Podcast: How Venture Capital Will Change Your Business and How it Stacks Up Against Other Kinds of Funding, an Interview with Rand Fishkin of Moz
Learn what to watch out for when using venture capital and how it stacks up to other forms of funding, both traditional and inventive.
About the Host
Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.
About the Guest
Rand runs most of the show at SparkToro. He was formerly co-founder and CEO of Moz, co-founder of Inbound.org, and author of Lost and Founder: A Painfully Honest Field Guide to the Startup World. He doesn’t take himself too seriously, but he does have a bit of a chip on his shoulder, and is deeply passionate about making SparkToro a great company (at least, by his own peculiar standards).
If you listen, you will learn:
- What was Moz and how it began.
- What happened when venture capitalist investors approached Moz.
- How venture capital investments change the business.
- Rand’s push into the CEO position.
- How the attitude toward SEO changed over time.
- The reasons Rand left Moz.
- How he coped with the exit.
- The unfair stigma of self-funding.
- The benefits of venture capitalism.
- The benefits of private equity.
- The 2 mindsets a founder can have after an exit.
- Why Rand is involved in TinySeed.
- What SparkToro is doing differently than Moz.
- Ask yourself, what do you need to feel successful?
Announcer: Welcome to Life After Business. The podcast where your host Ryan Tansom brings you all the information you need to exit your company and explore what life can be like on the other side.
Ryan Tansom: Hey everybody and welcome back to the Life After Business podcast. This is episode 139. On today's episode, we tackle what it's like growing a business, all the different pressures that a business bring to you, especially if you're a venture capitalist backed and how your identity ties so much into the baby that you create and what it's like reinventing yourself afterwards. On the show today I have Rand Fishkin who is one of the world's most famous experts in SEO and famous also for whiteboard Fridays that hundreds of thousands of blog followers have grown to absolutely love. He created a company called Moz with his mom after dropping out of college and it was an SEO consulting company that led into the Moz toolbar and ran, raised a bunch of money from venture capitalists and he, as he was growing the company, he explains what it was like having to let go his mom and has he started taking over.
Ryan Tansom: Then he ended up stepping down and essentially exiting his own company that he created and we really dive into how difficult it can be when you have the pressures of grow, grow, grow, grow, grow, and what that means to you and the expectations you put on yourself. But then also what happens that when you exit a company that is so integrated into who you are and how the world sees you. So Rand's in the middle of reinventing himself because now he has a company called Spark Toro that he gets into that I'm really excited to watch how he takes us to market and how he helps change himself. And he's got completely different intentions and motivations of what he's doing with his current company. And it's from all the experiences that he had growing and exiting mas. And if you really want to dive into this subject Rand, will talk about it.
Ryan Tansom: But he wrote a book called Lost and Founder, which gives all of the ins and outs of the trials and tribulations of the startup world. But even if you're not in the startup world or in the tech world, this is a great episode because random and I have a very real conversation about how a company can be so integrated into who you are and what you stand for, what other people view you as that. It's just, it's really an eye opener and a good conversation for anybody to listen to as they're looking at what should they do with their business and how does their personality and their vision and their passion tie into what they do for a living. So without further ado, I really hope you enjoy this episode with Rand Fishkin.
Announcer: This episode of Life After Business is sponsored by GEXP Collaborative. Their proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. Sell your company on your timeframe to the buyer of your choice at the price you want.
Ryan Tansom: Rand. How you doing?
Rand Fishkin: Ryan, great. Thank you for having me.
Ryan Tansom: I'm excited because not only him before I got into the world of, you know, the podcasting in the online survey as it didn't really know what a mas was. And then all of a sudden I heard about the whiteboard for Fridays. I got exposed to a lot of your stuff and so I've been following you. So then when I read the article about you talking about tiny seeds, uh, and then um, Rob Walling who's been on the show and then I kind of dove in and I didn't really fully understand the story that I'm with you and the company that you built and then you wrote a book about it. So for the listeners that might not know about you, let's go back. Like, man, how did you start the business? And I mean you and what was the, what was the business that you created? And then we can kind of go into it, go into the story.
Rand Fishkin: Yeah, sure. So my mom, Jillian started a company in 1981 there was a small business marketing consultancy, right? Logo, letterhead design, kind of classic marketing pre Internet world. And in the late nineties I started while I was still in high school, like 95 96 97 starting to building some websites and occasionally I would do some sort of work for her and her clients if they wanted to get a site going. And in 2001 I dropped out of college to do that full time. Basically worked with my mom design and build websites and we were pretty terrible at that kind of crashed the business that she built. Um, you know, sent it deep into debt. We just made every mistake in the book and when we found ourselves deep in debt, the only sort of, you know, silver lining was we had been sub contracting folks to do search engine optimization, right?
Rand Fishkin: The practice of getting websites, more traffic from the organic and non paid listings in Google and at the time MSN search and Yahoo and all those. And we couldn't afford to pay our subcontractors anymore. So I had to do it myself. I learned the practice. I found that both very frustrating and very interesting. And so I started this blog kind of on the side in my own time called Seo Moz that describe the practice of Rand's learning Seo and like, here's what he's thinking about. And every night I blogged on this, you know, on the site I was experimenting with it and trying a bunch of SEO tactics, all this stuff. Well that blog started to gain popularity and then attracted customers that we were able to, you know, turn into the way we turned around the business.
Ryan Tansom: What year was that? They were starting to turn that around.
Rand Fishkin: Probably the start was maybe oh end of '04 into '05 and then by 2007 summer of 2007 we finally kind of paid off our debt and earlier that year, and at the start of 2007 this is kind of how we became mas in 2007 we launched a suite of software tools that we had built for ourselves. They were just like little knee SEO tools that we use to sort of automate some of our consulting tasks, reporting and that sort of stuff. I wanted to make them available for free. Our developer, Matt was like, no dude, we don't, we can't pay for the bandwidth. I'll say, fine, can we put up a paypal pay wall so I can at least show this off to some people. Fast forward six months, the paypal pay wall for 39 bucks a month is now generating the same amount of revenue as the consulting business or like, Whoa, okay. I think, I think SAAS might be a business. I mean you don't even know what to call it, right? We have no word for this.
Ryan Tansom: Super Cool. So then what was the w w what was the direction as you're, as you're seeing that, I mean, what was the conversations you have with your mom and your developers? Like how did, like what were some of the milestones and it, cause I know that the, the premise is that you ended up taking on some VC and that there's a lot of trials and tribulations and thoughts that you've got behind how you guys went about doing that. But like what, what kind of, what are some of the steps that led to the structure that you ended up with?
Rand Fishkin: Yeah, I mean we, we ended up with a very classic venture backed structure. So we essentially, you know, at the, the end of 2007 raised a round of financing, a couple of vcs had reached out to me actually and said like, Hey, would you interested in turning this into something bigger? Or we think that Seo is an exciting space and we want to place the bet there and we think you're a good choice. All right. And so, yeah, we, we said....
Ryan Tansom: Did you know what VC was then? Did you... Like what was your level of understanding of what....
Rand Fishkin: I Googled venture capital, when I got the literally I was like, Oh, uh, ignition capital venture partners. Okay, wait, what is that? But they, I mean, they made us a great deal. I outlined it a little in the book, but basically we raised 1.1 million gave away 14% of the company and a board seat. I mean, stellar deal maintained a ton of autonomy and control with one exception, right? Which is anytime you raise venture, your goal goes from, you know, build a profitable, sustainable business to build something that's going to exit and produce a massive amount of capital for your investors or you know, kind of die trying. Right, right. And so we maintain control. I mean, I outlined an offer that we had the only offer to sell the business that we had while I was a CEO for that or them a seven and a half plus years that I was CEO. We, we had one offer in 2010 or 11 to sell. And we could have taken it, um, it would have been, you know, phenomenal deal probably would have been more phenomenal deal then know whatever might happen in the future even even with, you know, Mazda's growth. Uh, and turn that down. No, I thought, I thought we were worth more. I thought we could do even more. And then we did in 2012, we raised a large round 18 million in financing, uh, from inventure more venture capital, uh, 3 million more from Ignition and 15 from a group called foundry.
Rand Fishkin: Foundry is based in Boulder, Colorado. I think Brad Feld is a very well known person and sort of the startup and technology world. And Brad, Brad and I formed a friendship and he joined our board of directors, uh, you know, invested this large sum of money. And then we, I would say basically wasted most of it I'm doing, doing things that we thought would bring growth, but instead really took us very far off track, um, on a poor strategic decisions.
Ryan Tansom: I'm curious because you know, I, I actually, uh, about a year ago I interviewed the head of a VC for Ernst and Young. Very interesting, very interesting guy. You know, the sheer amount of deals that he sees is pretty crazy. And you know, one of the things that we were tying.
Rand Fishkin: Ernst and young, so they're, they're an accounting firm, right? So what was the head of VC do there?
Ryan Tansom: They're so like, they like, I mean EY is like, actually were total sidetrack, but like a lot of the, the big, the big firms we've got of their building, building out big consulting practices. So like M&A advisory firms or services or raising capital or, so this guy, I mean there's crazy things that he's seen, but you know, one of the things, you know from his perspective of like, you know, putting a lot of the deals together and that, you know, I haven't had a ton of people on the show, but the, there's been a constant theme. The same thing as with private equity is money comes with different personalities, right? So it does, and I know you've probably got a lot of thoughts in this, but it's like as you were googling DC you from there to like the different rounds that you did. How did like, cause in one of the blog posts that you wrote when rugby is you're leaving is you know you kind of shift the focus, right? So your shift from like building a really cool product that is serving your customers do now you get different intentions, there's an exit through the different pressures, different conversations. Can you explain how that that dialogue change behind the scenes?
Rand Fishkin: Gosh, yeah. I think what's funny is it is less, less explicit and less directed than you might think. Right? So it's not hey you get in a board room and these investors tell Rand this is what we want to see. We need you to go this direction, let's get it done. Nothing like that. It's more sort of this your, you move from an ecosystem of how do I build something sustainable and profitable and exciting and do things that I think my customers want to, you know, going home at night and wondering how do I, how do I become worth $1 billion, right? How do I, how do I turn laws into something that's worth $1 billion? And so that is bought by, by its very structure of very, very risky business. Right. So you, you are incentivized and sort of encouraged and supported to take those big picture risks but risks but not forced to. There was never a time when Brown and Michelle, my investors said, Randall, we feel like you're playing with safe and we'd like you to be more aggressive. Never. Not once, not explicitly, certainly. But you know, you're hanging out with a different kind of crowd and you're sort of being shown different examples of what a successful company is considered to be. Right. So there's sort of this natural thing in the venture world where you know, you see your investors talk about and write about and speak on panels about like, Hey, you know, we need to shift the mentality of entrepreneurs away from these, you know, single base hit lifestyle businesses, which they used as a pejorative, right? This sort of trying to insult you. If you make $10 million a year or $50 million a year or $100 million a year, right? And, and sort of encourage folks to think bigger, right? We need disruptive companies.
Rand Fishkin: We need companies that are world changing, not these, you know, little piddly things that, and so you start to, I don't know if you start to write, but I started to, you know, I was, I was taken in by this as well, right? I thought, I thought of myself as not a successful entrepreneur. Right? But rather someone who was sort of striving to deserve the funding and the recognition and the company and the title.
Ryan Tansom: How did it change your relationship with the business and your customers and your passion?
Rand Fishkin: Yeah, absolutely. Totally, totally different sort of thing. Right? It goes from, man, you know this, I feel like this feature would really help our customers. I want to, I want to build that to who that is probably incremental progress and incremental progress is kind of why waste the time, right. Being a little more valuable than we were last month or last yeart hat is not going to produce the returns. How do we turn this into a, you know, a business that's yeah, sort of. Yeah. You've got to be north of 100 million in revenue to kind of IPO and that's probably, you know, and you want to be growing at a significant rate. So in this weird way, you don't want to reach 100 million by growing it 10 or 15% year over year because the market won't value to you and you know you're going to have a lousy IPO if anyone will even buy the stock. What you really want to do is show north of 30% year over year growth. So you kind of want to have this like, hey, it's fine if we have a few like slow ears, as long as that then accelerated massively again. So it's, it's a strange, strange ecosystem. Um, strange incentives.
Ryan Tansom: Did you, when you were, you know what I find, you know, you went into it when you like just going back to 39 bucks a month, then all of a, it's half half of that consulting to you're now trying to be $1 billion. I mean, there's a massive kind of mind shift that you have to probably go through. Did you enjoy it? Did you, how did it, like what was your experience with that? Where now, that's what you're thinking about every day instead of becoming, you know, solving the problem of the, the marketplace or, I mean, technically you're kind of probably trying to do both at the same time.
Rand Fishkin: Yeah you're trying to do both for sure. You know, I don't mean to say you don't, you don't ever take your eye off the ball of how do we serve customers. It's just how do we serve customers in a way that's worth $1 billion instead of how do we make sure that this is worth slightly more than it was last month. The mindset shift for me was exciting. It was interesting. I sort of fell into that half of like, oh I, I'm, I'm leveling up in my thinking and I'm being a bigger, broader, more intelligent, more savvy CEO. Uh, and when I reflect back on that, I realized that I think what was actually happening is I am playing more towards the desires of, of late stage capitalism and dollars that are seeking, you know, growth returns rather than doing something that I personally think is the best or most enjoyable or thing that will make the world or my little world or our customers as world or our employees is world the best that it can be. Those things don't always compete. Sometimes. Sometimes they are in alignment for sure. But I don't think that I was truly aware. Right, you're swimming in water, you don't know you're in it.
Ryan Tansom: Totally. And I think, you know, no matter what partners are bringing on, if it's capital, I mean there's different, there's different people now sitting at the table, right, different intentions, different purposes, the exit strategy. So I think it just, you know, one of the big things, whether it is people come in with private equity or VC or whenever it is partners is just making sure you're constantly in alignment and he's just, things will, things will change. Maybe for the listeners Rand, can you just give us the, the, the overarching summary of kind of the milestones we went through and then how you ended up now at your current place. Because I think we can kind of go back and you got a lot of lessons. We wrote the book about it and just how did you get to the point where we are today?
Rand Fishkin: Sure. Uh, let's see. So how I became Maz CEO in 2017 I tiook over from my mom, which was kind of a tough situation for sure. Um, that was what our investors had kind of asked.
Ryan Tansom: What was tough about it?
Rand Fishkin: That we have a cost of production of that. Yeah. It was a hard one oh, well, I mean, you know, this is a company that she had been running for 25 years and you know, that, that she had started it and found it, I think, I think it was kind of an ego hit tab. This like, hey, there's two right? I think there's two competing things for her. There's like, I'm really proud of my son. I'm excited for, you know, his future and what he's doing with this business, but also like, this is the thing we did together and I will been the CEO and you know, now these people who are coming in and giving us money or saying like, no, we need, you know, we need you to step down or putting this other person in place. I think there's probably some, you know, I haven't actually talk to her about this, but I, I suspect in reflection, right, there's some feelings of like, Gosh, is this ageism? Is this sexism? Is this both? And I think that that, yeah, that had to hit hard, so it was, yeah. Painful.
Ryan Tansom: Was your guys' relationship? Pretty, pretty cordial after that. I mean, it was, it's still same as, or a little bit different.
Rand Fishkin: I think it, I think it suffered and definitely was. Yeah. Not, not the same.
Ryan Tansom: I was in a family business man. I totally get it.
Rand Fishkin: No. Yeah. I mean it's just like you've been ready, been in a family business. I'm sure you're talking to many folks who have, and I, the stories that they very rarely goes well.
Ryan Tansom: It's this whole, I'm going on to pasture when that's like ed, how to eat, you know, like you said, there's so many different layers to the onion. And so, I mean, so after they put you in as CEO, was the, what was the, the direction and how to?
Rand Fishkin: Yeah. Basically from there grew the software part of the business grew at 100% year over year for the next seven years, and then sort of in year in year eight, which would have been 2013 mmm. We, you know, we, we sort of plateaued that to 50% wealth plateau. The growth rate shrank right. Went down to 50%. Uh, this was started. Part of that like strategy I had after raising the money in 2012 taking my eye off the Seo ball basic story was there was that we, we had a belief, although I'm going to say I broadly, we had a belief that like mas should try and integrate all these web marketing tactics and stop putting all our eggs in the SEO basket exclusively both from a risk profile model. Cause you know, who knows what Google will do, what will happen with Seo. But also because, uh, we think we can become, you know, a giant company if we invest in all these other forms of Web marketing as well.
Rand Fishkin: And, uh, it turns out okay, we did that at the worst, worst possible time. So probably from 2012 to 2018 maybe even into this year. I would say, uh, the SEO field has grown faster than it ever grew up and it, it sort of got rid of the old reputation than it had for 15 years prior of being this, you know, skeezy scuzzy place that, you know, no one wants to play now and now it's sort of like well respected. Every fortune 500 as a huge SEO team apartment, you know, every publisher worries about and thinks about this. Ah, it's lost the, the nasty reputation that it once had. The number of professional SEOs has just skyrocketed and Moz is in in 20, let's say 2014 still probably would have been the market leader. Like if you know, surveyed 10,000 SEOs and said, what Seo tool do you use?
Rand Fishkin: It probably would have been 40 to 50% would've said us. And then a variety of, of our competitors today that is probably down to 15 or 20%, maybe even lower. Moz is technically bigger than it is, but the SEO field grew much faster and several of Moz's competitors kind of took advantage of the fact that, hey, they're taking their eye off the SCL ball. Let's go, let's go pursue that. Um, let me go answer your question about the big milestones. So yeah, a 20, so we were in 2013, which was sort of my last full year as CEO. We did about a just under, I think 30 million in revenue. So when you were at, right around 29 million and then 2014, I stepped down as CEO and promoted my longtime chief operating officer, uh, to the role Sarah Bird, who is still a Moz CEO Today.
Ryan Tansom: And what was the reasoning behind that? Was the ... so right around that you're kind of switching tactics and strategies and it was, what was the underlying theme behind the, the reason you stepped down?
Rand Fishkin: Yeah. So I wrote about this on the blog and also in the book, but, um, I basically was struggling with depression at the time and kind of got the message from my team and my wife and lots of other people that like, hey, this is kind of an unsustainable situation and we're worried about you. I was worried about me. And so I said, you know, I thought that I could maybe take some of that pressure off and also, you know, be, do more of the things that I love to do, which was not really managing people and growing a big company in terms of number of people. But rather, you know, focus on product and on strategy, on marketing and those kinds of things.
Rand Fishkin: Um, at that time I had this, you know, my, my vision was like, okay, this other thing did not work out. We need to return to SEO. Let's go, let's go back to focusing on Seo. Let's not take our eye too far off this fall. Um, unfortunately I think that turned out that that was not what, how the new CEO felt. And despite lots of conversations kind of ahead of time about, hey, here's the, you know, here's how I want to keep participating and I'd like to still have the sort of some influence here. I, I think, I think some influences kind of all that I had after that and it was actually really was very, very hard for me. I think disassociated myself from, hey mas is not doing as well as he used to do. You know, the growth rates slipped from 50% to 20% to 12% to like, you know, seven or 8%.
Rand Fishkin: And all these years, you know, I'm just pounding the table at the board meetings. Like, what are we doing? This all wrong? You know, everybody else is like, it's fun, it's cool and rand is just insane and infuriated and uh, yeah. So eventually I think that that kind of led to like a breaking point between myself and the CEO and not sort of, not just professionally, but personally. And so then, then I, uh, somewhere between, you know, halfway between was asked to leave the company and decided to leave the company. Like right in the middle there and I left in what was that just almost exactly a year ago. So, uh, beginning of 2018, um, left the company full time. I'm still the chairman of the board, uh, technically and um, you know, obviously a large shareholder but not involved in day to day stuff.
Ryan Tansom: So you know, and I appreciate you sharing that. I know you've got that a lot of this stuff out there too because you published a lot of stuff, but I think it's, it's something that, you know, the experience that you went through is very similar to like, even though I even myself with a lot of the people that have been on my show, there's so much emotion and identity tied up into the business and it's like, it's very difficult. Honestly, that's where the whole life of their business came from. It, there wasn't enough at the very beginning to really tie into the like the psychological stuff of this. And I know Sherry Walling talks about some of that, but like, you know, explain maybe you know, your journey through that. Like, how did, like how did you deal with the fact that like, this is your baby, you know, and, and I think it's even more when you're in like the coating business around and like, cause it's like literally like a piece of artwork. Right? And then there's people there that are your culture and reflection of you. Like how did you, how, how, how have you been dealing with that or how did that go for you?
Rand Fishkin: Bad, real bad. It did not go well. Uh, I think it was very mentally and emotionally draining and, and really challenging. And I, I think I'm generally a person who's pretty good at processing emotions and working on self awareness and being thoughtful and mindful and trying to be... I try to be kind both to others and to myself, you know, about the mistakes of the past. But I mean, I remember an email thread between myself and Brad Feld, I think. I think maybe the whole board was on and I can't remember, but um, Brad said something like, you know, you've got to stop beating yourself up for the mistakes of the past. And I think I replied with something like, they're my mistakes, they're harder. And, and I get to beat myself up as hard as I want. Back off. Who says that? You know, that's a, that's a crazy mind that it's going through there, but that, that is how I felt for years, right? For years, I was like, I, you know, I screwed up,
Rand Fishkin: take my eye off the ball. I screwed up stepping down as the, Oh, I screwed up with the, you know, hiring these different people and, um, I screwed up with not hiring these other people. I, um, you know, I screwed up with timing in terms of product and, and market and pricing and all sorts of strategies stuff. Right? And that's how business is like, you learn, right? You're supposed to learn and then you get better at it. And then, you know, but I, I just, I couldn't, I couldn't let it go. You know? Like, it just felt so responsible and it, mas was so tied to my identity. I mean, you know, we've, you opened the show, right? And you're not like, hey man, I'm super excited about spark. Toro, I love loss and founder. You're like, Whiteboard Friday, right. People know me from Moz. Right? Like Moz is so intrinsic to my external identity, it's, it's hard to get away from.
Ryan Tansom: Totally man at night. And the, and it's so funny that I even caught up and even like the world that I discussed cause like honestly, um, have you ever heard of a book called finish Big?
Rand Fishkin: Finish Big.
Ryan Tansom: For all my listeners to hear me talk about this all the time. Um, I'm going to pull it up. So for listeners, and I apologize cause we're on video right now, I'm writing it down the finish big and it's a how great great entrepreneurs, actually the companies on top. So I read this and you know, actually like let's put it this way man. Like when we sold, I had built out or managed it services and it was just take off man and like, you know like in it's software, it's processes and people and code and all this stuff, right? Well they didn't need it. So they literally shut down my servers after four years worth of like millions of dollars worth of work. And I'm just like, I went home and honestly like I broke down that and I was my wife, I was like crying. I was like, I don't know what the hell just happen. We got a check. But like I have no identity. You have nothing. Everything I've done for the last seven years is gone. And so unfortunately I read this book after that and this is what it should have like randomly popped out of the sky, like in so Bo Burlingham, he's been on the show and he says that 75% of entrepreneurs are unhappy 12 months after the sale of their business, regardless of how much money they make because they, it's so wrapped up into their identity.
Rand Fishkin: And I think that this is a big, this is one of the biggest problems with the venture backed universe, right? Is that it does, it does not allow an outcome, which is, you know, something like a Bob's red mill, right. This is always my favorite example, right? Where he, you know, Bob gets into his seventies he's like, Gosh, I have this great company. It's been profitable for 40 plus years. Love the product. Like it brings these wonderful grains that they wouldn't are pretty having their lives and into supermarkets around the country and around the world. I don't need any more money. I want to give this to my employees. I don't know if this is the case, but everything I've ever seen Bob talk about or anything I've read says that like that this is one of the happiest things that you can possibly do. Right. And Bob is just a guy who was thrilled with it and it's a totally different objective. Right? Totally a different objective.
Rand Fishkin: Totally different mindset. I think this is, this is the thing, you know, when you, when you raise venture, everyone is going to say congratulations, everyone is going to be really excited for you and proud of you. And it is a huge, you know, checkmark on your resume as an entrepreneur. I'm not totally sure that it, it should be right. But on the flip side, I think one of the biggest problems is that if you build a business independently, you bootstrap it, you raised some money from some banks, you raise it from, you know, Angel Investors, friends and family. You do, I don't know Kickstarter, right? That that kind of press and accolades and admiration and recognition, it does not appear make $10 million. And people are like, yeah, whatever. But if you raise $10 million like you are, you know, sky's the limit. That's it. That's totally messed up. That's totally backwards.
Ryan Tansom: Making money. So like it's like you don't, you and I talked about so conscious capitalism, it's like you have a profitable business. And by the way, another book, small giants
Rand Fishkin: It's on my shelf over here.
Ryan Tansom: Bo wrote both. So um, I've interviewed Paul Spiegelman and the whole thing is like what is the purpose of the business? Right. And it's funny cause I asked bowl like how can you draw a good company and exit on top? How can you do both? And it really kind of comes down to your hand. Like he's like, well kind of ESOPs, which is what you say sell to your employees. But there is no, I think there's, you know, they're in the whole VC role. Then we can talk a little bit more about what you're doing with tiny seed and some of the other things is like there, there's just, what does the money come with? And this is the whole issue with private equity because so many of the boomers, so like when you talk about selling to your employees, it's, that's one thing, but private equity is kind of the same thing, right? So there's a lot of Wall Street money that's out there were, these are analysts, they've never ran a business before. They don't know what you know. So there's, and that's a big generalization, right? Some of them have and all that kind of stuff, right? But is their goal is a rate of return and especially where they got their money from, is it an overfunded or overly extended pension? Then all of those motives drive down and it's like, oh, you still do a pilot, but it's like way different. I think it's, do you think it's the lack of understanding or the lack of exposure to like what the real issues are that are out there?
Rand Fishkin: Let's see. I think that is, there are many problems that face entrepreneurs when they're, when they're sort of considering potential outcomes. I think there's certainly, um, over amplification and an overly focused culture. Uh, and I, I mean culture like everything, all the people around you, all the, you know, what are the websites writing about one of the magazines talking about who's on the cover of things, who's getting recognition? You know, who does Donald Trump meet with at the White House? Right? It just everything, everything right. Focuses on this small subset of entrepreneurs who are lauded for their accomplishments and everybody else is kind of supposed to follow in their path. And I think there, there are very few examples like Burlingham's book, a small giant, right? Very few of those with the weird thing about that book, as you read and you're like, these are extraordinary, would amazing businesses. What incredible. Why have I never heard of this?
Rand Fishkin: Why? Right. They have, why are they not featured in the New York Times every other day? That's real weird. Right? Um, you know, a failed venture capital business is going to be featured, you know, vastly more than seriously....
Ryan Tansom: There were a couple Right here in the twin cities, they've just crashed and burned and they were on the cover of the twin cities business journal.
Rand Fishkin: Yes, exactly. Um, and I think there's also a, um, but part of this is understanding the, the environment that we live in. So you mentioned bankers are behind it. I think that's a huge part of this, which is basically there's a ton of capital sitting around in very wealthy pockets, right? We all know that the distribution graphs of income inequality over the last, basically since Ronald Reagan was made president and, and sort of rejiggered how the economies of the Western world worked. And as a result, you have these, you know, just trillions of dollars sitting in all these wealthy pockets and they are looking for growth, right? They're looking for a certain rate of return, hopefully one that beats the stock market. Right? And the stock market itself is looking for these rates of return. And so these dollars are just going to create incentives for systems that reward, you know, Google, Microsoft, Facebook, Amazon, apple as the, you know, the big few companies and the few companies that can become, you know, whatever it is, airbnb or Uber or you know, those types of giant Ikea as a salesforce, hubspot, right? That I'll get my hands too much. But you know, we uh, I think as a result of all that capital, trying to find places to go, you get very weird incentives. You get a very, you get a market that looks really different, right? That's not interested in, hey, Ryan and Rand have this great business. It's growing at 20% a year. It's 30% gross margins. They're taking home 10% of the profits every year. They're loving life.
Rand Fishkin: They're building something their customers and employees are thrilled with, our partners are thrilled with, and the macroeconomic world is sort of going, oh my God, shut up. We don't care. Right? It's kind of like, go the eff away. Will you please stop distracting people from trying to find a way for our billions of dollars to grow at 12 or 13% year over year.
Ryan Tansom: I talked a lot about, and I think you know the two worlds ever talking about is the PE world and those big dollars are flowing now into the middle market of these baby boomers and the privately held companies. And so the experience that you went through with the VC, like it's the same experience that I hear with a on the show or that you hear in like the really terrible stories of these PE firms cause they, they come in and they, so you and I could the literally start a PE firm right now and we can go and say, okay we're going to take some money from Chicago, his pension fund or a or way over collateralized with how much liabilities that have. And then we're going to promise them 20%. Well we're going to go buy a company and then just flip everything on its head. So these people have this issue that you and I both have gone through. Other people I have as well as that. You don't realize what's going to happen with your baby once you partner up with that money and those intentions, right? Because everybody's got a master and it just kinda comes with a way more baggage than you actually think.
Rand Fishkin: In this way. I think venture is actually massively more friendly than private equity and growth equity and a lot of ways, right? There's venture is very much, hey you run your business the way you see fit. You know we're very hands off. This is kind of your north star goal. Eventually we were looking for this sort of rate of return, but you're the CEO, you tell us how to get there and we, we are going to be supporting you 100% until the day when we don't.
Rand Fishkin: And then we're going to look for a new CEO. So you get a lot that you get much more card launch on. So to try to be exciting and innovative, I think venture is a great model. I'm glad it exists. It shouldn't be the only thing. Equity is the same thing, right? Like, I'm glad it exists. I think it should exist. There are definitely companies that can benefit from it and there are entrepreneurs who are like, shoot, I need a way out of this business. I need to sell. Like I've got to get an exit, I need to focus on, you know, whatever my family, longterm care for my parents, my, my kids, my, my personal life. Like what, whatever it is. Right? Okay. There's dollars there that are ready to buy your company. Good. I'm glad it exists. It's just that these shouldn't be the only store.
Ryan Tansom: It's a very good point. It's, it's just different tools for different purposes. And like, I think it's really trying to figure out what that purpose is for the listener or the owner of to look, trying to figure like what is it that I want? And then shopping and then shopping for the people within those industries to, and you're going back ran like, now you know, you get your new gig that I want to get it to kind of explain it. And honestly, before you even get into that, like how, and you're probably still processing too, right? I mean I'm five, almost five years. Oldness talk about, I mean I still talk about it. I was on a panel yesterday in front of 90 people talking about my exit.
Rand Fishkin: Yeah, it's wild. It right. These stories stick with you.
Ryan Tansom: Oh Man. It's part of your DNA. After that, how are you going to do, honestly I'm struggling with it cause like this podcast and GEXP I want to kind of become me again. Right. So is there a way that you know, like what have you learned about the integration that you had with my eyes? How are you going to be approaching that differently? To me? I mean I'm actually asking you if you've got some more...
Rand Fishkin: It's like there's two ways to approach this, right? One is to sort of have the emotional maturity to say, hey, my primary interest is, you know, either sort of financial or having a good work purpose and I don't, I don't, I'm not going to worry about the fact that I'm going to build something that someone could tear down in a moment's notice that could be gone tomorrow. I don't really care about that. That's not important to me. And I know going in that this is the case and I now have the experience to know that that's the case then, okay, I'm set up for it, I'm ready. I think the expectations are the biggest problem. Right? Cause Ryan, you and I both felt like, well we built this. This is why are you taking this way? It doesn't make sense in you. You're not serving the customer, you're not sort of whatever.
Rand Fishkin: But now that we have that experience, we could go in and say like, yeah, I'm going to work on a thing. I'm not getting emotionally attached to it. Not Anymore. The alternative is to say screw that. I know that I like getting emotionally attached to my work where I know that I am a person, a human being who cannot not be emotionally attached to things. Like that's just how I operate. When I meet people I like, I want to help them. I want to see them do well. I want their lives to be awesome. I want to bend over backwards to help them. And when I put my self into a business venture or a nonprofit or a seed fund or whatever it is, I want the same thing. So you know what, I'm just going to take my lumps. I'm going to set myself up for uh, let me go invest only in businesses that I can control complete where the outcome is something where there'll never come a day when I say I didn't make that decision and it's the wrong one. Those are the two ways to play it. Right? And I think that the nice thing about having a career behind you, especially if it's giving you a little bit of financial security or some freedom or a great network or you know, new opportunities, is that you can be a little picky about that. All right? You can choose one or the other. Not everyone gets to choose. And I, you know, I think we should you cognizant of that too. There's a lot of people, plenty of entrepreneurs who basically have no choice, right? They need to make a certain amount of money to support their whatever family or um, friends or whatever they've done in their lives, partners, et cetera.
Ryan Tansom: Well, and then they give or the right and or that then also it makes a huge impact and like the choice that they have a when and how they sell to and to whom and all that stuff. And like, yeah, I think the biggest thing is that, you know, you and I have is that we've got another runway where there's, you know, you get in even into the people that are in their fifties and sixties where like you don't really have our own tune necessarily, you don't want to sort of reinvent yourself. It's a, it's a bitch for people our age, you know what I mean? So that to not think about like in, you know, like what is it, who are you going to be without your business? So you're going back to that finish big. Uh, one of the, one of the quotes that Bo has is people in the, I like, I literally am starting to finally be okay with this question is, Ryan, what do you do? Well, I used to, I used to be Moz. I used to do white board Fridays, you know what I mean? And it's like there's so much bullshit attached to that because you're not proud of saying that. You know what I mean?
Rand Fishkin: Like you're like, I mean you're proud of the historical work and it was all about.
Ryan Tansom: Because like in our society we have, we appreciate it and attach to your career. Right? So like, and that's why we don't have to go down some major rabbit hole. That's why I think the retirement is total crap. Like it's like you should be doing something that you're passionate and purpose driven so you can talk about it. Cause otherwise it's like what do you do? Well nothing. I mean and some people are, some very small people or a small fraction of people are okay doing nothing but usually then they're family caretakers or whatever it is. Right. So you know the thing that you're doing with rob and the and the tiny seed and you're kind of your theory behind that and then also your new business and how you're approaching that different and cause I just think it's the great lessons that you've learned and how you're approaching these and putting the new law, the lessons you've learned into action.
Rand Fishkin: So tiny seed is basically me saying I want to put my money where my mouth is. If I'm going to talk about like, Hey, there should be alternatives. Hey, we should be creating other paths for entrepreneurs. Hey, there should be more than one way to build a software business. What are you going to do about it? The answers are twofold, right? One I created this company sparkToro, which has a very unusual structure, a structure that is totally unlike. It is not classic sort of like Angel List structure. It is not classic a seed funding or venture path or PE or growth equity. It's a whole different thing. It's basically a partnership that allows its investors, which are, which are mostly individuals, actually all individuals, uh, to participate in profit share, which is kind of a crazy throwback. Um, you know, to a, to a bygone era. Funny enough that that is how venture capital partnerships work. And then secondarily is to, you know, with, with Rob and I, uh, have this, this fund, I am not involved in the fund other than sort of being a supporter and a cheerleader and an investor, but to say like, hey, the spark Toro path, they, they looked at our docks and they actually our attorney to
Rand Fishkin: replicate that and build a structure for a bunch of other software companies to be able to get funded in that fashion. Uh, through this, this seed fund, kind of as an alternative to a techstars or a y Combinator, those kinds of places where the outcome is focused on getting your business to a profitable, growing, sustainable company that can longterm be successful for you and your family and your employees. And also kicks off a percentage of the profits back to tiny seed so that it can return money to its investors. And grow and fund more.
Ryan Tansom: So that's how does, that wasn't when I was looking on your website and everything. Isn't sparkToro, uh, an actual product or is that actually....
Rand Fishkin: Spark Toro I'm talking about the structure of it, financial structure. But yes, eventually we will have a product. It's, it's in the web marketing software field, similar to Moz. You know, plans to be a software as a service. I feel like I learned a lot of lessons there and I can, I can do that, not in the Seo field, but rather in a, rather in the world of audience intelligence. So trying to help companies, you know, for example, Ryan, if you said, hey, I have a podcast for, you know, for entrepreneurs, where should I go market this podcast? Like if I want to attract more listeners and I want to grow our listener base, who should I get on the show? Um, who you know, which, uh, which social media accounts to, uh, do entrepreneurs in Minneapolis or Minnesota pay attention to? Uh, oh, hey, I'm going to be in New York for a week. Who Do, who do people in New York pay attention to? Uh, what publications do they read, what events do they go to? Like are there conferences that I should maybe be showing up that are pitching to speak that, uh, what about, um, podcasts that they listen to other podcasts that they listen to where I should be checking those out and seeing what they're doing.
Rand Fishkin: Right. Uh, what about, um, you know, other, uh, other websites that they frequently share? What are the sites that I could go do some advertising on or maybe write it for, you know, kind of like, as your thing, it seemed crazy to me is I was helping a lot of startups that, you know, basically whenever I'd ask, okay, who's your target customer? Reasonable question. And then the next question is, okay, and, and who to whom and to what do they pay attention, right? Like where can we go reach that audience? And the answer is like, well, we think maybe it's this, all right, let's do it. Let's do a survey, right? We're going to send out a big survey and then we, you know, we have to get statistically significant results and analyze, make sure that we've got like good geographic distribution. I mean we've got to make sure that we think people are actually answering the survey, right?
Rand Fishkin: And they never are. So how do we get that data? And so Casey and I were like, this is weird. Like this data is public. It's on the web, right? There's, you know, not every architect but at least 10 or 12% of architects who are in Los Angeles have public social and web accounts where they, we'll share with you of their following. People are following accounts there, tweeting websites, they're linking to things, they're posting stuff on linkedin. They're posting stuff on Facebook or posting things on their website, even crawl and aggregate all that data and then say, ah, here's what architects pay attention to.
Ryan Tansom: That's so important. So how are you, you're going back to like with this, with this structure was sparked, oh, you know, you got the passion I can tell to be able to solve another problem, which is awesome. And then you're, you're tying your, you know, your energy and your love into it. Right. And how, like is there anything you're doing differently, they're going forward with this compared to two Mazda and like what would be the kind of some big takeaways of how you're approaching this compared to what you did before?
Rand Fishkin: So two things that are super different. Uh, one is the company is just myself and Casey. We are not hiring anyone. We're trying to keep our expenses super low and our runway really long until we're confident that we have a product that people really want. Ah, you know, we built a little Alpha, we've been showing it to some folks. The feedback so far has been like this is interesting, but it's not, it's not like enough yet. Right. It's not enough valuable data that I regularly use it. It doesn't provide me with everything I need. So we're, we're probably going to spend the next three to six months continuing to build out more features, more data and more quality work on the UI and Ux. At some point we'll launch it and once we start to know, hopefully make some money, I get this thing going, then then we will grow up, try and maintain profitable or break even status, which is really different from how a venture backed company operates.
Rand Fishkin: Yes. Second big thing is, one of the lessons I learned at Maz was that the MVP model is a terrible one. If you have a big audience that pays attention to what you do and it's, it's a terrible one because if you launch something publicly that sort of is like, well it, yeah, half baked, it's, it's decent, it accomplishes the problem. You know, some sort of innovators at the, at the very start of the, you know, whatever the crossing the chasm type of curve can adopt it and they can use it and it's good for them. The problem is that everybody else who sees it is kind of like, oh, was kind of junky and small and doesn't do enough and it's not that interesting and that memory will stick with them for a decade or more. What would I never see? What's crazy is I knew, I never see this, I never see it.
Rand Fishkin: Never saw this once at Moz where someone would go check out a new feature, a new tool that we launched and they go, oh well this looks like it might be promising. Maybe if they keep working on it for you know, nine months or a year. I could see that it's turning into something really exciting. Oh nobody thought that. But three years later if you ask somebody about that product and you said, hey, did you have you checked out keyword explorer, it'd be like, Oh yeah, I checked it out when it first came out, but it didn't do this. So I went back to using SCM rush. I'm like, wait, we came out with that like a month after lunch. Oh you did? Well and I never checked it out again.
Ryan Tansom: It's very, it's a super good point. Rand. Totally. And this is a really terrible example, but like, cause I, my patients is very small for that kind of stuff too. And I have never used apple maps. And after the first time they launched it, it was the worst thing ever.
Rand Fishkin: No, I think, I think that's exactly right. It's the same story. Like you, um, you know, I pick up a rental car and it's from whatever company. Oh, I have this little chubby. I'm like, man, this thing is terrible. I'm never buying one of these. And that will linger with you for like 20 years, right? It was, nevermind. It's all done. That startups many times can get away with an MVP because their audience is super tiny, right? And so they're not biasing, they're not losing a bunch of their market by having a bad early experience. And they can find a few of those books. But you know, not to, I'm not trying to toot my own horn here, right? But lots of web marketers pay attention to the things that I put out. And so as a result, I know day one, when spark Toro launches, there will be 20,000 marketers who that is what they think sparked Toro is for the next five to 10 years.
Rand Fishkin: Super good points. So I better put something out that they love. That is, that's a high bar. There's a lot of goodwill that you're dipping into. Exactly. Exactly. The goodwill is very hard to come by. It doesn't, no, it doesn't go back. Right? Like it's, it's hard to gain, easy to lose.
Ryan Tansom: So if you were to lean on, we talked about a lot of stuff and I'm just curious if you were to go back and say, okay, this is what you want to really highlight something but it, or just say, you know, this is my biggest learning lesson out of exiting my own baby or starting a fresh and new identity or anything. We'll be some of the takeaways that you'd have.
Rand Fishkin: I mean, this is kind of exactly why I wrote lost and found a right that most of it is like, okay, rand from 2001 read this book. This will tell you all the things that you wish you knew you should have enough. But I think some of the, some of the biggest for me are thinking very carefully about what kind of, what kind of person you are and what makes you happy and motivated and feel successful rather than have other people think you're successful. And I also want to be fair to the fact that sometimes the thing that will make you feel successful is external validation. For some people, certainly I had a decade in my life where all I cared about was external validation. There was not an internal rand voice saying like, Oh, I, you know, I personally want this even though no one else will really value that out in my world. No, I want it to be in tech crunch. I wanted to, you know, have venture beat right about me.
Rand Fishkin: I wanted the New York Times to put something out about mas, all of that. Right. Okay. If that's your motivation, just admit it to yourself and be okay with that and then, you know, go chase it if you need to chase it. Or alternatively, if you know that that's not the case, uh, try and have the self awareness to figure out self awareness is not like a thing, a light bulb you turn on. It is a, you know, it's a dimmer switch and every day you have to work really hard to turn it just one degree. But the power of that is that eventually you come to know yourself better and understand what motivates you and then you can invest in behaviors and in decisions, career decisions, personal decisions that work with that. That is, that is the true path to happiness. I don't even happiness like raw, but, but just you are content, you're satisfied with the life that you built. You are excited to get out of bed in the morning and you feel like you're accomplishing something that you can be proud of and you don't worry about the, uh, the external motivation because to you, you know what matters.
Ryan Tansom: Um, very well said, man. That's a beautiful place to, I mean, so to even put some other color on that is I think so many people like, you know when they even go or certain planning for the exit or whatever the hell they are in their stage is like they get pushed into thinking that this is important. So many times I've been on panels or I've seen panels, it's all about the dollar amount when actually if you were to ask half the people, it's like it's not actually for this dollar amount. Like everything else is gravy and it doesn't matter as much, but they have a hard time admitting it.
Rand Fishkin: So I think, you know, being true to yourself will help you stay strong in those conversations when you're trying to get pushed into directions that you don't want to be pushed in. Yeah, no, that's absolutely right. I, and I think the dollar thing, the dollar thing is funny. I think it's a lot like external motivation. Some for some people that number is how they measure their life and okay. Right. If, if like, if you can't get over that and that is the only thing that you can do, all right, sign up via finance bro. Like that's kind of the path, right? Like that's, that's where you generally look up if you can, if you recognize that there are things that matter more to you than that and that money is a tool to help you accomplish x and y and Z, what do you need to accomplish? X and Y and Z and then can you, can you take that pressure off of yourself and your company and what do whatever endeavors so that you can pursue other things that matter to you and the people around you and the world around you. You know, I think that, I think we, we as sort of a cultural society, especially statistically speaking mostly younger folks, right? People who are generally under that 50 60 age range and, and you know, it seems to be even higher in the under 30 bracket.
Rand Fishkin: That purpose is a huge part of life, right? And that you, you want to, you want to know that you are contributing positively to a direction when that's the case. There are a lot of ways, there are a lot of ways to align your economic purpose and your sort of life purpose that is not out of reach. That is highly possible, especially if you're an entrepreneur, right? If you have the freedom and the ability to be an entrepreneur, which, which very few people do that, it's horrible that fewer and fewer people every year, like people think it's the golden age of entrepreneurship just cause there's a lot of talk about startups, but there are fewer of us than there have been in the United States ever. And that number has been going down since the 80s. Kind of disappointment. If you have the freedom, like we're the ones who get to do it. No, very well said.
Ryan Tansom: And so for the listeners that want to follow sartorial your new stuff, where do they find you? What's the best way to reach ya?
Rand Fishkin: Yeah, a spark. toro.com is where you can, uh, check out sort of our blog and the product that we're, we're planning to eventually build in lunch. And, uh, I'm most active on Twitter where I'm at rand fish and I, I generally answer, uh, most increase. You can also check me out on Linkedin and follow me there and slightly less active.
Ryan Tansom: Thank you so much for coming on and sharing the story, man. I appreciate it.
Rand Fishkin: Ryan. My pleasure. Uh, you're, you're a great interviewer as pleasure to be here.
Ryan Tansom: I really hope you enjoyed the interview with rand. I mean, I had a blast talking to him and what an experience and what a wild ride that Ramdas had and I can't wait to see what he's going to be doing with spark Toro. But if there's a few takeaways that I have is one is that I just think that a lot of us as entrepreneurs, we just really need to figure out why are we in the business? What is the main goal? How are we going to find capital and partners to get us to where we want to be and do we enjoy those people and what's the whole point? What do we want this company to be worth? What kind of impact do we want to have, and if we really get her head wrapped around what that means and what we want, then we can actually put action to it in the business.
Ryan Tansom: Because I think so many times we get caught off guard when the, the money that comes with personality as Michael from zero resid mentioned about it, or there's, there's always hidden different things that are coming in to play. Whether it's someone that you want to sell to or do a private equity recap or get money from a venture capitalist or have a partner, there's always motivations tied to the money and the motives and the valuation and the strategic plan. If you can figure out what you want, then you can tie it all together and then go get it. And I'm really excited to see how ran actually takes a completely different approach with his new company because of the freedom that he's now got. So I think if there's any big takeaways is understanding what is it that you're trying to accomplish. His objective, number one, then back into everything, because there's a lot of technical ways to actually accomplish what you want. So if you the show and
Ryan Tansom: if you enjoyed this episode, please go into iTunes. Give me a rating. I absolutely would be indebted to you. I know it's a humongous pain in the ass, but it helps me get better people on the show. I want to constantly be bringing better guests, better content. So if you go on, give me a rating, it'll help with the cause, but also if you have a guest or a topic that you think would be very interesting for the show, reach out to me because every single week something comes out and I want to make sure that I always bring in the best content possible. So with that being said, I will see next week.