Free Exclusive Video Interview - Meet The $360-Million Dollar Man
Ryan Allis

Transcript of Interview with Ryan Allis

INTRODUCTION

Dan: Welcome to another episode of Shoulders of Titans.  This is Dan Lok, and today, I have the privilege of bringing you a technology entrepreneur, INC 500 CEO multiple times, author, speaker, and an amazing individual who believes in giving back and helping other entrepreneurs, a business leader who is both street-smart and book smart.  Ryan, welcome to the show.

Ryan: Thank you, Dan.  I’m excited to be here.

BACKGROUND

Dan: For our listeners, tell us a little bit about your background and how you got into what you do today.

Ryan: Sure thing.  I grew up on the East Coast, United States, between Pennsylvania, Rhode Island, and Florida.  I was a web designer early on.  I’m 31 today.  In the 90’s, I was in my teenage years.  I was a web designer for a few clients around the town I lived in, in Bradenton, Florida.  When I went to college in 2002 at the University of North Carolina, I started a small software company called iContact that became a big software company.  I co-founded iContact with Aaron Houghton as a freshman at UNC, and it turned into a 300-employee, $50 million a year software company.

In my 20’s, I became co-founder and CEO.  That was my primary entrepreneurship experience, building up a company from $0 to $50 million sales, from 0 to 300 employees.  In 2012, we sold iContact to a public company called Vocus for $170 million.  That was quite an eye-opening experience.  I then went off to Harvard Business School to get my MBA.  I really wanted to learn how to lead larger companies.  Now, I’m here in San Francisco building a new start-up, a social enterprise called Hive.  It’s working on convening leaders and entrepreneurs who are mission-driven and are working together on solving the world’s biggest challenges.

DEVELOPING THE IDEA

Dan: Take us back to the beginning.  How did you come up with the idea for iContact?

Ryan: It was October 2002, and I had 15 or 20 clients who I was developing websites for.  My needed a way to send an email to their customers, to their website visitors.  Back in 2002, it was not common to have software running in an internet browser, in Chrome, Internet Explorer, Netscape, Firefox.  You would download software to your computer desktop and then run it from there, or you’d even use CD-ROM’s back then.  So we created one of the first web-based, internet-based email newsletter tools that allowed you to put a sign-up form on your website and send out an html newsletter and then track the opens and the click-throughs.

Originally, it was called IntelliContact.  Then, we shortened the name to iContact a few years later.  We lived in the office.  I slept on a futon in the office the summer of 2003.  We did everything we had to do to keep costs low while we built up our customer base.

WHERE THE MONEY CAME FROM

Dan: At that time, were you using your own money to fund the ventures, or did you raise money right from the beginning to grow the company?

Ryan: Neither.  I’m a big believer in bootstrapping.  We did not take any outside money.  We did not pay ourselves a salary.  We were fortunate in that we were 18 and 21, and we were both web designers.  So we worked a few hours a day as a web designer making $10, $20, $30 an hour.  Total, I probably made $1,000 a month then, and I lived off that $1,000 per month eating lots of ramen noodles.

I kept costs low by doing things like not having rent, living in the office, not having a car, that type of thing.  We went three years before we were making enough money as a company to be able to pay us a minimal salary.  I think a lot of times entrepreneurs get lazy, and they can’t figure out the catch-22 of “How do I build a product that people will pay for without raising lots of money?”  I generally encourage entrepreneurs to figure out how to build a product or service that customers will pay for, and then use the revenues to grow your business rather than using outside financing to grow your business, at least for the first couple years.

Dan: That’s a great point, because a lot of entrepreneurs feel like, “I’ll just get money from outside investors,” especially in technology, as you know.  They talk about market share, users, anything but revenue.

Ryan: I think it’s important to be impatient for revenue.  Ultimately, revenue is the best signal that you’re producing something that somebody wants.  There are a few exceptions to this rule.  But I would say 95% of the cases, if you can’t get a customer to pay for your product, then you need to create a different product.  I think that’s pretty obvious and Basic Economics 101.  I think that it’s very important to, early on, prove out that you have created something of value to someone else by ensuring that they will pay for it.

GROWING THE COMPANY

Dan: At that time, did you ever imagine the company would grow to that size?

Ryan: I didn’t.  I had set the goal to build a company to $1 million in sales when I was 16.  I was a very ambitious young teenager, and I had read Think and Grow Rich by Napoleon Hill, so I had set the goal to build a company to $1 million in sales by the age of 21.  We hit that goal.  I missed it by 18 days, but 18 days after my 21st birthday, we got to $1 million in sales.  So I woke up at age 21, and I’m like, What do I do now?  Do I go back to college?  Do we sell the company?

But it was going pretty well, so we decided at that point, 3 years into the company, that’s when we raised venture capital, once we had proven customer demand, proven the unit economics of our business.  We knew what the lifetime value of a customer was.  We knew what the customer acquisition cost from advertising and sales was.  That’s when we turned on the jets and put in the extra fuel to accelerate the growth of the company.  I’m glad I did that, because that’s how I was able to learn so much about management and leadership and marketing and building a really professional team early on in my life.

CHALLENGES

Dan: One of the reasons I resonate with you so much is that I got started very early, as well.  When you were in your early 20’s, you were running this company.  What were some of the challenges as a leader, as a young leader?  Did people doubt your ability to grow?  What were some of the challenges you had to overcome?

Ryan: That’s a great question.  I remember that at one point, I was 18, and I had a 56-year-old who reported to me.  He was literally 3 times my age.  I think it’s very challenging as a young entrepreneur to gain the respect of people who are in their 30’s and 40’s and 50’s.

I think the one lesson I learned about that is that you need three things.  Number one, you need to pay people’s salaries on time.  That’s the most important thing.  As long as you pay people’s salaries on time, they generally keep showing up to work and doing a good job for you.  The second thing you need is a vision that you communicate.  The third thing you need is just integrity.  You need to do what you say you’re going to do.  But if you have integrity, do what you say you’re going to do, you have an inspiring vision that you communicate often, and then, lastly, you pay people on time, people will really work hard for you.

RYAN’S BOOK AND SOLVING GLOBAL PROBLEMS

Dan: You wrote a book Zero to One Million.  Was that in 2008 when you first published it?

Ryan: That’s right.

Dan: You share some of the lessons you’ve learned, how you basically grew the company from $0 to $1 million in sales.  I’m curious.  Back then, when you were a little bit younger, to today, have some of those lessons changed?  You are now a little bit older and a little bit wiser.  What’s your take on some of those lessons?

Ryan: I was 23 when I published Zero to One Million in 2008.  I think the book captures a lot of the how-to behind getting a company started and getting into your first million dollars in sales.  I think what I’ve learned in the last 8 years since then, now that I’m 31, is that you really shouldn’t build a company just to make money.  You really should be looking to solve a problem in the world that matters.

If–and this is why it’s actually beneficial to do it this way–if you build a purpose-driven start-up, a company that has a mission, that’s bigger than yourself, that is not just about making money, but it’s also about creating value in the lives of other people and solving a big problem in society, then you can often create much more value for yourself and others.  So if you want to build a $2 or $3 or $4 million company, fine.  Find some niche and create a mediocre product, and market the heck out of some mediocre product, and take money off of old people on auto-bill, whatever you need to do.  Obviously, that’s terrible.

Dan: That sounds so bad.

Ryan: That’s absolutely terrible, but that’s what so many people were doing in the internet marketing industry ten years ago.  And if you really want to feel good about yourself at night, and you want to build not just a $3 or $4 million dollar business, but you want to build a company that will be part of your legacy, part of what you leave behind, part of what continues after you leave this planet, and you want to build a $100 million company or beyond, you need a company that has a purpose that’s worth working for.  You need a company that’s solving a problem that really matters in society.  So what I’ve learned in the last 7-8 years is, don’t just build a company solely because you see a business opportunity.  Build a company because you see an opportunity in society to create a positive impact on humanity.  That’s what I like to talk about today.

Dan: That’s a very interesting point, because you must have read the book Zero to One by Peter Thiel.  That’s the same thing that Peter talks about, that you solve a global problem, and also that you need a vision big enough to attract talents who want to build something, not just “Hey, I want to build this company so I can buy a new home, or just make some money for myself.”  That doesn’t inspire anybody.

It’s interesting, because a lot of the CEO’s and founders I’ve interviewed on this show, the difference between someone running a $2, $3, $5, $10 million company versus someone running $100 million and up is exactly what you talked about.  It’s not me-focused.  They don’t even think about money.  It’s just here’s what they do, and somehow, money just comes.

Ryan: Exactly.

Dan: Talk to me a little more about that and why you made that shift.  Was it an incident, something that inspired you?  You sold the company.   Now you have the money.  Now what?  What was the turning point?

Ryan: For me, it was a couple events.  The first event that happened that sort of unleashed my spirit toward wanting to build companies with purpose and meaning behind them was in 2008, one of my college roommates–his name was Roey–he decided to start a solar lighting company in Kumpala, Uganda, in East Africa.  He took me along one time to go see what he was building in Uganda.  I got to Uganda, and I’d been to Belize, I’d been to a few other countries where there were lower incomes.  But being in Uganda in 2008, my eyes were opened to what the reality of living on under a few dollars a day was truly like for so much of the world.

Today, it’s like 17% of the world lives on under a $1.25 per day.  Imagine living on under $1.25 per day.  Something like 50% of the world lives on under $10 a day. So if you make more than $10 a day, you’re in the top half of wealth in the world.  It’s truly staggering.

So when I saw people who did not have access to food, water, shelter, education, basic medicine, at the age of 23–actually, right after I published Zero to One Million–it opened my eyes to something deeper, where perhaps the purpose of business isn’t to make money and create short-term shareholder value, but really the purpose of business is to solve problems in the world and to make society better or humanity better.  That’s what began the shift.  I came back, I continued to visit East Africa every six months to make investments in solar power companies and financial inclusion companies there through a fund called High Ventures.

I think the real shift happened after we sold iContact.  We had transitioned iContact into what’s called a “d corp,” which is a company that’s set up for social good.  We created a Corporate Social Responsibility (CSR) program where we gave away 1% of our payroll, 1% of our products, 1% of our employee time, and 1% of our equity back to 501(c)3 non-profits.  We did quite a bit.  But ultimately, at the end of the day, I was still running an email marketing software company.  I didn’t think that my life was about building an email marketing software company.

So when my mother was diagnosed in 2011 with a brain tumor, it really made me reflect on what I was doing and the purpose behind it all.  I ended up deciding,as she was going through the final months of her life, that my life needed to be about something bigger and that I could contribute to society in a bigger way than just building one company in North Carolina.

So we decided to sell the company.  We had a good result, which was nice, a good sales price at $170 million.  So there I was at 27 trying to figure out, What do I do with the next phase of my life.  I thought I was going to go into private equity in Eastern Africa working at a fund that makes large investments in infrastructure projects and in cell phone companies that create jobs in that part of the world.

But I ended up instead applying to Harvard Business School.  And even though I never finished college, because I dropped out after two years, I was able to talk to the right professors and get them to support my application.  I then decided to go get an MBA.

For me, that was an important turning point, because in the environment of Harvard Business School, their mission is to create leaders that make a difference in the world.  So I was able to learn a lot about what was happening on our planet and in business and how to use business and leadership as tools for good, as opposed to just tools for making money.

GETTING AN EDUCATION?

Dan: It’s interesting, because a lot of entrepreneurs, as you know, are street-smart.  You’re one of the very few that I’ve interviewed that actually attended Harvard Business School, because a lot of them just do their own thing, and over the years, they build this company.  What are some of the valuable lessons you learned from Harvard?  Do you recommend entrepreneurs to go, or do you think it’s okay to do their own thing?  What’s your take?

Ryan: That’s a great question.  I would recommend going to get an MBA from Harvard Business School or a place like Stanford Graduate School of Business if you are under 30 and you someday would like to be a CEO of a large company.  If you want to be a CEO or a C-level executive, CTO, CMO, CFO of a thousand-person-plus company, I highly recommend a top-tier MBA program.  If you’re wanting to be an entrepreneur and build a bunch of 50-person companies, an MBA will correlate negatively with your success.

Dan: How come?

Ryan: Here’s why.  The way that you are taught to think during the process of the case methodology at Harvard and at many other leading business schools is a very analytical, very left-brain, very structured way of thinking.  The people that surround you are absolutely wonderful.  They’re brilliant.  They’re passionate.  They’re driven.  But they’re also quite risk-adverse.  Essentially, 80-90% of them are there because, frankly, they want to get that $150,000 a year job.  Now what’s the most lethal thing to an early-stage company?  The most lethal thing to an early-stage company is hiring a bunch of people who need $150,000 salaries.

Dan: Not $1,000 a month, right?

Ryan: Essentially, you end up being in the mindset that you have to go work at Bain and Mckinsey, BCG, as a consultant, you have to go work at Goldman-Sachs or JP Morgan, or you have to go work at a hedge fund, or you have to go work at a venture capital fund.  The idea of entrepreneurship to an MBA student is going to work at Facebook or LinkedIn.  Going to work at a 5 thousand, 10 thousand, 15 thousand employee company is “entrepreneurial.”

There are exceptions. There’s 10-15% of the student body that really is interested in building an entrepreneurial venture.  However, what I’d recommend instead is, if you’re building a company, Harvard has a great program called the Owners and Presidents Manager Program (the OPM Program) that’s just a couple months long over the course of a few years.  That will teach you what you need to learn without necessarily causing you to be there so long that you end up getting stuck in the groupthink of risk aversion and left-brained structured thinking rather than creative thinking.

The last thing I’ll say about that is that when you’re creating new products, you need right-brain thinking.  When you’re scaling and you need efficiency and you need operational execution and 3% efficiency matters to the bottom line, we need the skill sets of an MBA.  But when you need to create something from nothing that doesn’t currently exist, you’re much better off using the right brain and creative intelligences and leading from purpose rather than leading from spreadsheets.  So that’s where I think the street smarts and the hustle and the grit are so much more important.

MANAGEMENT PHILOSOPHIES

Dan: That makes a lot of sense.  During that time, you grew iContact to over almost 300 employees.  What are your management philosophies, and how do you identify talents?

Ryan: That’s a great question.  I think it’s evolved over the last few years.  With Hive today, the way that I look for talent is, I look for people first who are mission-aligned, whose personal purpose is the same as the company’s purpose.  It doesn’t matter whether someone’s a customer service agent or COO, the bottom to the top, you need people who are purpose-aligned.

I think that managers and leaders too often see labor as a commodity.  They think of people as interchangeable, and they don’t inquire to really understand why someone is alive, what really gets them motivated.  I think that you’re able to hire the best talent in the world, the most motivated talent in the world, the most capable talent in the world, when you’re looking specifically for people with not only skill set and function fit and experience fit, but also people who are literally on this planet to make the mission real that your company stands for.

So I would first look for people who are in alignment with the mission of your company.  Now, if your company doesn’t have a mission, then everything I’m saying will be not at all helpful to you.  First up is to ensure that your company has a mission that matters.  So that’s the first thing, would be to find people who align with the purpose of the company with their own personal purpose, and make sure there’s a very good overlap there.

The second thing is, I think every company needs to have a no-assholes rule, and no matter how good a salesperson is, or no matter how good someone is as a performer–

Dan: How much experience they have–

Ryan: It just doesn’t matter.  If someone brings down the energy of the group, the resulting effect on the overall organism of the system of the company will be net negative.  Even if in that individual case, it’s in the short term positive, in the long term, it’ll be extremely negative, and good people will just leave, and good people will join.  So I think it’s important to search for purpose alignment and get rid of the jerks.

Dan: How important do you think education is on a resume?

Ryan: Depends on the hire.  I think if you’re hiring a C-level executive or a high-level manager, later in your companies, a stage beyond $25 million a year, that’s where actually hiring people with MBA’s really helps.  When you’re a later stage, you have more than 250 employees and you’re growing.  But assuming that many of the people listening are building earlier-stage companies, I think that experience matters more than education.

But education does matter, and I think that having a couple people on your team who do have that background and experience, and maybe they did go to a Harvard, Stanford, or Penn, or MIT or Yale, I think it does help.  There is just something about people who have had that type of experience and training that can help a company, particularly in the C suite.  People who have those types of connections can help a company grow and get to the next stage.

Ultimately, though, I think what matters most is, have they done before what you need them to do, and are they ready?  I apply something called the “grip factor.”  If the prospective team member, regardless of the position, has not had a time in their life where they’ve struggled and sacrificed and been able to work their way through it–if everything’s always been easy for them with a silver spoon in their mouth–they’re not going to be able to be there when the time gets tough ahead in your company.  So I really look for people who have struggled, who have sacrificed, who have overcome adversity, and who have shown the grit and the fortitude and the tenacity to get through challenging situations.

COMPENSATION

Dan: That’s a great tip.  I’m also curious: What about compensation?  Do you believe in just paying them a good salary, or profit-sharing, or bonuses?  How do you structure compensation?

Ryan: I think that having a significant portion of someone’s compensation as variable pay based on their performance is very important.  That can come in a few forms.  I think that in a venture capital-backed start-up, having stock options or stock grants for all of the employees is very important to aligning the interests of management with the interests of the team.

So at iContact, we had a program where every single team member had ownership in the company.  I think that’s very important, and I think what happens when everyone has ownership in the company is that everyone acts like they have ownership in the company, and suddenly, the animosity between management and the lower-down team, some of that goes away when everyone feels like they have a substantial stake in the upside of the organization.

That’s not always possible in a non-profit or in a social enterprise.  If you’re not going to go public or sell, then the equity doesn’t really matter.  So that’s where things like profit-sharing or bonus programs based on preset targets can be very, very useful.  I think the biggest mistake managers make, besides not hiring people and aligning their purpose and not communicating their vision and goals clearly, the third biggest mistake they make is that they do not provide incentive pay.

What I mean by that is, if someone makes $50,000 a year as a mid-level or entry-level employee, no matter how hard they work, they still get $50,000 a year.  Maybe if they bust their butt, they might make an extra $1,500 Christmas bonus.  I think if you look at the most successful companies in the world–let’s take Goldman Sachs, for example–they had some challenges as a company, but one thing they’re good at is making money.

So let’s look at the way that Goldman Sachs pays its employees.  What happens to a Goldman Sachs employee on December 31 if they’ve had a great year?  If they’ve had a great year, they’re going to get a 100% bonus.  So if someone at Goldman Sachs normally makes $200,000 a year, and they’ve had a great year, on December 31, they’re going to get another $200,000.  Ultimately, what that means is, 50% of your compensation at investment banks is based on performance.  That may be a little high, but I don’t actually think it’s too high.  I honestly think about 33-50% of a team member’s comp should be based on how the company performs and how the employee performs quantitatively, based on real metrics.

I think that these 2-5% variable pay Christmas bonus things just really are ineffective, and they become expected, whereas if you’re able to give people ambitious targets and let them know, “Hey, if we get to $10 million in sales this year, you’re going to get an extra $30,000,” then they’re going to work their butt off for you, because that’s real money, and that’s going to go straight to their family.

Dan: And every year, we can raise the bar and say, “Hey, next year, it’s this.  Then when we hit that, you also get your 33% or 50% bonus.”  Then everybody’s motivated to help the company grow.  That’s brilliant.  I love it.

DISTINGUISHING A COMPANY FROM COMPETITORS

Dan: I’m also curious, Ryan.  Back then, with iContact.  You’re not the only company in town.  You have some competitors as well.  What do you think made you stand out?  How did you distinguish yourself from your other competitors, other email service providers?

Ryan: That’s a great question.  We competed mostly with Constant Contacts and Mailchimp.  To a lesser extent, we competed with Exacttarget, Silverpop, VerticalResponse.  But as you mentioned, there were a number of competitors in the market.  There were a couple things that enabled us to stand out and grow from zero to fifty million over the course of a few years.

Number one was, we were very aggressive with marketing and advertising.  I think there are a lot of companies these days that are sort of–I don’t know what the right word is–“pretentious” is a little bit of an overuse of the word, but they’re a little bit uppity, and they’re like, “Oh, I’m just going to make a great product and let it sell itself.”

Dan: Yes, or, “My tech is so cool.”

Ryan: Yeah, it’s like if you make a product under a bridge and you don’t tell anyone about it, no one’s going to use it.  You have to actually have the combination of having a product that customers and users love, and spending money to tell people about it.  So it used to be, fifteen years ago, people would build shitty products, and then they would spend a lot of money on advertising.  Because there weren’t a lot of options around, you would do okay.

Today, there are a lot of options around, so it actually swung the other way here in Silicon Valley where people are making amazing, amazing, extraordinary products, and then not telling anyone about it.  They’re thinking that just by word of mouth and growth hacking is the only way to go.  Well, if you actually want to build a real company with hundreds and millions of dollars in revenue, you need two other things.

You also need a sales team, and you also need marketing.  You also need advertising.  So what we did at iContact was, starting in 2005, we figured out what our lifetime value was of a customer.  We figured out that a customer was going to pay us $50 a month for 3.5 years, and we figured out that our customers, over that 3.5 years, were going to pay us 50 x 40, which is $2,000–40 months of life.  So we realized that each customer was worth $2,000 in revenue to us.

So what did that mean?  That meant that we could afford a third of that, a fourth of that, $500, $600, $700 up front to spend on advertising to get that customer in the door.  That’s called “unit economics.”  Once you realize how much you can afford to pay to acquire an additional or incremental customer, and then you spend that money in a careful, scientific way in order to test various ad channels like Google AdWords, Facebook ads, banner ads, television ads, radio ads, and you carefully track the results of each of those campaigns, then you’re able to scale your business from $5 million to $50 million.

It’s the #1 secret to scaling from $5 to $50 million is, figure out your unit economics, your lifetime value, your customer acquisition cost, and then experiment with various ad channels to acquire customers for substantially less than the lifetime value of that customer.

MARKETING

Dan: That’s a great point.  One of the things I always tell entrepreneurs is, sometimes they go into a business, and they always think of marketing as an expense.  “How can I spend the least amount of money so I can get my clients?” versus “It’s an investment.  It’s making your matrix work, making the economics work.  So we know that each client that we get is going to be worth $100.  So how many do you want to buy?”  As long as the conversion and everything works.  Doesn’t it also help when you have that kind of numbers and that kind of funnel and conversion, when you go to investors and say, “We’ve been spending X to acquire these customers.  It works.  We just need some more money to scale this up.”  Was that helpful to investors?

Ryan: It was essential.  The problem that entrepreneurs have here in Silicon Valley is, they spend their time raising intro rounds and serious A rounds before they have any revenue.  You wonder why 95 out of 100 companies here fail.  It’s because they raise money way too soon, which then causes them to spend too much money and burn through their cash before they have any revenue and have any customers that have actually validated that what they’re selling has value in the marketplace.

So yes, I highly encourage entrepreneurs to make money from their revenue and then only later, once they have proven customers who pay them money, and a unit economic model–in other words,your customer acquisition costs, your CAC, is about 1/4 to 1/3 of your lifetime value.  Once you can mathematically show that, investors will be all over you.  Instead of you having to spend six months on the road having a hundred conversations and getting 98 no’s and 2 yeses and going through so much struggle and sacrifice that your friends and your romantic partner end up leaving you because you’re so focused on raising this money, then investors will come to you.  That’s really what you want.  You want to create a unit economic model that works so that investors will come to you.

RAISING MONEY

Dan: Let’s say that an entrepreneur has a product and it’s working, and it’s producing some revenue–let’s say a few million dollars a year–and now I want to raise money.  What are some of the lessons you’ve learned working with investors, like how much I should give away, what if I give away too much?  What are some of the things you’ve learned during that process?

Ryan: The most important thing is working with an investor you enjoy spending time with.  This is someone whom you’re going to be hanging out with at quarterly board meeting, every six weeks board meetings, for the next 5-7 years of your life.  So don’t bring someone onto your team unless you really get along with them and you really enjoy their company and you feel like you really have something to learn from them.  Be willing to take a valuation reduction or slightly worse terms in your term sheet in order to get the right person on your team.  The right person matters just as much as the right firm, the right investor.

Second, I just want to reinforce what I said before, which was, don’t try to raise money too soon.  Don’t take money from people playing the portfolio approach where they’re putting money into a hundred things hoping to work out because they really just don’t care about you.  They’re just doing it as sort of a portfolio gamble.  Really look to build value and have paying customers and to finance your business through your customers rather than financing your business through your investors.

Last thing I’ll say is that even later-stage, when you’re doing five, ten, fifteen, twenty million in sales, don’t raise too much money.  There’s a couple reasons why you don’t want to raise too much money.  Number one, it will dilute you and all your employees and all the hard work you’ve put in.  Number two, if you get too diluted, you lose control, and when you lose control, you eventually get thrown out.

The most important reason for why not to raise too much, though, is that when you raise too much, you get lazy, and you end up hiring people at very high rates, and you end up basically causing the company to have a higher level of expenses than the revenues.

So I have a rule of thumb.  I call it the “1X rule of venture capital.”  What the 1X rule of venture capital is, is never raise more than 1X your annualized revenue.  So if you’re doing $83,000 a month in sales, right now that’s a million a year, that’s great.  Most companies never even get there.  What that means is, don’t go out and raise more than $1 million in venture capital.  If you’re doing $500,000 a month, that’s $6 million a year.  Don’t go raise more than $6 million in venture capital.

What that does is, it causes you to have some positive flexibility where you can make investments where you need to make long-term investments without blowing all of your cash on superfluous things that really don’t generate returns for your company.

Dan: I guess sometimes too much money makes people stupid.

Ryan: Yes, it does.

Dan: I can see entrepreneurs raise the money and then buying stupid stuff like expensive furniture, bigger offices, all these things that don’t contribute to the bottom line, because suddenly, they feel like they have a lot of money in the bank.  Somehow, people feel the urge to spend it.  That’s a great point.

HIVE

Dan: Now, I want to talk about Hive.  What’s your take on entrepreneurship?  I believe–I think we both believe–that entrepreneurs are responsible for bringing about economic recovery through innovation, job growth.  Now, at the age of 31, what’s your vision?  What’s your goal for the next ten years?

Ryan: I’m going to be working on Hive for the next 50 years.  It’s really a rest-of-my-life type of endeavor.  Our mission at Hive is to create a global community of leaders and entrepreneurs and innovators who are working together on solving humanity’s greatest challenges.

The reason why we need a community of leaders who are working together and solving big challenges is that our society, our human species’ ability to continue to live on this planet, is threatened right now.  We are in a situation with both climate change and biodiversity that if we don’t shift the way that we go about doing business as leaders and entrepreneurs, we will have a situation where our grandchildren not only live in a much more difficult world, but perhaps our great-grandchildren may not even be able to live on this planet.  It’s really that severe if we continue on the path we’re on, particularly with fossil fuels.

So I think that’s becoming commonly accepted in the business community now, and it’s been accepted in the science community for over 15 years.  So it’s not just about protecting the earth and restoring our biodiversity and creating a planet that we can thrive on, it’s also about solving other challenges of humanity like creating a world in which everyone has access to the basic human needs of food, clean water, good shelter, basic education, basic medicine, electricity, and access to the internet.  It’s also about providing solutions like water desalination that can provide clean water to everybody, like solar power that can, in the next 15-20 years, at a much, much lower cost than natural gas or coal, sort of redo the electricity generation of the world.

Essentially, what we’re doing is, we’re bringing together the roboticists with the artists, the government leaders with the nanotechnologists, the singers and the dancers with the people who are doing investing at the highest level.  We’re bringing together a very diverse, global group of entrepreneurs and leaders who give a damn about the world and really want to create a society that doesn’t just work for the 1%, but really works for everybody.

The reason why I think this is a message that transcends any political type of party is that when everyone does better, even the people at the top do better.  I happen to be very fortunate now.  I’ve made some money.  I’m in the top 1 tenth of 1% of global income.  The last thing I want is to go outside and see human suffering and strife and when I go to work not be able to hire great talent or to have team members who don’t have healthcare.

I really think that as leaders, as entrepreneurs who often are in the top percent or two of income, when society does better, we do better.  When society is stronger, we are stronger.  Ultimately, that’s why we’re in business.  We’re in business as leaders to create a positive contribution to society and to be able to do so in a way that raises efficiency and creates value for ourselves and others.

That’s the type of group of people so far we have with Hive, which is at Hive.org.  We’ve convened 600 leaders from 75 countries for our 3-day workshop in San Francisco and Boston.  We’re just getting started.  Later, in a year or two, we’re going to begin building physical buildings.  The way that Hive will make money is tuition from our workshops as well as providing a co-living and co-working space for members of our community.

Our big, hairy, audacious goal between now and 2040, over the next 24 years, is to build 1,000 of these Hive buildings.  Within these Hive buildings, you can imagine a 20-story building in a downtown environment.  In New York, in L.A., in San Francisco, but also in Jakarta, in Capetown, in Melbourne, in Lima and all the global capitals.

You have in these 20-story buildings co-working space, so members of the Hive community who are working on solving big problems would be able to work there if they wanted to and share space with other inspired innovators.  We’d also have co-living space, so if you wanted to also live in the building, you could.  That’s probably going to appeal more to the under-40 crowd than the over-40 crowd.  I do think that there are a lot of millennials, a lot of Gen-Z now–Gen-Z began being born in the year 2000, so they’re turning 17, 18 next year; it’s sort of scary.  We had people in Gen-Z that were starting to drive this year, which is amazing.

Dan: Makes you and me feel old.

Ryan: Millennials are the new Gen-X.  We’re talking about “back in the day of Reagan,” and they’re like, “Who’s Reagan?”  We’re old now, Dan.  But long story short, these young people that don’t remember what MTV was, they are going to essentially be taking over the world.  Essentially what we’ve found is millennials in Gen-Z, they want to live in community.  They don’t want to live in boring, corporate buildings with no purpose and no connection and no content.  They want to live together with the other inspiring people that are up to big things, that are solving big problems.  So Hive will have co-working and co-living spaces.

Last, we’ll have a hotel on the top of every Hive.  So if you’re part of the Hive community, and you’re in Jakarta for three nights and you need a place to stay, instead of staying at the Hilton in Jakarta, which is going to be corporate and boring and sort of sterile, and you’re not really going to meet that many interesting people or have that many deep conversations, you just go to the Hive Jakarta.  Why stay at the Hilton when you can stay at Hive?  That’s what we’re building.  We’re building this co-working, co-living hotel space that will also have classrooms, event space, healthy cafe, juice bar, yoga fitness studio, wellness studio, and really bring into the way people live and work this concept of meaning, purpose, and community.  That’s really what Hive is up to.

Dan: That’s amazing.  I like how you integrate education, technology, and business with a community.  It’s very, very well thought out.  Very well thought out.  Imagine just a small group of people, how much they could do and how much they can change the world.  And now you have hundreds, even a thousand of these buildings around the world.  That’s amazing.

I could even imagine someone in one country who’s working on a project, and they need resources or help, and someone from another country in the Hive community says, “Hey, you know what?  I know somebody who could help that,” or “I have the experience that could help you on that.”  That’s amazing.  I can see why it’s a 20-, 30-, 50-year project.

Ryan: It is.  It’s going to take my whole life and beyond.

CANDIDATES FOR HIVE

Dan: If someone gets involved with Hive, and they want to contribute and be involved in with this community, who are you looking for?

Ryan: We’re looking for mission-driven leaders and innovators who give a damn about the world and about society and want to work together with other extraordinary, caring leaders and innovators to solve big problems.  We are looking for people to come to our Hive Global Leaders program.  We have one in April 2016 at Harvard, April 15-18.  We have one over Memorial Day, May 27-30, in San Francisco.  We’ll be doing them every couple months.  We’re looking for Hive global leaders.  We have received over 10,000 applications so far to become part of the Hive community.  We have 600 alums.  It’s a competitive process, but we are looking for entrepreneurs and business owners who really care to join the community and work together with us to solve big problems.

PHILOSOPHIES ABOUT LIFE AND WEALTH

Dan: Perfect.  I also want to take a couple minutes and discuss a little bit about your personal philosophies and life.  How did you view life back then in your early 20[s, and how do you view life today?  Or success?  Or wealth?

Ryan: I think that shifted a lot.  I’ve begun meditating a lot.  I’ve begun doing yoga a lot in the last couple years.  I used to be very stressed out.  I was 60 pounds heavier.  I was 212 pounds; now, I’m 152.

Dan: You look great, by the way.  Awesome.

Ryan: I really have shifted my personal health and wellness and my habits, and I think it’s time that entrepreneurs and CEO’s realize that if we’re killing ourselves in the process of building our companies, we’re not doing anyone a favor.  It’s just not sustainable.  My philosophy around success is that true success is when you’re helping others.  True success is leaving something behind that matters.  True success is working on something that you’re committed to that’s bigger than yourself, with people you love and care about.  That’s my philosophy on success.  I believe you make more money when you work to solve real, big problems that really affect people around the world.

I think it’s time that people stop playing small.  I think it’s time that people stop trying to make two-, three-, four-million dollar companies, creating shitty products that don’t help anyone.  I think it’s time that we step up as an entrepreneurial species and actually solve the big problems out there that really matter to hundreds and millions of people.  I think ultimately, if you do step up in the way that someone like an Elon Musk has stepped up to simultaneously solve electric cars, space travel, and solar power–he obviously is very mission-driven.

You don’t have to go solve electric cars, space travel, and solar power.  But how about taking on one of those?  How about taking on one of those great, global challenges that affect the lives of more than a billion people?  I’d encourage everyone on this call that maybe started out an entrepreneurship because they wanted financial freedom and they wanted to push themselves, to learn to really see how with their next venture or their current venture, they could pivot it towards solving problems and creating products that really, really help the world.

Dan: As entrepreneurs, we all go through this phase.  At first, you just want to make enough money.  Like you said, financial freedom so we can be our own boss and control our own destiny.  Then after awhile, it’s not so much focusing on ourselves–“Hey, we’re comfortable, we’re paying the bills, we’ve got the nice things; now we can focus more on the world.”

As an entrepreneur, from my perspective, it’s not too difficult to build a business that makes money.  it’s way harder to build a business that makes money and makes an impact in the world and solves a global problem.  You need to be that much better.  You need that much more skill and intelligence to do something like that.  It’s a challenge for us.

WORDS OF ADVICE AND CALL TO ACTION

Dan: For young people, any last word of advice if they’re thinking of entrepreneurship?  Or would you want to leave them with just one call to action?

Ryan: For young people, my advice is to follow your curiosity.  Don’t go down the paths that are commonly traveled.  Run away from investment banking and consulting as fast as you possibly can.  Find a problem that matters to people, solve it, and build a company that solves problems that matter in the world.

Dan: That’s fantastic.  If they want to get your book, they go to Amazon.  Zero to One Million.  You wrote the book in 2008.  I think it’s still a great book for any entrepreneur to read.  Zero to One Million.  If they want to learn more about Hive, it’s Hive.org.  If they want to get in touch with you or want to read some of your posts, they go to your website as well.  And the domain name is?

Ryan: They can go to Startupguide.com.  That’s the most recent website where I’m doing a lot of writing on entrepreneurship.

Dan: Perfect.  Ryan, thank you so much for taking the time to inspire us today with your amazing story and your insights.  I appreciate it.  Thank you so much.

Ryan: Thank you, Dan.  Thanks for changing the world.