A Product Market Fit Show | Startup Podcast for Founders
00:17:35 · Pablo Srugo
[00:17:35] S0: That's, I think, something that we don't realize. I think, in the startup world, we've become addicted to revenue and revenue growth, right? And that's like even – it was in the dot-com – it was just like eyeballs, right? And then at least we progressed over to revenue, but we forgot. We forgot for a while that all revenue's not made equal, and you got to look, I think, just one step below that, right? You got to look at gross profit because forget losing money when it's all said and done. I mean, what was happening in the last few years – think about WeWork. They're losing money on effectively every sale. Ultimately, yeah, sure, they probably have some locations that are really working. But I'm sure, if you look at it on a city level, how many cities were just completely unprofitable?w many cities were just like completely just completely unprofitable. I was talking to one of the – talk national companies that was literally a unicorn doing 70 million in AR. Now it's bankrupt <laugh>, right? So it went from like 100 million AR to bankrupt, and in this case, I had access to one of the top people of the company. And I asked him, “How does that happen,” right? “How can you go from literally unicorn to zero?” WeWork was even bigger, 50 billion to zero. And in his case, what he said was, “The only thing that mattered to us and the only thing that mattered to the board was revenue growth and customer satisfaction, and we crushed it. We were tripling even at that rate.” And WeWork was doubling. They doubled, I think, from – it was 2 billion to 3.5 billion in a year. That’s massive growth, and in their case, they have huge, amazing – 99% customer satisfaction, but we lost money on every single sale. Every time we sold, we lost more money. There was no margin, not even gross margin, and that's the difference. We just got so addicted to revenue, we just all over time stopped caring.
00:19:24 · Rob Woodbridge, Pablo Srugo
[00:19:24] S1: Yeah, it's supposed to sort itself out at some point, like where you're… [00:19:27] S0: But not if you're – yeah, how do you – you know what I mean? If it’s too many employees, yeah, at some point because you add more margin. But if you lose money every time you make a sale, how does that work <laugh>? How is that supposed to work out?
00:19:41 · Rob Woodbridge
[00:19:41] S1: It can’t, and this is the obvious outcome of it is that – it's what makes it so difficult to do. Because how do you get growth? How do you get new customers? How do you convince somebody? And WeWork, of course, they had a 99% customer satisfaction because free coffee, free everything. They built it around that experience. Not so much the real estate side but the services side around it, it was all free. I mean, Lyft's office was – in Toronto was in a WeWork, and I loved it. I loved it. It was a great place to go, but when you start to then have to increase your rent in order to be able to subsidize that and to get to that point, which is – we were eating into that point. We just said, no, we'll go find something that's cheaper. At some point there's a lost cause there, but you can't. For every dollar that you spend, if it – or every dollar that you earn, if it costs you a dollar and a penny to get that dollar, you are out of business. It's just a matter of how quickly, right? And it's your bank account. You can have a thesis, and that's where product-market fit comes in where you're saying, okay, listen, we're investing in figuring out that thesis. And then, at some point, something's going to hit or miss, right? You shift and you pull and you modify pricing and the service offering or whatever it is, and then there's a point in time where it does one thing or the other. And if you're not seeing the uplift naturally, you know that it's – you can't sustain it, but I think that's new. And it's new over the last – for this generation of entrepreneur, but it's been the same cycle every entrepreneur. The dot-com bust is exactly the same thing that happened that emerged out of that is that all of these companies had negative margin. It's the same lesson in 2000 that we're learning in 2023 is – and in between there was the ‘09 recession. And we learned that as well is that what's the most important thing to have? For me, it's cash on hand. It is a balance. It's margin. It's profit. You die without it. Pulling it back to Nike and Phil Knight, he – that's what he lived on was pure profit and any dollar that he could borrow from his family or somebody, and at some point, they all said no. So it was just what he could earn.
00:22:05 · Pablo Srugo
[00:22:05] S0: Funny enough, that's like – that was the change in risk, right? Risk back then was piling everything back in. Risk today is like selling a dollar for – selling something, getting a dollar, and spending one 1.10 on it, right?
00:22:20 · Rob Woodbridge
[00:22:20] S1: Can you imagine an entrepreneur today? And we have this because there’s manufacturers, but think about buying inventory. It's a foreign concept right now, and shipping it to America or to Canada and then housing it in anticipation of selling it, that's how business was done. It’s not like you put it out under the internet, or you put a story out and then you order if you want, or you write some code and you sell the code. That's how it was done. Then, not only that, it takes four months for that product to get here without any communications that we have right now. The speed of business was crazy, and when he had to resolve his challenges, he'd get on a plane and fly there and wait in a hotel room for his moment to go and see them. This is the Tiger guys. It's tenacity that we don't have right now. And Pablo, you and I have had these conversations all the time about how easy it is to give up today, right? Every entrepreneur it seems has one foot in and one foot out, and the impact of giving up or the cost of giving up is so low right now. You might have a great idea, and you can say, ah, eh, don't feel it today. There's no sweat. When Phil was building this company, there was no – he was all in. There was one passage from the book where he talks about – he talks about this idea that somehow Nike permeated him every other startup. It's like the cult of Nike was in him. He would get angry that people didn't see Nike the way that he wanted them to see it or his employees didn't see Nike the way that he saw it. He wasn’t providing a Nike. He was bleeding the Nikes out, and that's what happens when you're a founder. So he was 100% in. He couldn't have extracted himself at any point, and I think that, early on in his life, when he was thinking of this idea, he was on the edge, but he quickly just fall – fell over and was completely enveloped by it. But I see that. You see that with all kinds of entrepreneurs where they are in it, and they see things that others don't. Sometimes that's like the way you look at Mark Zuckerberg with stars in your eyes. The guy can't miss for you, and I see a completely different type of guy, right? You see what you want to see.
00:24:56 · Pablo Srugo, Rob Woodbridge
[00:24:56] S0: Let’s touch on this for a second. Mark Zuckerberg I think is 35, 36, and he's on the top 10 richest people in the world. The next person up is 20 years his senior. This guy's, he's on – he's from a different planet. I'm telling you…. [00:25:08] S1: He is. [00:25:08] S0: When Mark's 55, how much money is this guy going to have? If he just even does nothing, just puts in the bank… [00:25:17] S1: He’s going to be washed up. He’s going to be like – Facebook will be this thing.