs of publicly traded companies. I just do, because I get the pressure. They're under like constant, constant, constant improvement. I mean, honestly, it's the reason why a lot of acquisitions and mergers even exist, right? Some of these companies are forced to have to constantly buy other stuff just to show they're growing. 

[00:45:56] Mark Achler: Yeah. And, you know, activist shareholders and it's just.[00:46:00] Anyway, what else can I share with you?

[00:46:02] Ron Skelton: Okay, Tell me, what else is in that book? Cuz we're gonna promote the book here in a second. We're gonna tell people, what are you investing in currently? So somebody's got a business out there and they're chugging along and they're doing really well, and they're looking for venture capitalists and stuff. How do people work with you? What are you invest in and what are you looking for inside of an, customers or, 

[00:46:18] Mark Achler: Math Venture Partners, we invest in early stage software companies. So we're typically the first check. We're the, not the pre-seed. The product is built, there's customers but we're the first real institutional check. We're looking for companies, we're mostly b2b, business to business as opposed to business to consumer. And at the end of the day, our investment thesis is we love entrepreneurs who have an unfair advantage in customer acquisition. Who not only can build a great product, but who know how to sell that product.

[00:46:50] It's really important to us. But unfortunately, we just this year decided not to raise our third fund and we are no longer [00:47:00] making any new investments. We haven't talked about Silicon Valley Bank and what's happened in the last week and continuing to happen. But the fundraising market for in the venture capital world is really tightened up in the past year. And what happened over the last couple days is only gonna make it harder. And I think it's gonna be pretty brutal for the next year or two. And for entrepreneurs, and I just put a technology entrepreneurs and I just put a link, a LinkedIn post saying right now, today, this very moment, you should, the world just changed.

[00:47:39] And if you're an entrepreneur who thinks your business model is dependent on raising your next round of funding, like that world, that ship just passed. And unless, I mean, monster companies with great growth are always gonna, great companies will always get funding. And bad companies won't, but good companies, [00:48:00] good companies with solid growth are gonna have trouble raising their next round. Or if they do raise their next round, it's gonna be at significant discounts to previous rounds. And so my advice to entrepreneurs, to most entrepreneurs is if you're, if you have a business that's not profitable at, like you should be in control of your own financial destiny and you should not be dependent on raising capital to get to the next step, at least for the next year or two, because that the capital markets just, they were hard last year. They'll be way harder this year. 

[00:48:40] Ron Skelton: I think it'll actually, in during tough times, great companies are created. There'll be people out there, they'll switch back to the minimum viable product. They'll be still entrepreneurs. They're still gonna get their stuff done, but they're gonna get to revenue faster. They're gonna, I just told you what I thought the flaw in the publicly traded market was. I think the flaw in the VC [00:49:00] funding world, and I'm not gonna pick you on here. I think the VC funding guys give the entrepreneurs way too much leeway on how much money they pump into something before they ever hit revenue. Absolutely Insane. 

[00:49:10] Mark Achler: Insane. I just drove me crazy. Like I always say to entrepreneurs, where the best place to raise money? Your customers. 

[00:49:19] Ron Skelton: Yep, exactly. 

[00:49:19] Mark Achler: And, the venture model before the last year, it was a greater full theory, which was VCs were pumping in all this money cuz money was cheap and they weren't caring about valuations, and all they cared about was growth without understanding the business fundamentals. It was like a sh it was a, the greater fool theory because it didn't matter what, where you put the money in because the next person down the line was gonna give you a higher evaluation. It was a house of cards. It was a really bad model. And it just like, it drove me insane. 

[00:49:59] Ron Skelton: [00:50:00] Well, that's gonna be corrected. If the market continues doing it right now. We've got a correction at hand, so.

[00:50:05] Mark Achler: Yeah, for sure. For sure. 

[00:50:07] Ron Skelton: All right, we're right about that might be a good spot to do the recap. If somebody could remember three things from you today that, just from the show today, what would you want their three takeaways to be?

[00:50:18] Mark Achler: Well, from, the book from Exit Right, I would say, the FAIR framework. Fit, alignment, integration, rationale. Think in terms of legacy. Think in terms of long term and relationships. I don't like people or I don't say I like people. People who view life through the lens of a zero sum game are people I tend to stay away from. And so life is not like, it's not a zero sum game. Relationships matter over time. Integrity matters, and we didn't get to this, but I also believe in this concept of an annual exit talk. Most entrepreneurs. if they have a, if they have investors [00:51:00] and a board of directors, most entrepreneurs don't like to talk about exits because there's a stigma.

[00:51:05] They're afraid that the entrepreneur, their board members will think their heart's not in it. And we think just the opposite. We think that it's really important to have an annual conversation about where you are, where everybody else is, build alignment, talk about who are likely acquirers, why would they acquire you, what are you trying to optimize for? And so those are the three things I would focus on. 

[00:51:32] Ron Skelton: Absolutely. And then, where can somebody, we'll put the link to your book in the, show notes and stuff, but where can somebody get the book? 

[00:51:39] Mark Achler: Amazon and any bookstore. Amazon, and it's, the book is called Exit Right.

[00:51:43] Ron Skelton: Okay, we'll get that linked up inside of the, show notes so people can have that. And then, if somebody wants to, ask you a question, work with you, show you some something, what's the best way for people to contact you? Are you active on LinkedIn or? 

[00:51:56] Mark Achler: I am, yeah. LinkedIn's great. And my email is my [00:52:00] name. It's m a r k a c h l e r So cool. Either one. LinkedIn is probably the best.

[00:52:05] Ron Skelton: Okay. Well I thank you for being on the show today. Hang out for a second afterwards and I'll call that a show. 

[00:52:11] Mark Achler: Awesome. Thanks. Thanks, Ron.