Funny, provocative & dazzlingly clever, there's no guest quite like Beth Marcus. She's founded a bunch of companies and has learned tons from it. I recommend this relaunched interview to founders and those who are thinking about becoming founders.
Transcript of “Startup Doc’”
GUEST: FOUNDER AND STARTUP ADVISER BETH MARCUS
Sal Daher: Hi, this is Sal Daher and I want to tell you about my interview with Beth Marcus, just a remarkable founder. Beth founded the first startup that I invested in, EXOS Inc. and it was a company that had an extremely dramatic pivot and a very nice exit. The story is told in this interview. Many other interesting things. Beth is a delightful person. Don't let the fact that she's a PhD scientist fool you. She's a great storyteller and just a fun person to talk to. So listen to Beth Marcus. She goes by Startup Doc on Twitter, and just a really delightful person to talk to you. I hope you enjoy it. Too bad that this is timed out of iTunes. That's why I'm relaunching it.
Sal Daher: Welcome to Angel Invest Boston, conversations with Boston’s most interesting angels and founders. I’m Sal Daher and my goal for this podcast is to learn more about building successful new companies. The best way I can think of doing this is by talking to people who have done it. In our fourth episode, we’ll be speaking with founder, inventor and adviser, Beth Marcus. Beth, I’m so thrilled you agree to be interviewed. Welcome.
Beth Marcus: Thank you. It’s a pleasure, a lot of fun and I’m looking forward to it.
Sal Daher: Oh, I think it’s going to be great. Dr. Marcus has founded more than five startups herself. She has been involved in about 30 startups. Many of them as an adviser. She’s a very much prized adviser.
Beth Marcus: A few as an investor too.
Sal Daher: A few as an investor. The ones that you founded include Exos and Zeemote. The technologies in which your companies are based tend to be widely adopted. Very few inventors can say that their invention are in the hands of 10 million people. Yours literally are in the hands of 10 million people. Beth has those bragging rights. She is a recognized expert in the hand device interface, has provided strategic advice to leading firms in the space. She is also a highly sought-after adviser to startups with particular understanding of product design and fundraising for technology based enterprises.
Her thoughts can be found on Twitter, at Startup Doc and also at Inc. Magazine. Beth is a graduate of MIT and Imperial College London and continues to be involved with both institutions and I understand you’re now …
Beth Marcus: I’m an EIR but not really in residence at Imperial this year helping them start their enterprise lab and mentoring some of the women from the Althea Competition. I just started that a few weeks ago. It’s a blast to see what the entrepreneurship scheme is like over there and to help them learn from our successes and failures.
Sal Daher: Tremendous. That’s very interesting. An EIR being an entrepreneur in residence.
Beth Marcus: Right. My residence is a few days, three times in the year and an open year on Skype.
Sal Daher: You can help people a lot, believe me. Prior to this, I had a whole career where I talk to people on the phone buying and selling, emerging market debt and the majority of the people I never met face to face, was all on the phone. You can do a lot of damage on the phone.
Beth Marcus: I’ve had clients from my consulting company, one who found me on LinkedIn and I helped her with a fundraising around and introduced her to a distribution partner. They’re doing really well. Cool product. I couldn’t even get one because they sold out.
Sal Daher: That’s amazing. Beth, starting with your time at MIT, how did you get into biomedical engineering? Give me the story there.
Beth Marcus: The story is I went there not really knowing what engineering was and being interested in science and math. I did research as an undergraduate. Initially I wanted to be a doctor, an MD, not a PhD. I started doing research as an undergrad.
Sal Daher: Like your dad?
Beth Marcus: My dad was a dentist.
Sal Daher: Oh, he’s a dentist.
Beth Marcus: He’s responsible for me going to MIT because he took a continuing ed class there and he said you got to apply here and I said, “Oh dad, nerd school.” I applied to appease him and after I got in, I went up for a visit and that was it. It was such a cool place and with so many opportunities to make of it what you will and that suited me.
I started out double major in biology and mechanical engineering which you don’t have to do until you’re second year. In my first year, I built an aluminum frame bicycle as a seminar for freshman and the second year I thought that class and I got involved with a lot of interesting things, research on human blood cells which ultimately became my master’s thesis.
I figured out along the way as I started to work with physicians and surgeons because my bachelor’s thesis was a neurosurgical skull clamp for kids that doctors memorize a huge amount of information and good ones interpolate between it, but engineers get to create. They’re creative doctors, but they don’t get to create every day when they go to work and so I morphed my thinking to say, “Well, I wanted to do medical technology initially.”
Sal Daher: Medicine has to be very much in the box because it has to be risk averse because the consequences of risk, a failure is so enormous.
Beth Marcus: The timelines are huge as well.
Sal Daher: Exactly.
Beth Marcus: I found that out later. I ended up in biomechanics and biotechnology and did a bunch of really cool stuff at MIT and got a Marshall Scholarship and went to England to Imperial and to do research on the biomechanics of the human leg and running and how it affects the design of running shoes.
Sal Daher: Wow.
Beth Marcus: I did that and people like Rebook bought the copies of my thesis. At that time, I mean, I’m showing my age, but there was a word processor that a secretary run and we had to put our stuff in. When we got corrections from the oral exam on our thesis, we had to manually correct a dozen versions of the bound copies and open the bindings and stick in additional pages and nobody had any access to the word processing software at that time.
Sal Daher: It was very early days.
Beth Marcus: Then I took a job at NYU medical school.
Sal Daher: I was going to ask about that.
Beth Marcus: I was going to be doing research on the biomechanics of human joints and joint implants because I had some ideas about how to revolutionize that. I was at NYU for about 18 months and I was the only woman and I was the only PhD and I was younger than my students who were residents and fellows in orthopedic surgery. There was no laboratory for me. I had to create that. I had to get my own funding.
I served on the computer committee, keeping the doctors out of trouble with respect to their data and programming … I forget even the name of the system. It was a data collection system that I’m sure loads of people still know it today. I didn’t last very long. I figured out that being the only woman, being the only PhD, the doctors thought I knew everything or nothing. The in-between is where life is.
I contacted one of my MIT professors, Woodie Flowers and said, “I want to change.” He said, “I know this person at Arthur D. Little. It’s a huge consulting company. Why don’t you meet him?” I talked to them and they created a position for me and I moved up to Boston. I was there from about ’84, ’85 to ’89 when I started my first company.
At Arthur D. Little, I did product development as part of the center for product development. I also served on the biotech practice group. I did some medical technology stuff. I did things from immunoassay instruments design and infusion systems and surgical instruments to commuter roller skates for an inventor.
Sal Daher: Commuter roller skates.
Beth Marcus: Anybody who had some off the beaten track, they’d say, “Beth, can you talk to this potential customer?” I also won a few million dollars in NASA grants to build part of the space station, a shower and a bunch of other stuff on board and build a practice for them around NASA. Then I decided I was interested in robotics because robotics was emerging in the late 80's as a really interesting field. I thought how can we get into robotics?
The only way to get into robotics because all the engineers thought, “Well, I can do robotics.” People who had funding to buy robots wanted some proof. There had just been a robot hand invented with fingers and when people would buy that from this research lab that created it, it would sit in the laboratory that bought it for like six or eight months because it took that long to program it to move its finger.
Sal Daher: Oh my.
Beth Marcus: I got the idea that, “Why don’t we make a teleoperated controller for it that way on the day it arrives, they can plug it in, do interesting things with it, figure out what they want to program and make their sponsors happy. I convinced the Arthur D. Little management to let me built this, but they said you got to get people to buy it before you build it. I got six customers who had already bought these hands to order one before we designed it.
They gave a 50% deposit and Arthur D. Little paid the other half. We did that and then there was some patents on it and basically all these companies wanted my technology and my team. They were all in the middle of Nowheresville in America. I thought, “Well, why don’t I just start a company.” I convinced the licensing arm of Arthur D. Little to license back the technology. I started the company in the basement of my very small 1,400 square foot Lexington house.
I remember when AT&T, Bell Labs and the Air Force and MITRE wanted to come visit the company that was producing their hardware. You could be watching out the window of my house in Lexington on Wilburn Street and the cars would go back and forth a few times and then they would pull into the street, the cross street and they’d ring the doorbell and they say, “Excuse me. Is there a company here called Exos?”
I’d say, “Welcome. Come on in.” They would laugh about it later because the company was in a basement of a 1,400 square-foot house which was a historic house as well. They couldn’t stand up fully in the downstairs. In fact, we moved out of there to a place on Blanchard Road in Burlington and Inc. Magazine did an article on us.
They were so upset that they didn’t get to videotape in the basement or take photographs with all this crap everywhere hanging out of the ceilings. They wanted me to repack it up and move it back there and I said, “No.” That’s how Exos got started. Exos got a bunch of $3 million of small business grants to build teleoperation and force feedback technology. We became one of the pioneers in the field of virtual reality, back in the beginning of it which has very large similarities with what’s going on today which is surprising to me.
I guess I should know better because young people don’t necessarily read all that research from a long time ago. They think it was all too expensive then. We made a joystick that retailed for a little over a hundred bucks. When I got up at SIGGRAPH, I was a keynote speaker and I got up and there were people from Silicon Graphics who were the big computer company at the time who said, “If you can’t buy a $250,000 reality engine, you shouldn’t be doing virtual reality.
I got up and I said, “We’re making a joystick and you can do everything on your PC for 120 bucks.” I was the one who made money and Silicon Graphics went out of business. That’s a lesson for people.
Sal Daher: The joystick you’re talking about, you were developing that at the same time as the force feedback?
Beth Marcus: It was later.
Sal Daher: It was later.
Beth Marcus: Basically, we did a medical product first, evaluation and rehabilitation. We did one of the first video imaging systems into a Mac so that you could take pictures of the cosmetic deformities and such. It was for hand surgeons’ offices. We sold a bunch of them through Columbia Hospital Corp and to private doctors. We thought, “Oh, we’re going to grow this business.”
It turned out we were taking customer service calls about where the switch for the computer was because we were reselling Apple at that time and how to use an Excel spreadsheet. As far as our strength and range emotion measurements, that was so beyond where people were in the early 90’s. We decided that we had probably sold all the ones that would ever be sold.
Sal Daher: Oh, my goodness. I remember because I was an investor. It was the first startup that I invested in. I invested because of my brother-in-law, Martin, your classmate at MIT.
Beth Marcus: That I met at a reunion inline. I mean we knew each other, but we re-met when we were at a reunion inline. He said what he was doing and I said what I was doing. He said,” Oh, that sounds pretty interesting.”
Sal Daher: I did absolutely no due diligence. First investment and I promptly headed off to Singapore. I was far away. I could never be involved with the company. That’s not how angel investing is done, but it led me to this world. When was it that you did that raise?
Beth Marcus: The first raise was 1989, I think. I don't know whether this was a first one or the second one.
Sal Daher: I think it might have been the second raise.
Beth Marcus: The first one was where I met Michael Mark who’s one of your other podcast.
Sal Daher: That’s right. Our inaugural podcast was Michael Mark.
Beth Marcus: He was at Inner Leaf at the time. He committed to write a check for $50,000 and he didn’t send the check. I went to Inner Leaf and I called up from downstairs and I said, “Michael, can I come up?” He said, “Well, I’m in the middle …” I said, “Look, you said you were going to give me a check. I’m not leaving until you do.” I came up and he wrote the check because I convinced him that I was persistent enough which to me when I talk to young people doing entrepreneurship, there’s two things that I talk about that are the most important to me.
One is persistence and the second one is networking. Both of those are involved in that anecdote, but also people can be persistent to the point of mania and go down a rat-hole. You have to balance everything and the way you balance persistence is by talking to people through networking because if you can’t convince other people that you’re going down a reasonable pathway, and you can’t get other corroboratory information around your concept of where the market is going, then you’re likely to be wrong.
The more you’re out there testing your hypothesis of how you’re going to make money, the more likely you are to figure out if it’s right or wrong or needs to go a little left or a little right sooner.
Sal Daher: Michael, I think, put it in terms of perseverance and openness. You’re saying in particular openness … You say openness, openness to people. Also to other evidence, but you’re saying in particular the feedback of other people who understand what you’re doing and so forth.
Beth Marcus: Or some who don’t. I mean, if you have a relatively savvy person in general and you can explain it to them or your grandmother in a couple of sentences, then you haven’t encapsulated what you’re doing well enough. The consummate entrepreneur is always networking, always perfecting their elevator pitch, always looking for connections because you never know when you’re going to … Like my experience with Bob Metcalfe at the fifth anniversary of the media lab, we both reached for the same chocolate strawberry.
He remembers it was a chocolate chip cookie, but I needed those. That was in the Inc. article. We met that way. I didn’t know who 3Com was. I didn’t know who Bob Metcalfe was, but he was a nice guy. He was older than me. He was successful. I said, “We have this medical company and I don’t think we’re going to sell anymore and we have force feedback technology. I think I want to do a consumer product, but I don't know anything about consumer products. Do you know anybody?” He said, “Well, when I taught at business school in California, one of my students was this guy, Pierluigi Zappacosta from Logitech. Would you like to meet him?”
Sal Daher: Your point about networking and reaching for the cookie.
Beth Marcus: That’s right. Reaching for the cookie, and being polite, and introducing yourself. I mean, I print up stacks of business cards, I take them everywhere I go. When I teach students, I hand them all a business card or I put my email up on the blackboard and I say, “Look, I answer all my emails that come from reasonable sources. I can’t guarantee how fast anymore because I have a 12-year-old and she is more important than work. I have a lot of backlog, have a lot of things to do, but if you send me an email request, I will get to it at some point.”
Sal Daher: Actually, mentioning Bob Metcalfe, two weeks ago, I was at an event at MIT in honor, 50 years entrepreneurship at MIT honoring Ed Roberts.
Beth Marcus: My nemesis.
Sal Daher: Your nemesis. Sitting next to me was Bob Metcalfe in the table and I got to meet him and it’s just amazing.
Beth Marcus: He’s a fantastic guy.
Sal Daher: Amazing, amazing guy.
Beth Marcus: Incredibly helpful.
Sal Daher: I wish I’d known his history with helping Exos.
Beth Marcus: Then you would have … Yeah.
Sal Daher: I mentioned Michael Mark. He didn’t know him so if I had mentioned Beth Marcus, he would have said, “Oh yeah.”
Beth Marcus: He would have said, “That woman who’s so bloody persistent. She wouldn’t leave me alone until I helped her.” He said that in an interview as well once.
Sal Daher: I understand.
Beth Marcus: I said my nemesis about Ed Roberts because-
Sal Daher: Yeah, I want to hear about that.
Beth Marcus: -he’s done all this research saying that PhD’s don’t do as well as entrepreneurs. If we were ever at the same events, we would parry a little bit about it. All research is specific to what the research is about. He also says that people who have multiple founders do better. Up until Zeemote, I was a sole founder of everything. Zeemote and I brought in co-founders and learned there were co-founder issues, to say the least and there were investor issues.
Sal Daher: The pluses. There’s nothing in life that’s-
Beth Marcus: Each time you do one of these, you get your fingers burned a different way and you learn and you hopefully past that along to somebody and prevent them from making the same mistakes. They’ll make their own.
Sal Daher: This is one of the reasons why I believe in this podcast is that this topic is so vast and unknowable that the best way I can think of is talking to people who found at least the few fixed points in that floating environment, that makes sense to them. It’s a delight to hear these things and to hear people confirming them. Someday, I’d like to have Ed Roberts on and I’ll challenge him on that.
Beth Marcus: He has lots of good data and in general many of … If you aggregate into a group, everything he said is true and that’s the biggest finding, but there’s always outliers. I mean, I live my life being six sigma about everything.
Sal Daher: Exactly.
Beth Marcus: For those of you who aren’t geeks that’s on the edges of the bell curve.
Sal Daher: Way out there.
Beth Marcus: Far away from the mean.
Sal Daher: Six standard deviations away from the mean. Most of the MIT entrepreneurs I know in one way or another are out there as well. I think that’s why we like to help each other.
Beth Marcus: I understand. Your advice for entrepreneurs and founders, perseverance, networking, keeping an open mind and listening to people even when they may not really understand what you’re telling them because that’s telling you something is wrong.
If you get a negative opinion from somebody, you’re going to learn something. Even if you don’t agree with what they say, if you analyze why they said it, how they said it, then you can figure out, “Well, there’s an element of truth in that that I should explore and that might lead me to conclude something really important about my business.
Sal Daher: Coming up next, I will ask Beth Marcus what she looks for in a venture investor. First, however, I wish to invite listeners to review our podcast and iTunes to help get the word out about Angel Invest Boston podcast. Particularly interesting reviews will be quoted in future episodes. Beth, what do you look for in a venture investor?
Beth Marcus: I look for somebody who has some experience themselves, has connections and wants to help and support what I’m doing and question. I don’t really love it when people go, “Oh, you’re wonderful. You do everything.” I haven’t done everything right in any of my ventures. The trick here is to figure out what you’re doing wrong quickly and change because markets evolve and the world evolves. When I started my last company, Playrific, there were no iPhones, no iPads.
Sal Daher: I’m an investor. I remember.
Beth Marcus: Now, in the first year, the company started playing around with them and now that’s the world of kids. They live on them and that’s a very short period. The company was found 60 years ago. Things change so rapidly. If you’re not out there testing your hypothesis all the time, then you’re behind the eight ball. Some of my companies have been about 20 years ahead of the eight ball and that’s a tough place to be in. That’s something I still need.
Sal Daher: It’s just as bad as being behind the times. I mean I heard about that.
Beth Marcus: I mean there have been hundreds of millions of dollars exchanged on some of the patents that I created in my first, in my third or fourth company. I’m not begrudging the people who bought the companies but I have a different approach to founders and has a bring IP into a company than I used to because I’ve seen the cycles of success and failure. If you don’t have rights to your IP, if the company goes down, then it ends up in a closet somewhere or in the hands of a troll which is like terrible.
Sal Daher: The worst thing in the world. I know someone who is a partner in the leading patent law firm in Boston and they said at one point, the firm had a policy of investing in the patents that they wrote and they lost money big time because most patents end up sitting in a closet because I think it’s a concept that Ed Roberts and Bill [Allen 00:23:12] at the Sloan school.
They talk about innovation being the product of invention times commercialization. There are lots of patents that are still lagging commercialization. They need to be commercialized.
Beth Marcus: I’m doing a bunch of IP consulting currently because I’ve done litigation and prosecution. Prosecution is writing the patents and getting them to be reasonable so that the patent examiner will grant you something and litigation is obviously what it is. I’ve luckily been totally behind the scenes helping people with patents that I created actually fight other people.
Sal Daher: I’ve been doing a lot of patent strategy for at least stage companies that have revenue for some venture friends of mine and the founders don’t understand IP, don’t understand from day one in the startup, you need an IP strategy even if you’re not writing patents. You just need to know what’s the landscape out there look like? How can you be free to operate and are there things that want to be trade secrets or want to be patented and what’s the way to minimize the cost and maximize the value?
Usually when entrepreneurs go to a law firm and ask, I want to patent this, the lawyers will patent for them, will apply for an application depending on who you got to either a provisional or a full application but somebody needs to stop them before they do that and think about the trajectory of the business, where they’re making money, where they want to invest their efforts and how they can give themselves an unassailable or defensible position with whatever IP they create. That’s missing from a lot of these companies. I’ve done four or five of them so far with my CTO from Playrific. He and I have been consulting, helping others.
Beth Marcus: It’s very hard for a lawyer because they have to be very narrow on all the legalities of patent work to broaden their minds and look at the business consequences of what’s going on. I think there are some people who do that. Some lawyers actually do that but it’s very rare. It’s very hard to find.
Sal Daher: You need somebody who’s a creative entrepreneur who works with somebody who’s a conservative understanding of patent person and that’s why my CTO Ted and I are good together because on the way out, they’re a thinker and I can tease those ideas out of the entrepreneurs of where they think it might go and how their ideas and concepts based on what they’re doing today can protect the future and what are they operating on and things like that.
He’s very pragmatic and practical because he has loads of experience. We provide a sounding board for the entrepreneurs to create their own strategy and then we launch them with a law firm they like and we get out of the way and we’re just available if they’re not sure. “Should I invest in patenting this now? Can I do a continuation or should I do a separate application?”
Their lawyers typically will have opinions about that but they need somebody who sat in their own shoes to help them filter through the choices because their choices in how the team spends time because it’s a lot of work and how the company spends money. There’s delayed tactics so you can delay spending money but there’s also in some cases reasons to accelerate because having issued patents can help in an exit strategy and if your market is moving fast, you may not want to delay. You may want to figure out how to pay for that to get issued now.
Beth Marcus: Now, you mentioned patent trolls before, freedom to operate. Have you run that across your space, in your consulting work and your entrepreneurship? I have had some interactions with some of the largest aggregators of patents throughout my career and some of them are trolls and some are not and I fought against some trolls. What do you want me to talk about with respect to advising people?
Sal Daher: I mean when I’m looking at a startup and that it has something that looks like there might be IP written about that, I start thinking about freedom to operate that someone has written patents around that space and it is incredibly expensive and difficult to figure out if they really do have freedom to operate. It’s much more expensive than filing a patent.
Beth Marcus: Here’s the deal with this. My advice in general is you’re never going to do it perfectly. You’re investing in the people. You’re investing in their ability to understand the landscape of the business and patents are a supporting strategy. If you have somebody smart and motivated and they have a competitor that has some IP, there are ways to patent around it for protection overtime.
Sal Daher: Or in the ultimate license, the technology.
Beth Marcus: Make a win-win situation. I got something that will stop you doing something you need to do. You have something that could stop me doing. Let’s just play. You have to have entrepreneurs think of patents and patent applications as trading stamps. They’re collecting a book full of trading stamps that may or may not get used so they need to minimize the spend on those trading stamps and maximize the coverage.
Beth Marcus: Excellent, very interesting. In episode one of our podcast, Michael Mark, who’s invested in hundreds of startups said that he could think of only one company that actually succeeded according to its original business plan. All the other ones had to make drastic change in plans that goes by the names of pivot. This takes us back to Exos and your … When is it that you had that insight that you could change from being a medical device company measuring people’s hands for hand surgeons and so forth to it becoming a game controller or so to Microsoft with great success?
Beth Marcus: Actually, it was the founder of Logitech, Pierluigi Zappacosta.
Sal Daher: Who had that idea.
Beth Marcus: I mean he specifically focused us on joysticks because he knew the market. We said this technology we have a breakthrough in our NASA grant, we know how to make this stuff inexpensive so let’s put it into a mouse or CAD device and went to Logitech with 20 drawings. I still have them in my attic of all the different market segments we could do. A joystick was not one of them.
Pierluigi said, “If you can make a joystick for 100 bucks, we can make a lot of money.” I spent three months with my then president of the company at Harvard along Carl Muscari looking into was Pierluigi right? When we determined he was right or we believed he was right, there was an opportunity for this, we then signed a contract with Logitech and they gave us some money to build the first prototype.
Later on, Pierluigi who I’m friendly with said, “We didn’t think you were going to be able to do it, but we figured we learned a lot from the process.” VR was very hot at the time. I mean, there’s a lot of unbelievable stories in this, but we took this fancy hardware in a Silicon Graphics machine out to California to show to Logitech and also to show to some investors.
That was during the earthquake. We had to drive from San Diego all the way up the coast because we were worried about flights and things like that. Anyway, we went there with big clunky hardware that had a run on quarter-million-dollar pieces of equipment which had been loaned to us by Silicon Graphics because we couldn’t afford it and told them we’d make this thing and they signed up for it, gave us some money to do it and one of the investors who had been an investor in the medical company gave us some money to do it.
We went back and we spent three or four months. There’s one at the MIT museum I donated one, but I still have one in my attic, what we called the bowling ball because there was no 3D printing then. We had to take a big chunk of aluminum and put it on a layer then turn it to make a dome to put all the motors inside of it so the joystick could stick out at the top and that original prototype was a cable driven device and had four pounds of force at the handle. It could throw itself off of the table.
Sal Daher: Oh, wow.
Beth Marcus: It was way over designed. That was a starting point where we proved we could hook it up to a PC and you could feel something. That led to figuring out how to make particular type of gears do this stuff, cheap sensors, make things out of plastic, reduce the force and still have the perception that you’re contacting something hard which is something that current VR and AR haven’t figured out yet.
They’re still doing vibration and things like that. They’re not doing reactive force because they think where would you ground it too on the body? It would be big and clunky. I’ve built some stuff in the last year. It’s not big and clunky. It’s one of the things that I would like to find somebody who wants to take these ideas and technologies and make money with them. I’m out there looking around for that.
I don’t want to run another one. I want somebody else to do all the heavy lifting that’s part of an early stage company. I was talking to a friend of mine yesterday about this. We both run a bunch of companies and neither one of us really wants to o a stage zero because there’s the fundraising, there’s the concept, there’s the development and there’s all of the paperwork and the HR and all this stuff that you have to be a jack of all trades in the early stages.
You don’t have to love it all. Probably 75% of the time, you’ll be doing stuff you don’t love but the 25% of the time when you’re really creating, and enhancing, and selling, and serving customers is the exciting part. You do the other crap and so you can afford to hire people who love that part of the business. That time between zero and when you have a small team and you got somebody who loves the spreadsheets and the numbers. You have somebody who loves dealing with people’s issues. Until you can afford those at least part-time, the entrepreneur has to do it all.
Sal Daher: I think there’s an element also of time of life. when you’re a younger person, you have a lot of time but you don’t have a lot of experience. You’re still a young woman but you’ve been through a lot. You have a lot of hard learned lessons so it’s perhaps more effective in terms of transmitting that to a bunch of people who can benefit from that instead of you spending your time bumping your head which you’re not going to do because you have a lot of knowledge about this but it’s a lot of-
Beth Marcus: Any venture has a lot of-
Sal Daher: Has a lot bump in your head.
Beth Marcus: -beating your head against the wall and making mistakes until you figure out a market that needs what you have, when you have it and in a scalable fashion.
Sal Daher: Perhaps I’m talking about my own feelings about it. At the stage, I couldn’t do a technology startup because of all the stakes you got to make and it’s just physically taxing at the hours that I’d have to work. It would be brutal.
Beth Marcus: We discovered that we have lives outside of our ventures. Right after I sold my first company at Microsoft in 1996, I started a book called the Instant Entrepreneur and why there was no such thing. I interviewed Bob Metcalfe. I interviewed the founder of SimCity, Maxis founder who had been instrumental in pointing me in a certain direction.
I interviewed Pierluigi Zappacosta, I interviewed somebody from Warburg Pincus who had been an adviser and I put together these and Don Sparrow who is a mentor and adviser who coined the word patent flooding in dealing with Mitsubishi on used patents. I interviewed each of them and I said, “Why did you help me?”
Then I asked them what was the process of deciding that when I approached you, you were going to provide me with advice and connections? Then I also asked them about life after their venture. Everybody who acts poetic about the time when they were six to 10 people working really hard staying up all night solving problems. Many of them look to do that again.
Then I got involved in a bunch of ventures and I never finished the book. I think after Zeemote, I picked it up again because I do photography so I had these fantastic portraits of all these people that I had taken but those people were not in the limelight anymore. The book publisher said if I wanted to do this book, I had to start with different people and do it all over again.
Sal Daher: The thing about this, especially investing in the early stage is that the technology is always changing but people are the same. It’s very much about human nature. I mean, the lessons that you’ve distilled, your advice to entrepreneurs is very much about human nature, about the openness and persistence. It’s not about this technology.
Beth Marcus: An honesty with yourself and your investors is important too.
Sal Daher: These are things that get timeless.
Beth Marcus: Yeah. That’s why investors invest in people. There’s lot of ways to paint an opportunity as if it’s a huge, wonderful opportunity. Everybody knows you can make the data say whatever you want. Anybody with a PhD can make the data say what they want it to say and a lot of people without PhD’s. It’s really about do you perceive that entrepreneur as honest, hardworking, coachable and willing to admit mistakes and learn from them.
Sal Daher: Which gets us back to human nature.
Beth Marcus: That’s right.
Sal Daher: It’s all about.
Beth Marcus: People invest in people. They invest in who they feel comfortable with. A lot of the MIT connected investments are because you have that shared experience and you know if they went through that and they got out with their degree, they have a certain level of competency and certain things. Then if you layer on that, their interpersonal skills and the opportunity, then you can make your decision.
Sal Daher: One of the things a lot of people don’t know about MIT is people think MIT must be tremendously competitive. Must be like sharp elbowed premeds. It’s not. It’s incredibly collaborative.
Beth Marcus: It’s collegiate and collaborative in a way that I haven’t found in many other places.
Sal Daher: That’s a surprising thing about the place and unique. People talk a lot about corporate governance and their eyes go [inaudible 00:38:12]. Give me some compelling reasons why an entrepreneur should really think very hard about having a board of directors, a functioning board.
Beth Marcus: I advise two things. A functioning board as early as possible and I’ll talk about that a little bit. Then a board or a bunch of individual advisers that are on the side of the entrepreneur. They don’t have to be on the board of directors who he or she can turn to get relevant advice and balance ideas outside of the board because the board of directors has a fiduciary responsibility to shareholders and so they look at things differently than somebody who’s you’re buddy who has experience will do.
They have to think about is this decision in the interest of the shareholders? They can’t fall in love with the future as much as you do or as much as you might be able to convince your advisers to. Your advisers can help you take that falling in love with the future and turn it into a rational business sense before you bring it to the board.
The board should be people that you respect and trust who have a different background and perspective than you. In some cases, it’s great if you have a tech founder to have people with financial and business savvy on your board to say, “Hey, you need to do these five things because you’re going to be bought someday or you’re going to go public someday.”
If you don’t do these things, then it’s going to cost a lot of money and take time. That time can make it so that that transaction never happens. I also believe in separate from the board of directors informing all your investors on a regular basis.
Sal Daher: You’ve been really good at that.
Beth Marcus: Except for since February when I haven’t been allowed to. It drives me nuts.
Sal Daher: I know. There are reasons for that. I like to ask startups in early stages. Ask the founders to report on a monthly basis but not long reports.
Beth Marcus: A few paragraphs in an email that just says, here’s the good, the bad and the ugly.
Sal Daher: We have so much runway. We’ve done this in a month.
Beth Marcus: Thus, happened good because a lot of entrepreneurs like to give the rosy picture all the time and don’t like to … They put lipstick on the pig.
Sal Daher: You got to break bad news to people and the best way to do it is slowly.
Beth Marcus: They don’t get surprised.
Sal Daher: “We tried this. It hasn’t work and so forth. We have some indications but we’re going to run out of money before …” You don’t want to come in and say … You haven’t heard from them six months and they come in, “We’re out of money. We need a raise now,” which has happens more than you want.
Beth Marcus: I mean just a paragraph or two on a regular basis and then a couple times you hear something more advanced and informative. I found that with my investors if I don’t out it in the email, if I put a power point or a bunch of … 99% of the them never read the other stuff.
Sal Daher: They don’t read. You got to put an email.
Beth Marcus: You’re spending all this time creating something and it’s not going to get looked at. What you want to do is create it because you need it for the board who are going to look at it and then take excerpts out of it that are at the crooks of the matter of where you are, how you’re doing, what you need. I always try to put an ask in my emails which says, “What we’re looking for now is a B2B sales guy or what we’re looking for now is customers that look like this or distribution like this.
Sal Daher: That’s the tech star’s advice. They advise that.
Beth Marcus: Always ask because your investors want to be useful. They want to feel like they’re engaged with you.
Sal Daher: Most importantly tell them the truth because they are the people who want you to succeed. They’re in your corner.
Beth Marcus: Once they right that check, they can’t call it back.
Sal Daher: They’re in your corner. Wait for the check to clear.
Beth Marcus: Yeah, really.
Sal Daher: Three days, check cleared. In your corner, they’re invested. They’re almost like your mom wanting you to succeed.
Beth Marcus: No surprises. That’s the biggest advice to entrepreneurs. Make sure your investors don’t have surprises except good ones.
Sal Daher: Those are wonderful.
Beth Marcus: Good surprises are fine. Other surprises are not. That leaves me to another thing you probably were going to ask about which is HR and people within the venture which is hire with great diligence and fire with great speed. If your diligence proves to have missed something then it’s in your interest, the person’s interest and the company’s interest for you to acknowledge your mistake and get on with your life and just say, “Hey, this isn’t working.”
Sal Daher: A person who’s not working out affects other people who are. They delay the company, you lose all time and they all time in their lives because they’re pursuing a path that’s not going to work.
Beth Marcus: I can’t tell you how many times people said, “I can’t fire that guy because I don’t have anyone to take over.” Just like with taking a check from an investor, ”Oh, I have to take this because I don’t have a choice.” There’s always a choice and there’s always another way whether it’s a person or a financing. You have to do your diligence and you have to say, “What are my alternatives? How else can I make this thing go? How can I get customer financing? How can I find somebody who I can consult with and try a little bit to get to know them because I’m not sure?”
Sal Daher: You’re talking about HR. How about the situation of “firing yourself”? Your CTO founder and you come to the realization that you’re a zero to one person, you’re not a one to N person to quote the computer TL.
Beth Marcus: My strategy is this. If you look at every hour you spend at your startup as an investment of dollars because you’re an investor just like all of your shareholders are an investor. You’re just doing in it in sweat equity. Why would I want to take something that I’ve invested in and have somebody who’s not the best person for the job in that job at any given time?
There’s a balance between learning as you go because you can’t describe the job properly yet and you don’t know who you need and you’ll muddle along until you get to that point where, “Oh, I’ve sold this to four people. Now I know what kind of salesman I need. I have 10 people and when I get to 12, I’m not going to know how to manage this organization.”
Sal Daher: You have to have the self-knowledge to fire yourself in that job.
Beth Marcus: I mean I brought in my COO at my first company, Exos when we had eight people. We had just gone through the pivot from medical to consumer. No, actually we were in medical still. We were on our way up, had the Columbia deal, eight people and I realized that I didn’t know anything about running an organization with more than eight people.
We got up to 25 people in the medical business and I brought in this guy, Carl who is still a good friend of mine. Who was HPS guy, a COO initially and then made him president later when he said, “If you don’t let me do my job, I’m quitting.” I said please do your job. He became a mentor for me teaching me how to let go of things enough so that we could be successful.
When he decided that he couldn’t raise another round and he didn’t know consumer, he fired himself and we hired Steve Morris who had come from the game industry and he helped me do the transaction with Microsoft. It’s knowing yourself and looking yourself in the mirror and going, “What am I good at? What do I get up in the morning jazzed about and how can I get other people to do those other things as quickly as I can and as cost effectively as I can?”
Sal Daher: Great.
Beth Marcus: Maybe we should talk about the exits.
Sal Daher: Exits, yes. A topic near and dear to angel investors to the heart.
Beth Marcus: I can tell you how many times I have sat down with other entrepreneurs and they have said, “Well, somebody offer us 15 million for the business but we think we can make it $100 million business in a year or two.” If somebody offers you a check that’s any multiple on what you brought in to the company to do it, you better think hard about taking it or finding way to make it a success at that point because that particular company I was thinking about, I had lunch with a guy and he turned it down and the market tanked.
He ended up buying the company back from the venture investors and restarting it him and his brother. It became a lifestyle company for a while and I think it’s growing again, but so many people turn that offer down and then don’t have the time, the money or the passion to see it through the next cycle and figure it out and make sure it big enough to make it worthwhile. It’s the time value of money thing. if you can make two to three X, two to five X, you’re doing phenomenally well.
Sal Daher: Absolutely.
Beth Marcus: Angels like singles, doubles and triples because going for-
Sal Daher: In a short time, yeah.
Beth Marcus: I mean people who came in to Exos right after the pivot in 18 months tripled their money.
Sal Daher: Jean Hammond, entrepreneur, tremendous-
Beth Marcus: She’s on my board.
Sal Daher: On your board.
Beth Marcus: She’s invested in few of my company. She’s great.
Sal Daher: Amazing, amazing entrepreneur and an angel investor. She makes this point sometimes when I talk to her because somebody is saying, “Oh the 10X exited.” Doubles and triples is really what carries your portfolio.
Beth Marcus: You never going to know if you’re going to be a 10X until a second before it happens. You got to encourage the companies to build solid business now. I used to be a swing for the fences kind of person. I have experience now. If I can’t see my way to where I’m going to make money tomorrow then I don’t understand my business.
Sal Daher: This brings me back to the last interview we have with board member, Ben Littauer. He says it this way. He says, “You have to remember that they shouldn’t call it a valuation. They should call it a price.” What’s the price of your company? A valuation implies that it has an implicit value that you have this precious thing that no one else can compete with that has just wonderful thing.
Price means what someone is willing to pay for at a given moment. If someone comes up to you and offers you a price, that reflects that that person thinks they can do a lot with your company and you say to yourself,” Maybe they can do a lot more than I can do with it because they have scale.” In biotech, in pharma, a pharma comes to you and says they can do a lot more with your company than you can ever do on your own with all the distribution
Beth Marcus: You can also carve up the apple. If somebody wants it and you think that it has other applications, and you don’t necessarily want to go to that company, cut them a sweetheart deal to own that chunk of it. Divide and conquer. If you’re good at developing these things, become the research engine behind a lot of business instead of trying to learn how to do something you don’t know how to do. Get people who already know how to do it to make you money.
Sal Daher: I’m going to send a clip of this to some of the founders that I’m invested in right now because they’re swing for the fences type of guys who want to go and have an IPO and all this stuff.
Beth Marcus: I’ve never been interested in having an IPO. One of the companies I am an adviser to is Pixability. They’re doing really well. I don’t even know how tiny my share of stock is.
Sal Daher: I’m an investor in Pixability.
Beth Marcus: I got it at the beginning. It’s been diluted a lot but they’re growing. I think they’re ultimately interested in that and I can’t understand why they should want that [inaudible 00:50:19] personally because it’s freeing load of work.
Sal Daher: It is.
Beth Marcus: I think the entrepreneurs have been successful a couple of times and they think that they can get there and that they’re in the right place at the right time. if they do, that’s wonderful but if somebody makes them a good enough offer and Bettina calls me up and says, “What do you think? I’d say, “How much are you going to get? How much are your investors going to get and how many more times is that going to be if you swing for the fences and do the time value of money calculation and 99% of the time you’re going to take the deal?”
Maybe the deal is quite sweet enough then try to carve something out or try to edge them in to being sweet enough. When Steve Morris, the guy who run Exos during the exit, we were in the room with Microsoft ad they said, “Well, we’ve been authorized to give you this many dollars. He could see that I was upset. He kicked me under the table and said, “Let’s have a little recess. We have to do some emails and we’re going to think about this.”
He took me into my office and he said, “That is just the number. You have all the other aspects of this. By the time we’re through making this into a term sheet, it’s going to be a great deal and you’re going to take it.” I said, “All right. Lead me to the water.” We sat in my office and we spent an hour but we only took 10 minutes to do it and we bulleted all the items that we wanted, in the cash value, in the placement for the employees who were not going to go to Microsoft and a bunch of other stuff. Then we sat there waiting so they would think we were really thinking about it. We went back to the room and we signed the term sheet right then.
Sal Daher: It shows you how domain-dependent knowledge is. Morris is a guy who came from that world and he understood it and it was-
Beth Marcus: I had no experience.
Sal Daher: Despite bringing brilliant, unbelievable inventor.
Beth Marcus: Learning a lot of over the last couple of years being in and around it but I didn’t have that business acumen and I recognized that somebody else did. I allowed them to lead me.
Sal Daher: That’s amazing. It reminds me of something of a book I’m reading right now called Knowledge Matters by E.D. Hirsch. He’s a big proponent of core knowledge and he think it builds equity in the educational system. At one point, he’s talking about how reading is domain-dependent and Steven Pinker blurbs the book so it’s really interesting.
He talks about an experiment that they did with kids who are poor readers. “12-year-olds were poor readers,” but who know a lot of baseball comparing them with 12-year-olds who are really good readers but knew nothing about baseball. When the poor readers were reading about baseball they were fantastic readers and much better readers than the “good readers.” With our, what is it, 4K working memory for paying attention and so forth, we really are very domain-dependent. This calls back to your point about networking and asking other people for their input.
Beth Marcus: Exos started out as a technology looking for an application. A lot of entrepreneurs who are techie start that way. In subsequent ventures-
Sal Daher: Ed Roberts is nodding.
Beth Marcus: In subsequent ventures, and people I advise, I try to not … If somebody has a technology looking for an opportunity, I try to tell them to take the opportunity and look for the technology because if you’re 10, 20 years head of things like I was with Exos, because of that and it took several pivots and if I hadn’t met the right people at the right time we wouldn’t have survived long enough to make those patents valuable because it took us seven-and-a-half years from start to exit. It took another 10 years after that until the patents got litigated.
Sal Daher: Right. You need to find the use first and then bring the technology because there’s a lot of technology and the uses are-
Beth Marcus: Smart people can always make something that does a portion of what the market is asking for. They can go and scour the world for sensors and designs and software.
Sal Daher: Absolutely.
Beth Marcus: There’s always going to be new elements of that. Most of them don’t change the world by their existence.
Sal Daher: Have you met Daphne Zohar?
Beth Marcus: No.
Sal Daher: PureTech ventures?
Beth Marcus: No.
Sal Daher: She’s a venture person here in Boston and she’s close to pharma and she had this idea instead of inventions looking for solutions, she basically got them to hire teams of market experts and isolate various areas where solutions are needed. For example, obesity, depression, schizophrenia, areas like that where good solutions are needed.
Then she went to other people and try to find who the people could best address this, put together teams and she actually has a company that went public in the London Stock Market. It has a bunch of startups. I’ve invested in some of them that’s why I know about this. That’s a completely different model which is how to create companies base starting with the need first and then addressing it. It works best for highly complex things in the life sciences because the product development cycle is so long. It’s looking interesting. That’s a different approach, different innovation. Maybe I’ll-
Beth Marcus: A friend of mine started a company. His name is Andy Levine. He’s at the Harvard Accelerator for Medical Technologies now but he ran GI Dynamics and he had a fund with several of his friends who got Orphan IP and made companies around then to liquidity. It was IP that was created by somebody that wasn’t being used that was relevant to a market that they knew something about. That’s another way to do stuff.
In the consumer space, I just spoke to somebody who had an idea to aggregate the marketing knowledge and research and bring a lot of companies that have gotten to a million to 5 million range who in consumer hit a wall. They don’t know how to sell themselves. They don’t know how to get into distribution. They don’t know how to manage the inventory. To aggregate these into a powerhouse of new product ventures.
Sal Daher: I’m thinking of a discussion that I heard some weeks ago about exactly this with the CEO of Harry’s razor. Basically if you’re a consumer brand, it makes sense that you want to be part of a stable of companies like P&G and so forth. They have a lot more reach than just being one very narrow brand doing this. Eventually someone will do that for these kinds of companies.
Beth Marcus: You can probably tell from what I’ve been saying about different people I’m talking to. I’m still doing the networking all the time. I’m trying to figure out Beth 2.0. Entrepreneurs should always be doing that because I want to leverage my expertise.
Sal Daher: I’ve got news for you. It’s not just entrepreneurs. Every person.
Beth Marcus: Everybody.
Sal Daher: Who am I going to be the next 10 years of my life. I’ve certainly done that. I have three or four careers. In 10 years, I’ll probably not be doing what I’m doing now. It will be very different. You have to have an open mind. You got to be talking to lots of people and people who know you. I ask them about that and be open to that.
Beth Marcus: I’ve flirted with joining the venture world a number of times. I’ve never found the right place. I look seriously after my first company and I found that when I went into the traditional VCs, there weren’t a lot of people that looked and sounded like me either. There would be one or two people that I would connect with and feel like we could really rock the planet.
Sal Daher: Beth, you’re in a position where you’re an entrepreneur who was raising money and you’ve looked at venture capital firms and say, “Oh, those guys have piles of money. They have no problems.” Those guys are under a tremendous pressure because the worse thing than not having any money is having money to invest.
Beth Marcus: Not being able to place it somewhere.
Sal Daher: Not being able to place it and be worried that you have to place in large enough chunks that it’s going to affect your portfolio and you can follow them at the same time. You’re worried that you’re going to miss out and the next fund over is going to outperform you. It is. It’s a very tough business to be in.
Beth Marcus: I think there’s a whole another way to do things than the traditional way.
Sal Daher: Daphne Zohar that I mentioned earlier, she’s trying to develop that.
Beth Marcus: I think that’s great because innovation in the structure of funding will impact innovation in the structure of startups.
Sal Daher: I’m thinking of someone else that I like to interview sometimes, James Geshwiler. I don't know if you heard of him.
Beth Marcus: I know him.
Sal Daher: He was saying, “Finance is broken and so forth.” Finance has been broken for a very long time.
Beth Marcus: People manage to make things happen despite that.
Sal Daher: Beth, with all the wisdom, your hard-won wisdom, can you wrap up, provide a capstone for our interview and sort of what would you like to really say to people?
Beth Marcus: I would say to people particularly millennials and young people, there’s never a better time than now for you to start something or as an investor, for you to learn about investing and don’t do all of the negative talking. There will be plenty of time for that. Just dive in up to your elbows and try it and know when you start, it’s going to change and it may succeed, it may not succeed and your company or your investments do not equal your life.
There’s life after everything so you got to get your priorities right first. When you’re on your deathbed, it’s whose around you and what have you left in the world behind you that has made it a better place. Stopping and not doing it will not get you to be happy on your deathbed.
Dive in and enjoy yourself and make sure the ride is worth it. Every second of the ride has to be worth it. You have to think about when you’re starting these things or you’re starting to invest, you have to get your family onboard and you have to have those conversations. I do some mentoring with people around that and then just do it. That’s what I always say. Do it, enjoy it and give back.
Sal Daher: Tremendous. If you’re a founder wondering how to fund your startup, check advice at Startup Doc. I also recommend that you get a chance to watch Beth speak live. Her enthusiasm and perseverance is just contagious. I mean, she energizes me. Sitting here, I’m like I’m drinking decaf coffee. but I feel like I’ve had a dose of-
Beth Marcus: Espresso.
Sal Daher: -espresso. You’ve been really generous, Beth to take time out of your busy schedule. You were traveling between here and London all the time and so forth. Our audience, I’m sure if they were speaking here, they would say that they’re very grateful for your gracious and generous advice. Listeners, if you enjoyed this podcast, kindly review it on iTunes. I’m Sal Daher. This is Angel Invest Boston, conversations with Boston’s most interesting angels and founders.
I’m glad you’re able to join us. Our engineer is James Willets. Our theme was composed by John McKusick. Our graphic design is by Maywood Art. This is Angel Invest Boston. I’m Sal Daher.