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Jay Batson is an angel investor’s angel investor. He’s the kind of guy who people like me, and lots of other people, go to ask really tough questions about angel investing. And, he always has really thoughtful ideas. Whenever I’m puzzling over something, I reach out to Jay. If I can get 10 minutes of his time it’s really precious. I really recommend this relaunch of my first interview with Jay Batson.
It is rare to hear reports from the frontiers of technology expressed so lucidly and accessibly by a real insider. This gem of an interview rewards the listener with Jay’s sensible and eloquently expressed explanations of the pitfalls of building products and companies. Jay recounts how angel investing taught him things he wishes he had known as a founder. He closes with wise words to recent college grads thinking of founding a startup.
Jay Batson started out as a land man helping oil and gas explorers secure drilling rights. Computerizing part of his work led to his first startup. This made him realize that he loved technology. He would eventually embody this passion for tech in the founding of two venture-backed companies which brought significant innovation by way of the open source movement.
Click here to read the full transcript of the episode.
HERE ARE SOME OF THE TOPICS INCLUDED IN THIS PODCAST:
Sal Daher’s Intro: “Jay Batson is an angel investor’s angel investor.”
Jay Batson Bio
Born to a Family of Entrepreneurs – Land Man Studying Law at Night – Tech Founder
Jay Batson Exits first Startup – Learns UNIX & C - Heads to Job with BBN in Boston – Massively Parallel Computing
Jay Batson Goes from Engineering to Product Management
At Forrester Research, Jay Batson Foresaw some of the Internet’s Potential
Desktop Internet Phone – Pingtel – SIP – Bits of Code We still Use Today
The Story of Acquia
Open Source Primer
Jay Batson Gets into Angel Investing
What Jay Batson Looks for In a Startup
What Jay Batson Has Learned from Being an Angel Investor
Technique Jay Batson Uses in Mentoring Startups
What Do Startups Most Frequently Not Do Well?
Jay Batson Relates the Story of Pingtel’s Pivot
Jay Batson’s Eloquent Statement of the Value of a Working Board of Directors
Jay Batson’s Advice to Recent College Grads Thinking of Founding a Company
Transcript of, “Open Source Dude”
GUEST: Pioneering Software Developer, Founder & Angel Jay Batson
Sal Daher’s Intro: “Jay Batson is an angel investor’s angel investor.”
Sal Daher: Jay Batson is an angel investor’s angel investor. He’s the kind of guy who people like me, and lots of other people, go to ask really tough questions about angel investing. And, he always has really thoughtful ideas. Jay had a really interesting career path. He started out as what used to be called a “land man”, a lawyer who wrangles with oil contracts in the oil patch. He eventually started a software company. He eventually ran Acquia which is a company that implements Drupal, this really powerful software that runs a huge part of the internet. The guy has a really deep, a really strategic understanding of things. Whenever I’m puzzling over something, I reach out to Jay. If I can get 10 minutes of his time it’s really precious. I really recommend this relaunch of my first interview with Jay Batson.
Sal Daher: Welcome to Angel Invest Boston, conversations with Boston's most interesting angel investors 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; people such as my guest today, pioneering software developer, founder, and angel, Jay Batson. Jay, I'm thrilled you could be here on our 14th episode.
Jay Batson: Thanks very much for the invitation, Sal. I'm happy to be your guest.
Jay Batson Bio
Sal Daher: Jay has been in software technology in various forms since 1984. Most recently, he was founding CEO of Acquia, a fast growing commercial open source company providing subscription services for enterprises using Drupal. Some of the most high stakes websites employ Drupal. This gives you a sense of how significant Drupal is in their back end. From programming C++, Java, to being the CEO of two startups backed by venture capital, Jay has been involved in bringing a wide variety of technology products to market through direct development or acquisition of key technologies. He is a much-prized mentor with MassChallenge and Techstars and is on the board of several startups lucky enough or smart enough to have him as an investor. Jay also spends a morning every week listening to pitches as a Sigma Prime fellow at the eponymous VC firm.
Now, Jay, it's a custom of our podcast and is a service to young listeners for me to ask my guest how they found a career path. You have a particularly interesting one, so tell me, what took you from working in the oil fields, signing up leases, to getting a law degree in night school, to eventually founding your own start up?
Born to a Family of Entrepreneurs – Land Man Studying Law at Night – Tech Founder
Jay Batson: It's not as crazy as it sounds. My family is a family of entrepreneurs. Both my parents were in business that they started or small businesses that they joined, so I had that in my blood along the way. After a couple of jobs in things like real estate appraising and mortgages, I found my way to the oil and gas exploration business in Denver at a time when that industry was growing quite quickly in Denver. I found a job that I could get into without being a geologist, the job was called being a land man. A land man's the guy who goes out to the court house and figures out who owns what mineral rights where and tries to secure the right to drill on them. In the west, a lot of those mineral rights are owned by the federal government and by the states, so you spent a lot of time in the bureau of land management offices as well as the state oil and gas commissioner's offices. Those latter two maintain records that are a lot more computerized and standardized than the privately held stuff. It occurred to me somewhere along the way that I might want to figure out how to make getting at that excess easier.
While I was in oil and gas and doing the land man work, most land men that were going to go somewhere in their careers were lawyers, because there was a lot of contracting and legal stuff involved, so I started law school at night to supplement that career path and about halfway through law school decided I could maybe think about how to standardize and make getting access to all these land records easier. I started my first company with $100,000 of angel money raised from other oil and gas executives who saw the same thing and I did everything. I was chief, cook, and bottle washer, so I wrote code, which I had learned to do in college, I went out and organized the teams that gathered all the information from the field to bring it all into the computers, and then sold a subscription service that provided information about that leasehold information on who owned what in the offices of the oil exploration company. They didn't have to send land men out anymore to go get that information.
Jay Batson Exits first Startup – Learns UNIX & C - Heads to Job with BBN in Boston – Massively Parallel Computing
That worked fine until the price of oil went from $45 a barrel to $12 a barrel in the oil crisis of the mid-80s. I had to sell that business for roughly what we had in it, but in that time, I had finished law school and I had learned to code in Unix and C. In the mid-80s, that was quite an interesting skill to have, so after I finished law school and sold the business, I had to decide whether I wanted to be a lawyer or be in the tech business. I had kind of an epiphany one night, that if you have a collection of jobs, all of which are going to pay you the amount of money that you want in order to have the lifestyle that you want, you should pick the one you go to sleep thinking about, because that's the one that you have passion for. I wasn't thinking about law at all, I was thinking about technology all night, so I decided to leave the law degree behind and go pursue a career in tech. I moved from Denver to Boston to go to work at a company called BBN building massively parallel computers, and that took me into the technology direction and I've been there ever since.
Sal Daher: BBN is a name that shows up a lot in these interviews. Maybe briefly could you just tell us one of your BBN stories to add to the collection of BBN stories?
Jay Batson: Sure. I worked for the portion of BBN called BBN Advanced Computers or ACI, Advanced Computers Inc. We were building massively parallel supercomputers for use in very large scale scientific and defense kinds of applications. I came in as a junior engineer that did everything from helping customers to maintaining some of the user level utilities and doing a very small amount of internal Unix kernel work. Because I am a somewhat social person, they would often send me out with the new computers to the customer to help train them and get them up to speed, so I got to see all kinds of interesting places. I got inside the NSA in the places where you have to go inside a big vault door that closes behind you and is only three times a day as the shift changes, I got to go inside Lawrence Livermore Laboratories where you were miles from everywhere and everything was fairly shielded and the whole nine yards. Couldn't take my own laptop in, you leave all this stuff out here and you take what's in your brain inside and take what's in your brain out. Into Argonne National Labs similarly, so I got to see all kinds of really interesting places with very interesting work going on that at the time was pretty black and I had the security clearance and the whole nine yards. It was actually quite remarkable.
Jay Batson Goes from Engineering to Product Management
It also allowed me to make the next shift in my career from being an engineer. I came back all the time with requests from the customers about what they wanted the system to do, which turned into being a product management job. Over the course of time, I shifted from being a techy to being a product manager and that took me through the next portion of my career as a product management guy.
Sal Daher: Fantastic. I mean, BBN, it's amazing. Leo Beranek, he started making headsets for bombers in World War II because he was an MIT acoustics specialist and he got a contract with the Defense Department, and then from that he built BBN which is a business that eventually would create the protocols for the internet and all this stuff, because he had this connection with Washington and they trusted him to do stuff in a proper way and so on, which is a remarkable thing. You went on next to Forrester Research in the early 1990s and you had views about the developing internet which were at odds with common beliefs at the time. Would you care to talk about that a bit?
At Forrester Research, Jay Batson Foresaw some of the Internet’s Potential
Jay Batson: There was actually another stop along the way through a company called Cayman Systems, just to put a pin in it, which actually is what lead me to Forrester because I helped build some of the first dial up network access devices while I was product manager at Cayman. I had used the net quite a bit at BBN because of course BBN helped build it, and frankly George Colony, the CEO of Forrester, brought me over to Forrester to write about IP networks in general, I joined the network strategy team. I was the only guy in the group who never used the net, and frankly I got us onto the internet while we were in there. I had had a few years of experience working with that and kind of knew what was possible whereas at that time most analysts didn't. This is at a time by the way, this is probably 1994 or 5 where it was stilled called the NSFNET, the National Science Foundation Network, because they were the operators of a post ARPANET. You still had to sign the NSF acceptable use policy which said you were only going to use the network for purposes that were appropriate for the government. There weren't many operators around and it was really quite still immature.
I made the assertion at the time that this would become a widely-open public network, because I saw early enough the transition from ARPANET to NSFNET and NSF's intention to make it be a public network. I saw the operators of the sub-regional networks that were operating it were commercial companies who were poised to grow and raising capital to grow, so the signals were all there. It's just that nobody else was seeing them, so fortunately I had the ability to write things talking about what the new public internet was going to look like as compared to what people saw the ARPANET was about before.
I actually had some fun with that. There was a piece that I got the right to reproduce from Forrester on my blog, startupdj.com, you can go there and look for an article I wrote in 1995 that did kind of a future hypothesis of what things might look like in 2005 and doing a kind of 10 year look. Boy if I just invested the way I wrote, because there were so many things that were kind of easy to foresee if you looked ahead, and I wrote some remarkable guesses about what might happen that turned out to be quite accurate, I just wasn't smart enough to invest alongside them. I wish I had been.
Sal Daher: I know a lot of those regrets. After that, you founded Pingtel. Tell me the story there?
Desktop Internet Phone – Pingtel – SIP – Bits of Code We still Use Today
Jay Batson: Actually it flows from everything we've just said. When I was at BBN, we did use the internet for rudimentary voice, just as an experiment. There were some applications you could run on UNIX computers that would, if you had an appropriate sound card and microphone on your computer, you could do some experimental talk over the net. I knew that capability was possible and then at Forrester, one of the companies that came and pitched Forrester was a company called VocalTec, which was an Israeli company that built some software that allowed PCs to start to do communication across the net. It was obvious to me that at some point, the efficiencies of the way the internet was built were going to surpass the way traditional switch telephone networks were built. Using the internet for voice was going to be obvious at some point in time. The question is when was the right combination of stuff going to be in place. You had to have a network that was ubiquitous enough, you had to have well-enough managed networks inside of businesses, I was thinking as business applications here, you had to have enough backbone in the internet so that voice packets wouldn't get lost too much and have choppy voice. A variety of things had to be in place.
Around the time of 96, 97, I was at a company called ON Technology which had gone public and I was looking for another challenge and thought this might be the time. I started a company called Pingtel, and if you're an IP geek you might know what ping is in terms of the application you use to test if the device is at the other end, so pinging intel was kind of fun. We were the first to actually build the first concept of a smartphone, we had a desktop phone, enterprise desktop phone with a processor and memory that ran a Java virtual machine in which it could run applications. In some respects, it's actually even the forerunner of the iPhone which was targeted at enterprises in-
Sal Daher: Except that you had to be a giant to put it in your pocket.
Jay Batson: Yeah, it was a desktop phone. I will admit our timing was off on that for a bunch of reasons. It didn't work out the way I would've hoped, but it was a natural extension of saying we had seen this opportunity at BBN and then again at Forrester and it was just a matter of what was the right time.
Sal Daher: Very interesting. Could you talk a little bit at a high level about the impact of the session initiation protocol, SIP, in all forms of digital interaction, you know, communication?
Jay Batson: SIP was a groundbreaking protocol. Most people don't know what protocols are. Protocols are the way that two devices on the internet decide to talk to each other. You sometimes will type HTTP into your browser, that's a protocol. Underlying each HTTP is something called TCP and UDP, these are various layers in the stack. Not all of them can serve all purposes, and so the session initiation protocol was designed to have two devices have a constantly open connection with each other and send packets back and forth of audio and video and other things like that. There wasn't one that was good at that at the time. It was a collaboratively designed protocol done under the auspices of an organization called the Internet Engineering Task Force or IETF, brilliant guys that worked on all the stuff, and we were proud to be contributors in various ways at Pingtel. We actually were quite well-known for being the best implementation of something called the user agent, which was the end user device that people used. We were kind of the king of the Power Point presentations with this smartphone that ran SIP and we were influential in shaping how the protocol was created. Since then, it's gone on to be the foundation for a whole bunch of activities that you use on the internet and you probably don't even know about it. It was an important revolution in that timeframe.
Sal Daher: It's everywhere, it's seamless, like so many…it's really a treasury of pieces of code that make our life so much easier.
Jay Batson: It is.
The Story of Acquia
Sal Daher: Yeah. Really wonderful. Now I'd be interested if you could tell the Acquia story? You know, how did that get started, and your role in it, and so forth.
Jay Batson: As is often the case, things are always just flowing from one thing to the next based on what your experience in life was before, Pingtel, our original plan was to sell the smartphones to business through commercial carriers like MCI and AT&T and Verizon and others who would provide some of the switching and call setup and tear down infrastructure in the cloud as part of the service. All a business had to in order to setup a phone system was have a phone set on their desk and have an internet connection and sign up to something online. We were early to that and the timing was off. It took a while for that to emerge. In fact, we were set to go in various ways in the early 2000s and then the telecom meltdown happened and a lot of those services got pulled back. Now it's really common to find, there's actually some very famous companies, fast growing companies here in Cambridge and Boston that are providing those kinds of services.
Since that plan didn't work and the telecom meltdown occurred, using today's language, we pivoted the company to providing a more complete system that wasn't dependent on the carriers, so we had to build all that infrastructure. The most effective way to go market was going to be to use open source to do it, to allow people to download it for free, use it free, and then we had a variety of services and stuff that we'd sell alongside of it that people could pay for in which we would make money. That plan eventually got us to the point where Nortel became a partner and acquired the company in the long run.
Sal Daher: Could you just back up a little bit and just go over the open source, how the economics works? I've heard you speak about this very convincingly and this is an area that you work in, so just explain more slowly, unpack it a little bit how open source works and how companies that work in it make money?
Open Source Primer
Jay Batson: Sure. For those who aren't completely clear, I'll do a quick description. Your computer runs software inside of the CPU that's executing using ones and zeros in binary. Some engineers somewhere wrote that code, they wrote it in a more English language or at least a programming language kind of way of telling the computer what to do and uses a way to turn that into ones and zeros. That software can be something that's only visible to the employees of the company that supplies it, we'll call that closed source software, so Microsoft and Apple and people like that are typical for writing the software and maintaining that source code as part of their own secrets inside the company, corporate secrets, corporate property. Alternately, that human readable code can be released to anybody on the internet via various mechanisms, typically through source code repositories that are publicly accessible like GitHub and places like that.
Sal Daher: Therefore the source code is open for people to look at, to comment-
Jay Batson: That's right. It still has some legal structures around it, so there are various licenses that the code will be tagged with and those licenses will provide more or less kinds of restrictions on its use, but nonetheless this code is available for other people to download. Typically, the goal is to try to get engineers around the globe to contribute code back to this software project. The code quality improves and the capability improves over the course of time through the community people that contribute to it.
Sal Daher: It's a little bit like Wikipedia in the sense that it gets amended by certain accepted editors and so forth, people who know what they're doing and so on.
Jay Batson: Companies who release their source code to the outside are no longer going to have exclusive rights to the ability to sell that code the way Apple or Microsoft might. Instead, they tend to make money around the side of the code rather than selling the code itself. One example is you might say, let me just provide subscription support of some kind. This is what Red Hat for example does for Linux. You buy a pre-compiled version of the open source code that's compiled for a bunch of different platforms, whether you're using an AMD or an Intel chip and whatever kind of network board you're using, they have a whole bunch of different variations that's ready to go. That support of packaging up Linux is what they charge you money for. They save you time and effort in your use of the source code, therefore you'll pay money for it.
We had a similar kind of approach at Pingtel, not to belabor that, but in the course of becoming an open source company at Pingtel, it taught me a lot about how to make money using an open source platform. When Pingtel was sold, I took a couple of years to just cool my jets a little bit, but in the meantime was working with a lot of open source projects and open source code. It struck me somewhere around 2007 that there might be another business in open source that would be interesting. I frankly set out to look at what kind of open source projects were out there that were credible, significant, had significant application but didn't yet have a company backing them. After some scouring, it really came down to a couple of them that were interesting to me, one of which is Drupal.
I took the time to reach out to the project leads for these various projects and asked what the project leads wanted to do with that software project, were they thinking that that wanted to be commercialized in any way. After spending some time, I'll call it dating, the various project leads, Dries and I, Dries Buytaert who's my co-founder at Acquia, really came to the conclusion that this partnership would be an awesome partnership, that the market opportunity for a company providing those kind of supplementary services around Drupal would be awesome. We had spent six months dating if you want to call it that to make sure we knew who each other were, what the vision for the business would be, what our relationship with the community would be, what our relationship with the IP stuff that was out, the intellectual property was going to be and what we wanted the company to look like, what kind of people would we have there, all the kinds of things that you have to decide. Then we found ourselves in common footing and formed a company and built it.
Sal Daher: Did you exit? Are you still involved with Acquia?
Jay Batson: The path was, I started the company with Dries, we raised capital together. We spent the first couple of years trying to figure out what we could sell. In an open source business, it's not always obvious what you can sell. For example, we created something called subscription support for Drupal. We didn't know whether we would sell a $250 a year package to all two million Drupal sites that there were or whether we'd sell a $2,500 package to fewer of them or a $25,000 a year package to even fewer of them. We literally put together a set of offerings at all three price points, just add a zero, and then differentiate appropriately and see what would sell the best and who had the biggest need and who wanted to pay for it. It was very clear within about 12 months that the higher end of the market was going to be the portion that would pay us for our service. We started to diminish our emphasis on the lower end of the market and on our upper end of the market and grew the company.
I grew the company with Dries as CEO for, I'd say a couple of years, I forget what the numbers are exactly and then we started to raise a series B and we were probably getting close to a 10 million dollar run rate and the question came to be, can we apply the gas faster here and am I the guy to apply the gas. We'll say that I was not kept voluntarily as CEO at Pingtel. I was replaced because after six years of it not working, sometimes you have to bring in a CEO. I had committed to everybody involved in Acquia, when the time came that it looked like we needed to grow faster and I would be more of an impediment to growth than a facilitator of growth, we'd find another guy and just wanted to make sure we found the guy and had the time to find it.
We set about looking for a long time for a new CEO and in fact, the guy we ended up hiring had been my outside board member as CEO since before the funding came in. Tom Erickson had been a retired guy up in the north shore of Boston not doing anything and he took on a board seat and was happy to help us out and even helped us with the search and we finally just turned to him and said, "Tom, you need to stop sitting around up in Beverly and come to work again and come take this job." By that time, we were a better fit for him. I'm a really good guy that can take early ideas and make them be real and Tom's an operating guy and knows how to grow it.
Sal Daher: You're a product guy, he's an operating guy.
Jay Batson: I often tell all the entrepreneurs that I talk to, there are stages in companies that you can almost add a zero. The first 10 million bucks in revenue might require a certain kind of person. 10 to 100 requires another kind of person. There's another 100 to a billion that requires a person. Often times a CEO can span two of those, but rarely can they span all three. I was more anxious to be rich than king, so I was happy to bring in Tom who was a very credible CEO who could make the company go faster than I could, so I brought in Tom. Then I stayed for two or three years after that and I did what I had always done, which was start new products. I found new areas for us to go build some things in, got some products built for us and worked on teams that did that kind of thing and then had the opportunity to get some liquidity out of the company and was able to change what I did.
Jay Batson Gets into Angel Investing
Sal Daher: Well that brings me to, how did you get into angel investing? What prompted you to write the first check?
Jay Batson: When I was leaving Acquia, one of the things that was curious to me was, there were a bunch of companies in the Drupal space that were all consulting companies that built websites, and a lot of them didn't want to keep doing that, because it's going from contract to contract, it's not the best work always, and a lot of them had product ideas. It occurred to me there might be a way to help facilitate a lot of them get into the business of being a more product company instead of a service company. I had heard about Techstars and knew that they had an accelerator that trained young entrepreneurs how to operate better, and so I asked the folks at Techstars if I could come sit inside of Techstars for a complete cohort of classes and see how it operates with the expectation that maybe I could start a Techstars branch for the Drupal community. They were happy to invite me in, so I was there all the way from the beginning of selection of the companies who would be part of the cohort through the entire three month class of stuff, through demo day and then for the time afterwards where they kind of help get the companies up and out of Techstars.
At the end of it I had to conclude that I didn't think the dynamics of the stuff that was happening in the Drupal community was really going to allow us to do that Drupal for Techstars, but it really attracted me into this community of people who were helping early-stage startups. I made my first angel investments while I was in Techstars as that kind of co-helper at that time and that just started me on a path that I've continued to this day.
Sal Daher: Awesome. Coming up next, I will ask Jay Batson what he as one of Boston's most sought after angel investors and mentors looks for in a startup. First, I wish to thank listener Drew Crit for this review, "I've been trying to learn about angel investing for some time now. Being in the Boston area, this was a perfect find for me. Looking forward to more great content." This is a review on iTunes and we sort of like to have people review us on iTunes. The Angel Invest Boston podcast has outstanding guests such as Jay Batson, is professionally produced so you get great sound, has no commercials, and comes to you free. The only thing we ask in return is that you help get the word out about our podcast. Please, tell an angel or potential angel or founder about us. Take a minute to review our podcast on iTunes, sign up at AngelInvestBoston.com to be notified of new episodes and upcoming in-person free events. Jay, what do you look for in a start up?
What Jay Batson Looks for In a Startup
Jay Batson: I don't think I'm particularly unique. I would say that I probably live in the camp of people who bet on the jockey more than the horse, and to me that means I'm more interested in the team than I am necessarily the idea that the team has. Pretty much all of my investments have shifted their business from what they pitched me when they pitched their first investment, maybe not completely across the board but a lot of them have to adjust. What I'm looking for is somebody who will understand how to listen to the market, listen to their customers, and know how to find the value. I as a product manager produced products I wouldn't necessarily say were meeting the market need properly, and then on the other hand, I've produced great products that when I listen to the customer the right way were immensely successful.
I'm kind of looking for that entrepreneur who has the ability to say, "Here's my hypothesis about what the product ought to be, what the customer wants," and then I'm going to attack the problem and then I'm going to adapt quickly and see what works and change if I need to change. I don't think they need to frankly always change dramatically from what they did before, but adapting to what will sell, adapting to what the right economics are of the business, all that kind of stuff. You look at the entrepreneur and say, "Is this entrepreneur capable of pulling that off?" If you can, then there's all the rest of the questions, is the market size big enough, is the go to market plan credible, is the product buildable, is it defensible or not, all the questions that you ask. For me the ultimate question, the principle question is, can I back this entrepreneur?
Sal Daher: Yeah. Basically, really that emphasis on listening to the customer, trying to figure out what the customer wants, and being able to provide something which the customer can consume economically. Very well put, very well put. What have you learned about running a tech startup from being an angel investor that you didn't learn from being an operating CEO?
What Jay Batson Has Learned from Being an Angel Investor
Jay Batson: I wish I had done what I'm doing now before I had been a CEO.
Sal Daher: How do you get the money to invest with an angel before you get to be CEO?
Jay Batson: I think that the advantage that you have from being an angel investor or hanging out with a venture firm like I'm doing at Sigma Prime now which is a great bunch of guys, is the ability to see a bunch of instances of stuff. I hated the fact when I was an entrepreneur that venture capitalists claimed to have pattern recognition, because I thought, "No, I know my business, you're just an investor." At the same time, now that I'm on the investor side of the table, I really do believe that you see things regularly enough across a broad enough spectrum where you start to see things that you would expect a company to do that I might not have known to do as a startup guy.
I think today for example, I would approach raising money differently. I would probably have different amounts of technology and different amounts of customer proof points in place before I raised money. I think I would definitely think differently about how I spent it, I probably didn't spend it as wisely. Sometimes I would spend it too quickly and other times I didn't spend it fast enough. I think for example at Acquia watching how hard we pressed the spending pedal and watching from the side while Tom actually made decisions around how fast to push spend and where to push it and where not to push it, I don't know if I could repeat it today and I don't know if every decision he made was perfect but I certainly learned a lot of really good decisions that he made around when to spend money, how to spend money, how to apply it. I think now I am a lot more sensitive to what I would call go to market custom requisition than I may have been earlier in my career.
I think from my perspective, I look at all the startups that I work with, not enough of them pay enough attention to what's going to be the effective way to acquire customers. It's really easy to get enamored with the product and the value proposition you think you're providing and all that kind of stuff and ignore the fact that getting customers is hard and not enough attention is paid to it broadly and I think in my career I probably didn't pay enough attention to it broadly either. I can go down the list of a whole bunch of things but I think definitely there's a value in having seen a bunch of stuff now.
Sal Daher: That's tough. The only way you can get that experience is by listening to Jay Batson.
Jay Batson: I think there's a bunch of people out there like me who have all been through the trenches as operators and I do think there's a problem I had to get through in my life and I was fortunate enough to get some executive coaching mid-career around this notion of having to be the person who has all the answers. I think the more open you are to at least listening to a bunch of mentors who might be around you, the better you're going to be. It's still your business to run, you still have to make the decisions as a CEO about which advice sounds right. It's like a Venn diagram of a whole bunch of raindrops. There's probably going to be a whole bunch of spots, none of which overlap, but you'll start to see a center of advice arise out of all those bits of advice and that's probably a good thing to listen to and follow. You get to make the final decisions as CEO but you should at least kind of take off your mental models and listen to somebody else's mental model for a while and see if there's some truth to it.
Technique Jay Batson Uses in Mentoring Startups
Sal Daher: What tools or techniques do you find most helpful in mentoring startups you work with or you invest in?
Jay Batson: I hate to be a little trite because it sounds like I'd be promoting a particular other persons’ agenda, but I have grown quite fond of the thing called the Lean Canvas. There's a gentleman named Ash Maurya who wrote a book called Running Lean, not to be confused with The Lean Startup, it's called Running Lean. He promotes an idea called the Lean Canvas which is this one page thing that makes you put down in a few bullets in each of a bunch of squares on a page what your business is. I really love it, because it gets the typical startup CEO or founding team out of the mindset about thinking about their product all of the time. It's so easy to fall into, "This is what we're building." You have to remember as an entrepreneur that you're not building a product, you're building a business, not a product.
The Lean Canvas makes you look at all the aspects of what it means to build a business and puts it right in your face and then makes you ask yourself, "What are the things that are the biggest risks here? What things don't I know that constitute an existential threat to my company?" You have to figure out how do you reduce and eliminate those risks but having something that forces you to look at them is a super excellent tool. I'm a big fan and every company that asks for me to work with them in a significant way, I bring them in and the first thing we do is we spend a half an hour to do this, to fill out a Lean Canvas. What it means might take hours and days and weeks of work to go after the risks that face your company but to get you out of thinking about a product and more thinking about building a business, this is a great tool. I love it.
Sal Daher: That's very interesting. It's the Lean Canvas by?
Jay Batson: Ash Maurya, M-A-U-R-Y-A, who wrote a book called Running Lean, available on Amazon. He has a website called LeanStack.com at which you can create a Lean Stack electronically for free and if you want to share it with your mentors and advisors, then you pay money and things like that.
What Do Startups Most Frequently Not Do Well?
Sal Daher: Really? Excellent tip. What are the most common things you see startups not doing well?
Jay Batson: It's really easy in a start up to get enamored of your idea and I think I was alluding to this just a few moments ago. And so get focused on building a product that implements your idea. The first thing I think is to get myopic about your product and get focused on building a product. I think I now, going back to what we said before about what would I do differently if I had knew then what I knew now, I think the first thing would be I would try to use some techniques to validate what I'm doing before I built the product. So many companies these days really try to go build the whole hog, the minimally viable product that's pushed by various techniques and I think you can validate whether or not your idea is valid without building the product in many cases, not in all cases. The question is how clever can you be about finding out how to do that and it varies by business and varies by business target market and everything else but getting some validation before you build a product is useful and something not enough companies do pay attention to.
I think the second thing that I would really encourage companies to pay attention is something also I alluded to before is not adequately taken care of is go to market. How are you going to get customers? So many of the companies that I look at really have not thought thoroughly about this and when you look at the economics of customer acquisition, it doesn't work with the price point of what they're trying to do. This looking at the combination of what can I sell it for and what's it going to cost me to go get my customers and knowing whether or not that works in the near-term or mid-term or long-term is super important that not enough companies pay attention to.
Sal Daher: Very good, very good. Don't be myopic and think seriously about customer acquisition and customer position is extremely hard. A pivot is when a startup or a person realizes the original plan is not working, we talked about this, comes up with a new one. You pivoted in your career and witnessed some pivots in business, do you have any favorite pivot stories?
Jay Batson Relates the Story of Pingtel’s Pivot
Jay Batson: I think Pingtel was a good pivot. It was a little bit unfortunate that the telecom climate at the time didn't really allow us to profit from it.
Sal Daher: What was the original premise and what was the ultimate resolution?
Jay Batson: The original premise was to build an intelligent desktop business phone that would sell through carriers to enterprises who would buy what we would call in the vernacular an IP Centrex service, Centrex is a classic offering where the phone switch is in the switching office of the phone company and you just have phones on your premise. Classically it was done over traditional phone lines, we were trying to do it over the IP network. I think that was a good plan for the time when we started the company in 97, 98, 99, because there was a fairly healthy push by the telecom community to get into each other’s markets. This is at a time when the original Bell companies had been broken up and AT&T had been broken up and there was a lot of work by various competitive providers to get into markets that formerly only the Bell company serviced. Our ability, our product would help those companies get into new markets it couldn't get into before and there was a lot of emphasis in doing it. Then the economics of the business community and the telecom community changed dramatically in the early 2000s. Virtually all of those companies pulled back on their plans to implement those services. We were pretty much left in a position where we didn't have control over our destiny and we couldn't introduce those services, we were dependent on a carrier.
The question is, do we give the money back? We had just raised 16 and a half million dollars. It was like nine months after that the entire telecom industry just collapsed. Do you give the money back and go home or do you try something else? Honestly, I'll give credit to some people that were in our lead investors office who suggested that maybe we should think about building an entire switch ourselves, we have a lot of the components already in the shelf, and if we did that how would we go to market because we're competing against Cisco and other guys like that who have IP phone systems today. An effective way would be to go to market with an open source product. I think that was a really effective change and pivot. It took us awhile to build the tech, to become credible. We had to unwind some proprietary code that we had in our products and replace it with some open source code or write our own replacement code and that wasn't always as good as the proprietary stuff we were using first, but we got it started.
We created a great community of people that would contribute to it so we actually had people who were building things like 911 emergency phone systems for emergency services who were adding code into our code base. It was important to that community but it was also useful to the rest of the community. I think we made a very smart pivot and in the end as I said, Nortel, another phone company at the time, actually pulled down our code, built a product around it by packaging it into a Dell server and selling it on Dell's website. In the end they called us and said, "Well, this is what we've done, and we need to buy some support from you because there's some things we can't do." In the end we created an OEM relationship with them and in the end they acquired the company.
Sal Daher: Awesome, tremendous. Jay, I once heard you say in respect of a company that had a weak CEO that perhaps they could bring in a good sales and marketing person and eventually grow into the position. Would you care to expand on that? What's the experience you've had that backs up that thought?
Jay Batson: It's not always a sales or marketing person that would grow into the role. I think the thing I was probably alluding to at the time is that often times CEOs that are in startups aren't as commercially focused as they need to be, they're more idea and product focused. They'renot thinking about what it's going to take to make the company economically successful. Typically, people who are sales and marketing focused are looking more at the numbers so as a probability, it's more likely that you'll find somebody who's a sales and marketing executive who he or she might be more attuned to the economics of the organization and be able to come in, supplement a product oriented CEO, help grow the business. Then if the product oriented CEO can get ahold of the commercial aspects of the business themselves, great and if they can scale quickly, great. If not, it might be that the sales and marketing CEO is a more commercially focused person could scale the company once it find its commercial traction. I think that was what I'm referring to. I think it's going back to my references before about companies not paying enough attention to the go to market and that kind of thing and so I think it's somewhat consistent with that philosophy I have.
Sal Daher: I think we'll make this our last question. Is there a story, Jay, that you like to tell in support of having a working board, a good board?
Jay Batson’s Eloquent Statement of the Value of a Working Board of Directors
Jay Batson: Yeah. I'll give credit to my initial board of Series A investors and Tom Erickson at Acquia for helping us work through what it took to build an open source company at Acquia providing enterprise products and services around Drupal. It isn't obvious what that was going to be. The functioning board that we had allowed me and Dries to look at and experiment with different kinds of things we can provide to our customers without pushing too much too early on saying, "You need to drive this particular portion of the revenue." We needed to experiment, and they gave us the room to do it and the support to do it. Michael Skok, my board member from North Bridge Venture [Capital] was really good and encouraging at this. He knew he wanted to help build an open source company and was always on the lookout for us and made all kinds of connections for us, connected us to Marten Mickos who had been the CEO of MySQL which was a great successful open source exit to Sun Microsystems. Connected us, I can go down a list of a bunch of names in the open source community, all of whom were very useful for us in helping understand the kinds of things we might be able to sell.
We had the opportunity early to acquire somebody from the Drupal community who had taken the Lucene and Solr open source search packages and had built a cloud-based service to provide better search capabilities on a website to Drupal site owners. When you're early and you're Series A and you say, "I want to go acquire a company to add a service to our offerings," that's not common. You don't go acquiring companies 5 months after you've got your Series A, but we knew it was the right thing to do to try this kind of a service in our offerings to our customers and they were valuable in helping me think about how I approach that entrepreneur to acquire his company, figure out a structure and a deal that would work for both of us, and essentially figuring out how to make that be part of our offering.
At the end of the day, frankly, when I needed to go off and find a CEO, they were highly functional in terms of helping me find one. We actually put together a routine search and they helped source people and look at it and try to define what was going to be the right kind of CEO, what were my shortcomings that we can try to improve on or what were things I were doing really well that I didn't need to improve or things like that. It was a really great dialogue and the process was awesome. I'm very proud of the process that we ran and the result that we had. I think having a well-functioning board provides value to the CEO that goes well beyond just advice. It's operating sanely, it's knowing how to spend money and where to make hard decisions. It's incredible.
Sal Daher: This is a really eloquent testament to something that a lot of people, they don't properly appreciate what a board does. They think a board is just there to be a pain in the neck. I also see that in the case of Pingtel, I don't know if he was a board member or she was a board member, but you said one of your lead investors really helped you-
Jay Batson: With the pivot-
Sal Daher: With your pivot. I think these are really excellent, excellent testaments to the importance of having a working board. I think this is really great. Are there any other things, thoughts that you want to express before we close out our interview?
Jay Batson’s Advice to Recent College Grads Thinking of Founding a Company
Jay Batson: I guess I would just say if you're a ... I would say, maybe two bits of thoughts. Number one, if you're just a straight college grad and thinking about getting into the entrepreneurial startup community… I'm a bit of a naysayer on doing it straight out of college. I think it's helpful to understand what it means to be part of a commercial organization so I do recommend people who are younger in their careers, go work for some startups for a while in any capacity where you want to serve, engineering, sales marketing, customer support, wherever it may be, and learn what it means to be part of a startup and how you have to be commercially focused around things, but don't wait too long. While you're still young and you still don't have tons of obligations, kids and mortgages and things like that, try your first start up when you're in your late 20s.
Sal Daher: Yeah. Ideally, someone gets out of college at 22, spends-
Jay Batson: Four, five, six years in a couple of jobs in different companies in different industries, learns about what it means to be in a startup, learns about marketplaces and marketplace opportunities. The best companies I've invested in are where the entrepreneur knew the market already, knew the dynamics of the market from the job they were in before and saw an opportunity to serve a need that wasn't there, that wasn't being met. Follow that path. I think that's a really great way to get into being in a startup early in your life, just don't do it when you're 21.
Sal Daher: That's really, really excellent advice. I agree with that. I don't entirely agree with Peter Thiel's idea of people just dropping out of college to go and pursue an idea. I think, who was it said, "To the young, teach the old things"? I think it was Plato, that to the young, you teach the old things. You have to learn the ropes before you innovate, you have to learn what exists and how things are done and then you can create your own spin on that.
Jay Batson: You can always try without learning all the stuff first but as a startup, the chances of failure are so high and you're going to give so much of your life to do it. For me, it's about reducing risk. You can increase the odds of your success or reduce your risk of failure by knowing something before you start. I just think it's better to get a little experience first.
Sal Daher: Tremendous. Jay Batson, I'm immensely thankful to you for taking the time from your really busy life and with all the things you're involved with to come and share some of your wisdom with us. I'd like to thank our listeners for tuning in. If you like the podcast, please do your bit by leaving a review on iTunes. I'm Sal Daher, this is Angel Invest Boston, conversations with Boston's most interesting angels and founders. I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme is composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.