On this episode of the Unlearn podcast, join hosts Kelly and Asher as they dive deep into the fascinating world of startups and fundraising with none other than Rand Fishkin, founder of the revolutionary SparkToro. Listen in to Rand as he shares the secrets of the startup ecosystem, unraveling the mysteries surrounding fundraising and addressing some of the structural challenges within the current system.
00:00 - Introduction
01:30 - SparkToro's innovative funding model
09:30 - Investor-startup networking platform for those lacking extensive connections
13:55 - Reason why the funding ecosystem is the way it is
16:19 - Is the current VC model good for society?
18:33 - The history of Venture Capital
24:29 - VC funds return statistics
27:00 - Deciding the outcome
31:12 - Motivation is linked more to status than money
35:45 - Specific instances where funding stats don't follow the pattern
41:18 - Addressing structural challenges and biases within the startup ecosystem
47:15 - Experimenting with blind submissions
50:56 - Changes in the world of digital marketing and audience building.
"At a certain point in your life, you have to decide what the outcome is that you're going for and the outcome cannot be a billion dollars every single time."
00:17
To thrive in an era of visual transformation, you have to go up the market differently. Let's find out how.
Hey, everybody, welcome back to Unlearn. We just finished discussing modern men's fashion, so hopefully we can get into much better topics here. Today, we have Rand Fishkin. He's a celebrity, but Rand, tell us a little bit about yourself, and then we'll kick it out.
00:43
Yeah, sounds good, Asher. Let's see. So, I'm most well-known for running a couple of companies in the marketing software world.
I started a company called Moz many years ago, left that company in 2018, and wrote a book called Lost and Founder, a painfully honest field guide to the startup world. I think my favorite quote about it was, 'You'll never raise money in Silicon Valley again.'
01:18
Wasn't that already proven false, though? Didn't you subsequently raise money or not?
01:23
Not in Silicon Valley.
01:26
You raise better money. OK, got it. Yeah.
01:29
Higher quality.
01:30
Thank you, thank you. Better money from better sources. Yes, so I raised money in June of 2018 for a company called SparkToro, which is a company that I run these days and does audience research software.
My old company did SEO. SparkToro is funded in a very unique, alternative way. We raised 1.3 million from 35 angel investors, like individual people who put in between 25 and 100K each.
And, in a few days, we're gonna pay them their money back. So, it's a very unique funding model where essentially it's a kind of short-term, low-interest loans, or no-interest loans, and then they also own their shares in the company going forward.
We plan to hopefully pay out profit dividends every few years. And so our goal is to help them get 10 times their money back, but over a long time and with a model that is a much safer, less high-risk sort of way to build a business.
And we think on this model, startup survival rates can be 60%, 70%, or 80%, instead of the 3% that they are in VC.
Kelly Sarabyn
02:56
I was just going to say, did you, did you guys come up with that model yourselves or were you starting to tap into someone else's?
03:03
So we, Kelly, published our funding docs online, open source. We paid our lawyers a little bit extra, so anyone can, you know, Google 'Spark to Funding' and you can use our docs, fill in the blanks for your own company or project.
I'm sorry to say I'm planning to use them again; a few other startups have funded their companies with them. The folks at, oh my gosh, Rob Walling and Einer, et al., with their fund, Tiny Seed Investments, actually use the Spark to model as well for all of their investments.
And, so my wife and I are, oddly enough, making a video game. We're working with a publisher down in Los Angeles and in the fundraising for that video game development process, using the same funding model. So my hope is, in a few years, I'll be able to tell a story in a sequel to Lost Founder about, hey, maybe there's a better way to start.
04:07
And is the intention that you would raise again now that you've paid back the initial investors, or is it a one-time thing? And then, are you essentially bootstrapped as the model?
04:19
That's the goal. There's nothing to prevent us from being able to go out and raise money; we would have to get approval from our shareholders, that kind of thing, but we could conceivably raise money. So it doesn't preclude you from later going the venture route if you want to or later doing something else. But my feeling is that this is an underutilized [opportunity].
An unthought-about method for raising money in a much lower-risk kind of way, right? Because the business's goal, instead of growth at all costs, is 'How do we get to profitability quickly and how do we stay there for a long period?' And this incentivizes behavior.
That's sort of the opposite of the venture world, which is 'How do we become a category-crushing leader and, you know, a billion-dollar company or die trying?' And of course, the stats say the 'die trying' is just, you know, everyone ..
05:15
It's growth that manages costs, you know.
05:19
The model is interesting in that my and my co-founder's salaries are capped until we complete investor repayment, and then they're capped at a different level. And so the only way that we can make money apart from a salary, which is fine, but it's just capped to the Seattle software engineer average, whatever that number is.
And once we pay back our investors, then we can increase that, but only to a maximum. And then the way that we potentially make money off this business is we pay out dividends and we pay those dividends to everyone. So, you know, if you own 2% of SparkToro and I own 20%, if I want to make my 20%, I gotta pay you your 2% in addition to paying you back for the initial investment.
06:07
It's almost like you went public first and then built the company, you know? Is this what hire does, right? Like, they're like, 'Hey, we own these assets; we've owned them for a very long time, and then we're just a value investor and you just get dividends and you build your thing on dividends, and T-bonds and stuff.'
06:25
I kind of think about it like, you know, I, I don't know if, if you, if the two of you own any stock in the public market. I didn't until recently. Like, we now have a financial advisor who helps us invest and is like, 'OK, we're gonna put some money here or there.' I don't know exactly where it is, but I assume it's in responsible places.
06:47
My financial advisor knows, so hopefully I get it.
06:54
Yeah, so they put money into, right, the stock market, bonds, treasuries, whatever, right? Like all these financial instruments, securities, and some of them are growth stocks. Right? Like Google doesn't pay a dividend.
The idea is you hopefully buy Google at one price and then it increases in price to another number, but then there are also dividend stocks, right? Like, 3M, right? 3M pays a dividend sort of every quarter and they're very reliable about this.
You know, lots of people know that it's not, it's three M isn't gonna be worth 10 times what it was worth last year. Probably, maybe it will be, but probably not, but it is gonna pay out my, you know, three cents for every share that I own.
And I think it's really weird that small companies and startups don't have an option like this. And investors who want to invest in the private markets don't have a, hey, can I balance my portfolio by putting some things into really high risk? Insane, crazy. Well, is it probably gonna die? But maybe one in one chance in 100 that it, you know, becomes, you know, a big venture success.
I think investors are also interested in, hey, I would like to fund some 'SparkToro' type companies. Like, give me some of that lower-risk, high-odds investment that I'm gonna get paid back in a few years, and I can put that money to work in other places. Then I own shares in these companies that pay dividends for long periods; I think it feels healthy.
08:25
You can live life. I would say if one enjoys it. So, the venture is just 10% or less of all investment dollars out there. As of today, if you go by Morningstar, the top 10 dividend stocks are Verizon Communications, Pfizer, Cisco, Comcast, Medtronic, Duke Energy and Blackstone, which is a company that acquires their companies.
And so, like, there's nothing wrong with that investment model, and one would say the real, like, old-school money is sitting in that bucket versus this bucket that we call alternative investments, which is where most VC gets funded.
And if there were higher-quality, and let's call it industry-benchmarked executives and/or operators that were running these startups in a, in a, in a, and running them professionally, you would attract all that money, and there's no limit to that cash, by the way, because there's tons of it sitting out there.
09:30
Well, that's a good question. Is there yet? And it sounds like this is in the kind of nascent stages, but is there some kind of platform where we could have these types of investors interested in connecting with startups?
Because one common problem, and you see this with women or people who aren't white trying to raise VC money, is that it's a struggle, right? So this is another, 'cause you wrote a book that offended people, essentially. But either way, part of the problem is, how do...
09:56
You, if your blog said 'the death of something', you're not raising any.
10:03
But how do you connect, right? Because if you take some of these people, they just don't have the deep networks that would, kind of, be able to make those connections happen and funnel people who even want to be in this model, right?
Because the way you're describing it sounds beneficial for the investor and for the startup, sort of the fate of the startup, so to speak. But I guess that's something we need to wait to see invented. And perhaps, if you're circulating it and more people start using it, someone will jump onto it and create that platform where you can connect the investors and the companies.
10:37
I mean, my hope, Kelly, is absolutely what you're talking about, right? Essentially, when I left Moz, which was under not-ideal circumstances in any way, I didn't have the finances to bootstrap a company, like Geraldine and I had a mortgage.
We had to make payments on that mortgage, and we needed healthcare, like everybody else, very quickly.
11:08
Very, and it's insanely expensive, right? Like healthcare is, a huge portion of what SparkToro spends every month is just on healthcare for myself and my co-founder Casey. And to do that, like we needed help.
We needed to be able to get off the ground and we did not want to fund it with venture dollars. Obviously, and the, you know, maybe the book precluded me from doing that anyway. But the reality was, without the network that I had built throughout my career at Moz, there would have been no way; no one had even heard of this thing, right? Like all the investors that I pitched to, I had to one by one sell them on the concept.
But now that it's here, I don't know whether it's going to take 10 years or 20 years, or if it won't happen until after my lifetime. But that's okay. It has to start somewhere, right? I believe this thing should exist.
It's not a not-for-profit. It's not sort of an obvious, super obvious path to this incredible ethical good. But I think it is an incredibly ethical good thing to have companies that aren't focused on companies and, and a class of investment that is not focused on.
How do we do maximum sort of wealth creation for an extremely small number of people in companies and then have a huge number that fails and makes nothing and, you know, sort of have a terrible experience? I think that's changing that., and building a stronger small business, medium business economy is a truly good ethical thing.
So, I think that change can be something I want to see. So, you're right, if you don't have a network like mine, if you are, like, I'm trying to help a founder right now who is attempting to raise money, not quite this way but in a similar style. He's a guy who grew up in Angola during the civil war there and then moved to the UK, has this incredible company.
His tech is mind-bogglingly cool. It's called Team Sports. And then, the product is cool. He's got a lot of traction, but you know, he has no network. He knows, like, me and six other people that I know. And he...
13:32
Didn't go to Stanford, and that is the truth. So, a lot of people come from affluent backgrounds, and their family and friends around them are just a bunch of wealthy people that they know from growing up in that environment, writing checks, right? And, from a societal perspective, that's not the best allocation of resources.
13:54
Well, and if I may just share, why is this system set up this way? So, the theory is that a small group of really smart people get a bunch of cash to go run millions of experiments. And through that, innovation takes place. Now, how that became the norm is something to decipher.
We can maybe unpack that in this episode or other episodes. But somehow that became the norm; somehow it became the cool way to do this, right?
But, essentially, like even if you go speak with an investment professional, the investment professional will always say, Look, hey, let's take 10% off, let's call it 'court to court play money', right? and then put it in pockets where you could generate an amazing return. And, so, then if you think about what the Valley offers, right? Specifically, right? Are the networks, the resources, the access to technology, the, I mean, and access to several things, right? Access to experience, right? And the whole idea is that we take these bursts of experiments.
And then we go and find out if we can accelerate innovation so that we can compete with the rest of the countries around the world. That's point number one. Point number two is, these things were supposed to be controlled experiments, not this like this.
Because what happens right now is, OK, big tech company moves too slow, so I'll go take an internal problem that they aren't able to fix, create a feature out of it, then build a company on it, raise a massive valuation and try to grow the valuation, right?
That's kind of like the opposite because big tech companies have figured out, 'Well, we're not gonna get disrupted anymore. We'll just wait till this is a $10 million ARR company and we'll either acquire them or we'll go and build this ourselves.' And so now the startup is essentially trying to outrun the existing resources who are all working on a different priority. So, just a couple of points that, at least as I've tried to unpack and rationalize this conversation, this theory of, like growth at all costs and stuff, that's kind of at least where it came from. But, what do you all think?
16:20
That's super interesting. I mean, I think what isn't discussed enough is: Is this model good for society? Leave aside the fact that 97% of founders whose companies go under, is this setting up rational incentives when you look at society large? And was this maybe originally supposed to play a smaller role versus now how much of new SaaS companies? Is it funding a lot? And you mentioned a 10% number of something else, I'm sure. But if you look at new SaaS companies, I'm sure the ones that are VC-backed are a pretty high percentage, right?
And then you look at certain things like Uber and WeWork, and you ask yourself, Is this money funding bad business models and, per se, allowing them to exist when they wouldn't otherwise exist? And then original investors piece out; Adam Newman pieces out with a bunch of cash, and it just kind of flounders around.
17:19
So, that's not an investment,
17:23
Speaking of going public, I know his public documents were quite entertaining whenever they went through. But no, I think that is a question that isn't discussed.
I think people just take it for granted that this is the model that exists, and we hear a little bit more about how tough it is for founders, but I think it would behoove us as an industry to look at it more critically and say, 'Is this, from a society perspective, basically flushing hundreds of millions and billions of dollars into bad business models where people are just shoving money into the appearance of growth on what is never going to be a profitable business model, right?
Because Uber rides were subsidized, people got those rides because they were cheaper, but they were cheaper because of the VC money. Not necessarily because it's a sustainable business model. That is not a good thing for society to just, you know, cover that up and then have early investors bail out; then the public continues to bet on it, particularly through the stock market, which is always an option.
But that's not good either. So, yeah, I'd be curious, if, you know, Rand, you've given some thought to that because it sounds like you have thought about this issue a lot.
18:33
Yeah, so far, for lost founders, I did a little bit of research and interviewed some folks about the history of venture capital, how to become an asset class, why it exists, and why it's such a powerful force in the early-stage business world, especially technology.
So venture capital was created by lobbying that happened in the late sixties and early seventies for a new tax bracket. A new system of taxation was created, which we call capital gains. Essentially, you have a bunch of wealthy people lobbying both Republican and Democratic lawmakers at the time, in the sixties and seventies, and they sort of passed this thing that capital gains, will be taxed at this much lower rate.
Right? 10%, 15%, 18%, 20% versus ordinary income, which, at the time, was 50% plus. Now it's down; I think ordinary income's maximum tax rate is sitting around 40-41% or whatever. But, historically, more...
19:42
Then 15, right? And when you're rich, you push most of your money into that, in the highest bracket.
19:48
Yes, right, so basically these wealthy folks say, hey, lawmakers, I'm gonna try and tell you this story about trickle-down economics, right? The idea is that if I get to invest in more businesses, then that wealth will trickle down to the rest of the economy and everyone will be made wealthier, and the wealth of this top tax bracket will, yes, we'll make more money and we won't have to pay as much in taxes, but it will help everybody.
And this argument was some combination of either compelling or, 'We won't fund your campaigns unless you do this for us.' Right? And, so, through...
20:30
Our meeting up at Burning Man - yep!
20:32
Ah, there was no Burning Man at the time, I don't think, but maybe there was. But yeah, so they essentially, right, convinced these lawmakers to implement the capital gains tax rate, which created the venture capital industry.
And the idea behind the venture is, you know, if you look at the mathematics of it, several people have written good articles about this and sort of published them, but the mathematics say that to win in the venture—meaning beat the S&P 500's average rate of return year over year—you need to invest in about 500 companies, statistically speaking, right? Given the failure rates, success rates. and you need a tax rate that is half or less what ordinary income is.
So, if either of those scenarios is not true--if you can't invest in enough companies, or if you're getting taxed at the normal rates--the asset class doesn't beat the market.
21:29
Can we flag it for a second? Because I think this is just interesting in general: so that 500 number, right? Presumes that they could be better at discerning which companies are going to go, right? Like, 'cause it sounds barely better than chance, to be frank. And you hear that a lot.
21:47
I'm presenting the average statistics, right? So, every venture capitalist, obviously when they go and pitch their LPs (their limited partners and people who put money into a venture asset) when they go pitch them, they're gonna say to them, 'Hey, we can pick way better than the average.'
Right. So, the pitch is obviously, 'Here's why we're so much better at picking than the average,' obviously, statistically speaking, that's not true. Right. But are there venture capital providers who are better than the average? Yes. And are there many who are worse than the average? Absolutely. And that's why it's average. So, I'm giving you this 500 number as AI (I think most famously, the Company 500 Startups was the one that sort of famously) turn this into their name. Granted. Then, Dave turned out to be a sexual-harassing creep. And so that company was shut down.
22:45
Yeah, that he was, yeah, this is not unusual, I mean, Kelly, but this speaks to your point around who gets to raise money, who is allowed in the door, who is allowed access to these folks. And it is almost exclusively white and Asian men who live in coastal America, who are between the ages of 25 and 55, and who are cis and straight. And you know, like you, you start, you look at the categories.
23:21
Yeah, that's right, so almost two-thirds of all venture-invested CEOs come from a background of significant family wealth.
So, their parents would be accredited investors by the definition of the United States government: more than a million in assets, liquid outside of their primary residence. You're talking about essentially wealthy white and Asian men from coastal America getting the overwhelming majority of this capital and running almost all these companies, and then becoming almost all of the venture capitalists, the venture capital industry is a little under 20% women partners in venture capital firms and less than 2% funding to women founders. So, it's just, it's a...
24:09
This ties into not being good at your job, right? Because there's no way that the best opportunities fit that profile. So, it's not a rational process for making the decision. So, that 500 number makes a little more sense when you see that they're using these frameworks to make their choices.
24:29
So, check out the stats. Based on detailed research from Cred Associates, the top quartile of VC funds have an average annual return ranging from 15% to 27% over the past 10 years, compared to an average of 9.9% in the S&P 500 return per each of those 10 years. So, if you don't know how to invest, just put it in the S&P and you'll still be OK. Effectively.
24:54
Very, very OK this is; this is why, right? The venture asset class had to sort of make this pitch. And, my understanding is it's the top 5% of ventures where almost all the significant returns accumulate, which is not dissimilar from how the venture ecosystem itself works, right? The top 5%, not even 5%, and the top 0.5% of companies are where almost all the venture returns come from.
Look, I mean, we could go into the macroeconomics of this and all that kind of stuff. But I think the broad pitch I'm trying to make is that I'm one little person out in Seattle with my two tiny little companies. SparkToro is a three-person company doing, you know, a million and a half dollars of revenue a year and growing, but it's tiny. The video game studio has more people, but it's still tiny.
These are small efforts. And I think the only thing that I have to offer here is hope. I hope that I can use my voice to champion this idea to other people, to seed in investors, people with money, people who want to start companies, and people who might not look like me and fit the ideal venture profile to be like, 'Gosh, I wonder if I could raise $50,000 for the tiny little company that I want to get off the ground in increments of $2,000 or $5,000 from 10 friends.'
And then I could use the spark to model to pay those people back, and then we pay dividends for a long period. And the answer is absolutely: you could, right? If you look at the small business survival and success rates in the United States, they're not bad; like 45% of small businesses, you know, are still around and producing revenue and profits for their founders after seven years of founding.
That number is like 10% if you're venture-backed. So, the minute you take a venture, you crush your odds of surviving for five or six years; it's...
27:00
Also, just double-click on what you're saying, brand is. I think at a certain point in your life, you have to decide what the outcome is that you're going for, and the outcome cannot be a billion dollars every single time. It's the equivalent of T2D3 in your life.
And you know, people do cocaine and they die, basically, right? And so, like, literally, that's what happens, right? It's so, and I'm serious about this because I've lived both. I've had bootstrap exits and I've been through a public company experience as well. And I would say the bootstrap exit was much better quality.
The public experience was much better in terms of quanity, but it was, we got lucky. We got extremely lucky. We tried to go public three times. At one point in time, we had $300 million and we were still thinking that we may run the company into the ground. I mean, these are just very different pressures to deal with. And the point I'm trying to make is at the end of the day, people need to understand what their 'happy number' is.
Are you going to be OK with $300,000 a year, $500,000 a year, or a million dollars a year? What does it stop at? Because if you have your house and car paid off, most people, who have a good head on their shoulders, wouldn't be able to spend more than $120,000 a year.
If you take all your other expenses out, right? Like, because their mortgage and your car payment are, really, the heaviest pieces of your income. And so, even if you pay them off and still try to spend $200,000 a year, I'm doing the math and you can have a very comfortable life living no matter where you are in this country.
28:53
I mean, I think about this a little bit less from a 'how much money do you need?' kind of perspective and a little bit more from a why, are you doing these things? What's your risk tolerance? What's your end goal? I think for a lot of people who are sort of chasing a billion dollars, the money is not, it, the money is not about the money. Right. It's not 'I need that money fast.'
When I raised venture, I was young. I raised my first round of adventure when I was 28-29. and I did it mainly because I wanted it to be taken seriously by other tech bros. Like, this is not, you know, I don't mean to cast shade intentionally, but like I wanted, I wanted people in that world, right?
I wanted people in Silicon Valley and San Francisco and you know, running these big tech companies, I wanted them to think that I was cool and a big deal and important and I wanted to be invited to the same events that they got invited to and on those stages and written about in those publications. And that motivation was really powerful for me.
I was like, 'No, I belong with this crowd. I'm good enough, and to prove that I'm good enough, I need to raise this money.' And then I back-end justified it to the investors and my team and everything else. Right? I was like, 'OK, here's how we can deserve this money, here's how we can use it to grow. Here's how we can become these things, and Moz was quite successful--quite successful, right?
For a long time, it had a long, you know, sort of 10-year run of 100% year-over-year growth and got to $50 million in revenue. And then it kind of, you know, petered out a few years after I stepped down as CEO.
Yeah, it turned into probably not even a two-times return for at least its later-stage investors.
31:12
I would agree with you. I think for founders, the motivation is more likely related often to status than it is to money per se. Because I think if you are educated and you want money, you probably become a corporate lawyer or go into investment banking. Becoming a founder doesn't seem like the smartest strategy for that. But it is a chance to have a huge impact, right?
Founders can end up transforming how we live our lives at large, right? If you become a cog at, like, a corporate law firm, then you have an impact just like any job has an impact, but you're not going to become someone who transformed society. And I think a lot of founders are drawn to that. And then, once you are in that universe, I do think VC money, and also who's your VC? Right? Like, there are these rankings of VCs and the status that comes with having a top-tier VC versus one in the Midwest that nobody's heard of.
And I do think it comes into play, and on the flip side, VCs are very much herd animals; they really become the hot thing and then everyone wants to invest in it. They hear someone else at a good firm is investing and then suddenly they're ready to make an offer, which again ties back to how good are these people making these decisions.
32:33
The rationale for raising money for this podcast?
32:37
I mean, I think that there are plenty of good reasons to go raise venture capital. I've talked to folks who, for example, are in hardware, life sciences, or clean energy. Yeah.
32:51
Right, so you're not gonna go and build a new solar tech firm, or a new wind farm firm, or a wave energy generation plant and prove your prototype. And you know, you're not gonna do that with less than hundreds of millions of dollars and private investors who, you know, use a spark to model it; it's not a match, but I would argue equally that venture capital, which is a great match for that clean energy tech, is a terrible, model for sustainable long-slow growth, not slow, but you know, 20-50% year-over-year growth; fast businesses that are relatively low-cost and that can run profitably and probably will be more successful in the long term at both solving their market problem and returning the money.
If they are given a lot of time to develop that, as opposed to, 'Hey, how are you gonna get 200% year-over-year growth? Because if you don't, you won't get the funding.' And, if you don't get the funding, you've over-hired and overspent, and your cost structure is way out of whack, so you won't survive.
34:01
And again, I mean, if we stick with the hypothesis that, yes, this is an environment created for rapid experimentation, and the common guidance is that every funding round should last 18 to 24 months. And everybody who's on this journey understands that you will get to an outcome; right? Like, it may not be the outcome you expected, but you will get to an outcome, as long as everybody understands what they're getting into.
And outside of understanding, they don't realize it, internalize it, and make sure that their families are OK with it and stuff like that, right? If that happens, you're gonna be in a great place to go build this thing out, right? But very few times does that happen. Because, in most cases, if people don't fully understand what they're getting into, then they're not playing with the same rules, but the operators are playing with the same rules. And so you're just another person who went out and became part of the experiment.
You know, so there was, there was a, there was an experiment on, hey, the hypothesis that we want to prove is: will it be true or false? And then you, as a founder, are also the experiment, asking yourself: are you going to be able to last or not? So that you can go on to the next experiment because almost all first-time founders go through an exit.
Always get funded, but very few cases where they don't. The second time around, second-time founders get funded maybe 90-95% of the time; third-time founders are guaranteed to get funded because they already have a track record with the company unless, again, they did something stupid.
35:45
I, you know, where the stat doesn't hold up? This is, this is gonna be shocking to no one, but especially not shocking to Kelly, is women. Second-time women, founders get funded at a lower percentage than first-time male founders, which is pretty disgusting.
Like, this field is not logical, rational, or reasonable. It is a boys' club and it is a networking thing. I will tell you that almost all of the introductions I got to venture capitalists who seriously considered, you know, putting money into Moz who I had meetings with and went to their offices and all that kind of stuff, all happened through a network of people who invited me out to dinners, drinks, and parties at their houses in San Francisco—almost everyone. A few in Boston, but mostly San Francisco—and that network was very hard to penetrate.
And I think if I had been, you know, a late twenties-something woman, holy shit, I can't even fathom what that experience would have been like, like, 'Hey, come around to our place tonight, like, like me, right? As this guy, I can just do that and feel great about that. I could be like, 'Wow, that's so cool. This guy's inviting me over to his place. That's awesome. We're gonna get some drinks, gonna have some food, and, like, OK, and then chat about business stuff, and he'll be like, 'Hey, yeah, man, you know, I know someone at Sequoia; you should have a conversation with them.'
37:18
And I'll text her right now.
37:21
It's interesting though, because I feel like, in the wake of #MeToo, there were some high-profile examples of VCs who were, kind of, reprimanded or put on the outs. There was that book that I feel terrible I can't remember what it was called, but it was essentially, do you have it?
37:38
Yes, wait a minute. it's on my shelf. I have too many books on my shelf. Okay, I'm going to
37:50
In doing that, I just want to announce that this is not a podcast funded by HubSpot because I'm the COO of Inbound.org. And so we've already had like seven people from HubSpot and Kelly works at HubSpot. So just putting it out there, this is Kelly and my project's to figure out how to unlearn things, you know.
38:07
Thanks for looking out for me.
38:09
I mean HubSpot is a fantastic example of one of these companies, right? That was in that top 5%, top 1% even, probably an even more elite, top 0.5% group, Brian and Darmesh, right? Second-time founders, maybe it might have been Darmesh's third company. And, you know, they had a lot of relationships with all of the right kinds of people, and they had you know, sort of.
38:40
From Matrix Partners, helping them out, this was like a very long-term friendship.
38:47
They had, like, lots of all the right kinds of things going on. And obviously, they were also very good builders, operators, and managers, right?
And they hired good people and built a great team. What I think is one of the best cultures around in big tech companies. I've spent lots of my time in and around the HubSpot world because Darmesh and I formed an early friendship when he had just started the company. He and his wife took Geraldine and me out to dinner in Boston a bunch of times and introduced me to people in his network who were super supportive.
Now he's an investor; he's one of the small private investors in SparkToro, and so I am not, oh, I hate every venture-backed founder, or oh, I think the asset class is generally evil for everyone and wrong.
I think it can be very appropriate for the right kinds of purposes and it's wrong for all these other things that we try to shoehorn in there mostly because I don't know what it is like; the testosterone pumps into your body and then tells you that you need to go, you know, be a real man and in the tech world definition of that, that raises venture capital from, you know, these places as opposed to I'm gonna show my ignorance of, you know, whatever gun culture. It's like I need to own these weapons and, like, be able to shoot them at targets far away.
40:20
Yeah, it's just right. It's just a, like, it's sort of this status,
40:28
Animals, right? They have this nature to compete and chase status. I mean, Plato said that thousands of years ago. He said something to the effect that you can create little ribbons and people will kill themselves to compete over it just because of its status; it doesn't matter what it is. And I think that's true, and this culture, this subset of American culture, is very much infected by it.
Do you? So, one angle, right, is to create models like you've created and then hope that those spread for the appropriate use cases. Do you have any other thoughts on structural change? Like how people who see this as a problem, and to your point, not that the whole model needs to be dismantled, but how and whether it's a go, whether it's a tax thing where there's a change there as one solution. Is that possible?
41:19
I think that is the most direct, honest, and fair one. It's to recognize that the experiment over the last 50 years in, in, you know, American sort of late-stage capitalism of trickle-down economics was a failure; that it, that, that is not what happens when you can when you lower tax rates for, you know, millionaires and billionaires; you concentrate wealth rather than spreading it.
When you have extremely low taxes and lots of tax loopholes for people with extraordinary wealth, you mostly concentrate wealth, rather than spread it. Therefore, I would say that tax policy is the most important and best place to do that. I read yesterday that 75% of Americans, Republicans and Democrats alike, agree on nothing.
Are they supportive of equalization tax rates and a $20 minimum wage? I think if you change those things, right? And you start to spread wealth, wonderful, wonderful things can happen, sort of macroeconomic-like.
I believe it is a fundamental good to have the economic distribution of wealth rather than concentration. And, you know, the sort of horrific pyramid system that we're in now. I would also argue that, if you want to change the problematic ways in which venture capital biases its capital allocation, which I would argue humanity generally agrees is well-proven - that talent is equally distributed, but opportunity is not - there are hundreds, if not thousands, of founders and companies built by Black people in the United States; Indigenous folks; folks who come from backgrounds that are completely underrepresented or unrepresented entirely in tech and in venture backing, who would do a better job and who would make them more money.
Right? And so, they are working against their interests by biasing towards this small subset of people who are, whatever, going out to dinner together in San Francisco and to change that, there are two ways: one is slowly through culture and awareness, such as the Me Too movement, and a lot of this awareness that has been brought to the venture field has had its chance.
43:49
I was going to say it, but I don't feel like it had much of an impact. I'm not seeing the stats coming out that are changing the game.
43:57
You're exactly right, Kelly. Like they are the opposite of changing the game. The funding stats for women, people of color, and veterans are worse than they were five, six, or seven years ago. And so all of this talk from all these VCs who sit on stages and are like, 'Well, you know, we're trying to expand our portfolio. We're looking into DN AI, we're looking into equity, and inclusiveness. We're trying to find more diverse backgrounds and founders,' all lies—100% lies.
Either that or they're so terrible at it that they don't deserve their job. Right? They're like ...
44:37
I looked at the party that I threw with my network, and I didn't find anyone.
44:42
And I don't think I fundamentally think they're evil people who, like, get together in cabals and they're like, 'OK, we only fund white and Asian dudes.' Got it. Does everybody agree?
Like that. I don't think that's what happens. That's not it. What happens is their network looks like them; their network is like them, and inside their network, they're like, 'Well, you know, this Rand Fishkin guy, he's got a compelling product. I know he's another white dude, but oh, I can't resist.
We got him back, like he, you know, what? He fits the model, you know, and they convinced themselves, right? So, I would say, yeah, they call it pattern matching, which is essentially just bias, racism, sexism, and ISMs of all kinds.
45:31
The more you're guessing, right? Which, in early-stage startups, no matter how good you are, there's a big guessing element, right? The more those pattern-recognition skills come into play. And I think that's why.
45:44
Generally speaking, Americans hate this concept, but it works. And that is some form of affirmative action, right? Where you essentially say, 'Oh, are you starting a venture fund with more than $50 million in capital? Guess what, friend, you are going to deploy 20% of that capital to founders with backgrounds that are underrepresented.
And lots of weird things will happen as a result. There'll be founders who are like, 'I guess I'm gonna, like, technically get a co-founder who fits one of these, you know, criteria so that I can fund my company.' And guess what, even those things, which are like, 'Oh, that's not what we wanted,' like, that's, you know, what it will do: it will bring more of those people into those boardrooms, it will build those people's networks, and then those people's kids, friends, brothers, sisters, and families will also have access to those networks that they never had access to before. And, over time, it does make a difference.
So, you know, I know this is not a politically popular thing. I know it's not something people like the idea of; they are whatever, getting chosen because of who they are, not what they are, what they've accomplished, or those kinds of things. I get that; I get it. And I also don't think there's a more effective way to get a true change of this variety, right? Of the type that we need. Then, to force the situation from above.
47:14
And put your hand up for a while. One that I think, and that can break the pattern, right? That's the goal with that method: that you start to break the pattern because, to your point when people are in the boardrooms, they're seeing people differently. It starts to disconnect the 28-year-old white male founder CEO in the back of the brain.
But what I would love to see is a VC firm that does blind submissions, like the presentation. You can even distort the voice so you can't tell the gender or race, and see what the outcomes are, because they have done studies in a bunch of different disciplines where they've said had musicians perform behind, like, a curtain, and they saw that the outcomes were different before.
Same thing, right? People had something in their minds. So, I would love to see one VC firm do that, and, of course, you don't get an immediate return. So, it would probably take years to get outcomes, but...
48:06
Yeah, my only criticism of that methodology, Kelly, is that it's been used particularly in computer science, right? So, like computer science schools and hiring, and that kind of stuff, and it shows exactly what you would want, right? That, like, no women candidates are not worse candidates for whatever computer science degrees or jobs in computer science roles or those kinds of things. But culturally there is such a bias against women going into computer science that, even if you blind pitch, the numbers are vanishingly small enough that you won't get enough [applicants].
48:46
I'm sure that there are enough submissions from those groups into the blind funnel.
48:50
You'd have to incentivize them, yeah, you have to incentivize white dude founders to be like, 'All right, shit. I need people who are not like me to be on my founding team.'
That's you; you have to create that idea and then see it and then push it and there's gonna be 25 years of awkwardness and shyness, and then things start to, I'm serious, like, let's just talk. I'll give you a good example of this.
49:20
I hate to take a segue because these sessions always end with me apologizing for not getting to the topic I wanted to talk about.
49:31
I'm sorry, I thought this was our topic. I didn't know.
49:34
This kid, because we always talk for 55 minutes and they were like, We could talk for hours, and I, again, like every one of the guests that we've had and we've been blessed and fortunate to be able to have these amazing conversations.
This is sort of the topic because we always start with what's top of mind. But I know we have 11 minutes left, but I also, and we'll for sure have you back, you know, but the thing that I believe you have expertise in is audience building-ish, right?
And so, one of the, let's say, scenarios we're going to throw out at you, right? That you can kind of help us think through and under that, maybe hundreds of thousands of people can unlearn these bad habits, right? Let's say Kelly and I have a goal that we want to make the Unlearn Podcast the number one podcast in the world, right?
And so, from all the experience and all the lessons, less because of AI.
50:27
I'm saying this; I'm just laughing because that's not my goal. I would not want to have that many listeners, but...
50:37
I want to have a podcast. Kelly Sarabyn
50:40
I also Want to be a would-be selfish.
50:45
So, what's happening in the world of connecting with their audiences and selling? Like, tell us, what's the real deal right now?
50:56
Yeah, so, let's talk about lots of things that are changing in the world of digital marketing and audience building, specifically in terms of podcasts. Podcasts experienced extreme, you know, massive growth during the pandemic; they have dipped somewhat, but they're nowhere near below their pre-2020 levels.
So, podcasting, I think, is still a great way to build an audience and reach an audience. What I would say is, if you want to be the number one podcast--which I agree with Kelly, is not a great goal-- I say that because, right, the number one podcasts are things like the Joe Rogan Experience, right?
So, my recommendation to you would be to go become famous in another sphere and then come back to podcasting as part of that fame and then interview and podcast with generally famous people on topics that are sort of interesting to everyone, as opposed to guests like me talk about this very specific industry thing, right?
So, like, you know, when you were thinking about audience growth and audience building, my advice would be that popularity, raw popularity, shouldn't be your goal. You should instead say, 'Among this audience of people, which is who I want to reach and who I want to resonate with, I want to be the number one podcast for them.' That might be a defined category inside of iTunes or Libin or whatever. And it might not be something that you self-define.
And you say, 'Hey, the people we want to reach are whatever founders of early-stage companies, or we want to reach people who are, in digital marketing and at the late stage of their career--you know, VPs and CMOs, whatever it is, right? As I would, I would carefully choose that audience--HubSpot did a great job of carefully choosing exactly who their audience was at each stage of their growth and then building content and the network and an audience-attracting Flywheel around each of those groups. And Moz did the same thing, but in my case, much less intentionally than Darmesh and Brian did it, right, because they'd sort of been around their merry-go-round before.
I think the biggest thing that's changing, historically, is if you wanted to build an audience, one of the best ways to do it was to create content, podcasts, videos, whatever it was, create your home on the web and then bring people to that home on the web through all the other channels. Rank highly in Google search results, send tweets that link back to your content and your site, promote your podcast there, do that on LinkedIn, YouTube, Reddit, TikTok, Instagram, and all these places, and bring people back to your home on the web.
And this is philosophically still something that I agree with very much. But you can't count on these networks to help you do it anymore. All of these networks, from Google to Facebook to YouTube to LinkedIn to Reddit, are all biased against content that takes people outside their experience, right?
54:17
Yeah, it's interesting. They say on LinkedIn that you're supposed to put the link to whatever you're talking about in the comments, which I never do because it's a terrible user experience. And I don't care that it's gonna give me more impressions, because I'm like, I don't want to dig among 80 comments to find somebody's link. So I'm not gonna do that to other people, but I do know that they'll punish it in terms of impressions. So, I agree that that's something you have to think about intentionally, right? How you play it.
54:47
My colleague Amanda Natividad is, I think, one of the great marketers of our generation. She coined the phrase 'zero-click content', essentially creating things that build brand and ambient awareness of a problem space, concept, or thought pattern. They build interest in you and your brand, and they build interest in your podcast, but they do not drive traffic directly through a clickable link.
On these platforms, TikTok and Instagram, for example, there's no opportunity to have a clickable link; there's nothing there. Even if you put the link in the bio, right? You're not going to be able to track which things sent the, you know, what video that I put on Instagram got people to click on my link and buy. I don't know. And link-in-bio stuff tends to do way worse than stuff that doesn't mention it. And LinkedIn, Reddit, Twitter, and Facebook, are all of these places; no links do better than Google.
Google search, which is still the biggest traffic driver by an order of magnitude on the web, has been moving for the last four or five years. I've written about this and done some research about zero-click searches; essentially, what people expect and want from Google now is that they search for a thing and Google gives them the answer that it has extracted from the web, so they don't have to click on anybody else's website.
56:19
Yeah, and those snippets where you can often get that answer. And now with AI, it's just gonna be even more so; the answers are right there, and you only need to go on if you're trying to do some deep dive on a niche subject or something that's much more detailed. So it is interesting; it's a lot harder, right?
56:40
Yeah, I think it's just a philosophically different mindset like you're essentially optimizing for impressions, not clicks and traffic. And that is a huge change from the last 20 years of marketing. And we sort of have to 'unlearn' all the things that we've learned about marketing over the last two decades, right? And get into this new world of, in a lot of ways, treating internet marketing, digital marketing, social media content, marketing, SEO, email marketing, all this stuff, treating it like...
The way billboards, radio, and television ads were treated in the 20th century, I don't know if that billboard brought that person into my auto repair shop. But I know that when we had more billboards along that highway, we got more business.
57:28
All right, I'm more. Unfortunately, we're out of time, but just to hook in our guests, because I'm gonna hook in people. I'm gonna produce the video where Kelly was like, 'I want this podcast to be the number one podcast,' and I'll put on... I'm just kidding. There's no video. Yeah. So this has been fantastic. Thank you so much for for you know, spending time with us. We'll invite you over again to talk about other things, but this was great. I mean, like you, you made this amazing for us and we hope that we made this amazing for you too. We look forward to having you again.
58:04
Right back at you, Asher andKelly. Thank you so much for having me, and you folks take care of yourselves. Good luck with becoming the number-one podcast in the world. I look forward to that.
58:26
Thank you for listening to Unlearn. Subscribe wherever you listen, and visit UnlearnPodcasts.com for the transcripts.
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