In February 2014 Christy Wang, a student at MIT Sloan School of Management, interviewed Steven Cox, CEO and Founder of TakeLessons.com for her Entrepreneurship class. Here is the transcript of the interview.
4. What makes a good startup business partner? Where can you find them?
There’s a line that I read from Stephen Covey, who wrote many successful books, including the “The 7 Habits,” but he also wrote a few business books. One of those things he talked about was developing a world-class staff. When you build your business, this is the number one thing you’re looking for – building the right team. Even if it’s just a two-man operation, you look for people whose strengths offset your own weaknesses. If it’s a team environment, you look for the weaknesses, and say, “Where do I play so that the strengths of one person make the weaknesses of another obsolete?” If you can find that and keep building that sort of team, over time, it becomes easier and easier for you to solve the problems.
Now, along those lines, I would also add that, in addition to finding people who have offsetting strengths and weakness, you need to find people who have a shared value system. While you’re not looking for robots, you are looking for someone that, when push comes to shove, your values are aligned. Second of all, your work ethic needs to be aligned as well. I think those two keys are critical, specifically in a very young company. Otherwise, you’ll just run into more problems later on.
5. What is the best way to find investors, and what is the most valued lesson you’ve learned from successful pitches?
I would say that the best way to find investors is through a pecking order, if you will. The first place to look is yourself. There are many people who have taken out money on their house, credit cards, or savings and started investing in their own startup; I think that’s one of the best investments that one can make. It is risky, and there is a high probability of failure, so one has to take that into account in trying to figure out if they should be their own investor. I funded TakeLessons.com right out of the gate, and it was my money on the line. I think that entrepreneurs have a tendency to work a little bit harder when it’s all of their own money on the line at the beginning. That money should be used to get some traction within the business, and from there, the place you look is for people who believe in you.
Instead of going out and trying to convince someone that, not only that your idea is good, but also that you are investment-worthy, find people who already believe in you. Finding money becomes much easier because they already believe in you.. You’re a go-getter and a hustler. You’ve proven that you can turn a dollar into ten bucks. That’s the next set of people. From there, once they’ve invested, ask them who else they know and whom they vouch for that could also listen to your pitch. I find that that’s the next best group to go after. It’s all through referrals.
In this business, the people who invested early with me were people that I just knew personally. Some of them, I had never done business with before, but they knew my character. My very first investor’s name was Steve Martini, a San Diego commercial real estate broker, and I had bought a car off of him three or four years before he invested. We just kind of got to know each other and hung out and took a look at a couple of deals together, but we never ended up doing something together. But, when the time came for me to raise money, I told him that I had already put my money in, and I showed him what we were doing. His words were: “Well, listen, I have no idea what you’re doing, and I have no idea if it will work, but I believe in you, so here’s a check.”
That’s normally the best way to get the deal done; it’s through people that believe in you. I will also preface that by saying that, in order to get those people, you have to be the type of person that other people want to do business with. Your character has to precede you asking for the money. If you’re a crappy guy or girl or you shyster people or you’re dishonest, good luck. You shouldn’t be in business to start with. Integrity is the key. There are no promises in start-ups, but these investors think, “I know this a gamble, but I’m willing to gamble on this guy.”
[Have you ever encountered any investors who also wanted to take control and make decisions?]
There are two kinds of investors. The first are what we call “passive investors,” and those are people who simply put their money in and don’t have much input in the business. The second are people known as “active investors,” and those are people who truly do add value to the company. They have a wealth of knowledge within the space that you play in, and it would be a crime to not use them to try to grow the business. Sometimes, we add those people on purpose as an investor or an advisor in order to grow the business. They become very, very useful within the context of what the business needs.
The issue and pain comes from investors who should be passive, but try to become active. These sorts of investors do not have higher amounts of knowledge or skill than the entrepreneur and may get in the way. I find that if you are clear upfront with the investor about their role, it helps manage expectations of what you can expect from them, and they can expect from you.
6. What is the biggest challenge of being an entrepreneur, both in personal and business life?
I read somewhere that, unless you have a high threshold of pain and are comfortable knowing that there’s a 90% failure rate, don’t be an entrepreneur. In fact, go work for someone else because it’s much more safe and secure. I think that’s true. There is a high risk of failure. There is a lot of competition. You have to have an incredible amount of persistence, drive, and belief that you can add value in the world. It’s got to be something inside you that drives you because it’s extremely difficult; it’s tough.
There will probably be days when you don’t know if you’re going to make it, and there are days when you’re down to not knowing if you can pay the bills. There’s a lot of pressure to build something out of nothing. Some people are built for that. Some people get a high off of that, and some people don’t. People should be very honest with themselves; there is equal nobility in both building a company as an employee as well as a founder or entrepreneur. The key is finding out what is right for you.
For me, I had to learn balance. I have lost friends and girlfriends over my business. I did not balance my life correctly. I’ve gotten physically run down and sick from the stress and pressure. But I’ve decided not to do that anymore. I needed to make sure that I took care of myself – and those important to me – just as much as I took care of the business.
If you’re going to do a start-up, it is going to require a lot of time and a ton of effort. What you might learn over time is that your business is not you. It is a separate entity from you. That’s a key distinction. This allows you to tether the spikes and ride out the drops. It allows you to find a good balance so your personal life doesn’t experience the same torrid whipsaws of your business.
There will be days in business where it is incredibly horrible and other days where it is incredibly high. You learn over time not let the lows get you low and to not let the highs get you too high. You acclimate to both the struggles and victories, and you learn to move forward no matter what. I think there’s a peaceful understanding that comes over time with knowing how to achieve that balance of emotional security with the imbalance of entrepreneurship.
I learned from a good friend of mine when I was starting my business. I think we had raised maybe $1.5 million or something like that—just a small amount. His business had raised $80 million. It went bankrupt after about five or six years, and his dream ended. I called him on the phone and said, “Hey, I read about your business, and I’m sorry about that, man. How do you feel?” He said, “I feel fine.” I then asked, “What do you mean you feel fine?” He said, “We gave it our best shot. We knew there was big risk going in. I would have liked it to have worked, but it didn’t. I’ll move on.” I asked him, “Isn’t it your baby? Don’t you feel crushed by it?” He said, “No. I’m not defined by the success of my business. I am the same person with or without the success of my business. I wanted it to be a huge success, but I am not defined by that success.”
I would ask this simple question when looking back over life: if an entrepreneur has a very successful business, but his family falls apart and his kids won’t talk to him, is he or she a success?
That’s something that each person has to answer separately. That’s a question I’m not sure too many entrepreneurs ask, but it’s important.
For me, I ask, “How do I have a wonderful life that entrepreneurship is a part of?” There is a tradeoff in life. That tradeoff is this: how much money, satisfaction, or happiness are you willing to trade your life for? Because that is what you’re doing every single day that you go to work.
Entrepreneurship is one of the best ways to make a living and to make an impact on people. For me, that’s what the juice of life is about. How do I make a great living for my family as well as make a difference in the world? If it’s used as a tool to create a higher objective, it’s a wonderful experience. If you can combine your work into your mission and into your long term goals in each aspect of your life, then you’ve got an incredible formula for life.
7. Have you ever had a moment of self-doubt? If you did, what was it and how did you deal with it?
I can only speak for myself. I do have self-doubt, but here’s the key: I believe in my team. I believe that we’re making a difference. I believe in myself. In addition to that, I also have days where I doubt myself, and I wonder, “Am I growing as quickly as I want?” There are times when I screw up. Honestly, I screw up a lot, but I don’t mind it. I used to think, “Oh man, if I screw up then that’s the end of the world, and I’m a horrible person.” I used to think all of these things, but what I got very comfortable with was knowing that life and business is full of potholes. I got very comfortable with moving quickly and not making the right decisions all of the time. That’s called life. When I have those doubts and I don’t know for sure that I’m making the right decision, I am confident it’s the best with the information I have.
For me, I have confidence in knowing that I can improve, and that goes back to our core values. I know that I’m constantly getting better, and that we’re constantly improving. As long as we’re doing that, I feel like we’re being successful. When those moments of self-doubt come in, I’m able to see a bigger picture in knowing that we are making a difference and knowing that there are people out there who are able to make a better living because of what we do. That gives me a great sense of pride and a great sense of humility at the same time because I know that what we’re doing is working. A lot of it has to do with what you tend to focus on as well. Self-doubt comes from your current state of what you’re focusing on. If you focus on all of the negatives and what is going wrong, doubt will continue to grow. If you focus on asking yourself better questions, things can go right. For instance, instead of asking, “Why did this happen?” or “How can I be such an idiot?” I ask questions such as “What did I learn, and how can I become better and not make the same mistake anymore?” By simply focusing on a different set of questions, you get different outcomes in your life.
[Have you ever had a dilemma between making your own decision and listening to your team’s decision?]
Of course. I think that’s a key for good leadership—admitting that I don’t have all of the answers. I try to put a team around me that’s smarter I am in many areas. If that is so, I should not be coming up with all of the right decisions. If I can come up with all of the right decisions, I don’t have a strong enough team. That’s absolutely what I believe. To counter that, there’s also times that when push comes to shove, I make the call. With those calls, I don’t necessarily agree with my team, but I feel like we’re making the right decision for the business. It’s never about who comes forth with the idea; it’s about choosing the right idea.