Clearbanc founder and Dragon’s Den star Michele Romanow on growth, COVID-19, customer acquisition, and much more

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Do you need offbeat growth tactics for uncertain times?

These are definitely uncertain times. COVID would have been enough, with its massive health and economic consequences. Add George Floyd’s murder as a flashpoint to decades of simmering racial inequities, and we’ve got a perfect storm. In the middle of all this, we’ve got people trying to do their startups afloat in one of most challenging times ever.

Michele Romanow dragon

Michele Romanow

In this episode of TechFirst with John Koetsier, we chat with Michele Romanow, who co-founded Clearbanc, helped raised over $300 million, serves as its President, and is a star on Canada’s Shark Tank: Dragon’s Den. Clearbanc says it is the “biggest ecommerce investor in the world.”

This was recorded as part of a webinar series with Traction Conference and Boast Capital.

We chat about:

  • Customer acquisition tactics
  • Management by zooming around
  • Keeping your customers happy
  • Business models
  • Raising money while preserving your equity
  • Hiring and team building
  • Leadership
  • Product development
  • Growth (yes, even now)
  • And much more …

Listen: Offbeat growth tactics with Michele Romanow

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Transcript: Offbeat growth tactics

John Koetsier: We are here and we are live, and I’m super pumped about this. We’re going to have a lot of fun here. Thanks, by the way, everybody for chiming in and saying where you’re from. I see Indonesia there, Edmonton, London, Ontario, Mississauga, all this stuff. Very, very cool. It’s really important, you know, COVID coronavirus we’re stuck at home in our home offices, Michele was in her home office for literally nine weeks straight. 

Michele Romanow: Yeah. 

John Koetsier: Almost killed her partner, but didn’t, so she’s still out of jail so far, we’ll see. It’s good to have some social time as well.  I’m going to introduce this a little bit. We’re calling this the “Offbeat Growth Tactics For Uncertain Times,” and guess what, they’re pretty bloody uncertain.

I don’t know if you saw the Startup Genome Report that came out, I reported on that at Forbes recently. 75% of startups that they surveyed had laid off people. And when you see that the major startups like the Ubers and Airbnbs of the world, the Lyfts, those sorts of things, obviously they’re in really impacted verticals but they’ve also laid off lots of people, thousands of people. And so a lot of startups just have a few months of cash. It’s a pretty challenging environment, it’s a challenging funding environment. 

And of course it’s not just COVID-19, we have so much social upheaval right now. The murder of George Floyd was a catalyst to the eruption of what’s going on for decades and centuries of injustice and inequality. And so we’ve got a lot of things going on in our world and still, guess what, we’re trying to run our businesses, we’re trying to do our jobs. We’re trying to make sure that people have jobs to come in to do and they can put food on the table for their families, they can pay the rent, and other things that are going on.

So we’re here today and we’re going to chat with a Shark — actually, a Dragon. Michele Romanow is a cofounder and president of Clearbank, which is a very interesting, no-equity growth funding company. We’re going to talk about that. We’re going to talk about what she’s done. She’s raised over $300 million, she’s on Dragon’s Den, which is Canada’s Shark Tank. Michele, welcome!

Michele Romanow: Thank you. It’s wonderful to be here, and although uncertain times, you know, I think there’s a lot to talk about. 

John Koetsier: There is, there is, so give us the brief intro here. How are you in Corona time? How did you manage to not kill your partner? All this other stuff. 

Michele Romanow: Yeah. I mean, look, I think that the first thing to acknowledge is that this isn’t easy for anyone and you really summarized it, this has not only been a virus and social lockdown for many of us, but finally bringing to right so many of the human rights problems that we’ve had in America over the last centuries now. And so it’s not been easy, I mean, Clearbanc was a very high contact place, like we were all in Toronto, we all came to the office. I mean, this place was buzzing at 11 o’clock at night and people were brainstorming.

And so literally we said we have to do a test work-from-home day tomorrow, and that test has become four months.

And so just adapting to everything that’s happened in that environment and really trying to put, you know, although we’re not personally responsible for what’s happened, it’s figuring out how to take responsibility and how to grow from these experiences. So, I had done a couple of things. One of them was, I saw this really funny tweet from a comedian that’s like, ‘Hey sharks, I’m here, and if anyone wants to pay my… I’m looking for 100% of my rent for $2,000.’ And I was like, as funny as a tweet this is, people are actually really struggling. And so, did this competition on my social media to pay people’s rent.

The next thing that we thought about was that we’re having this huge problem in the PPE space. And so to date, me and my partner Anatoliy and I have brought in about the equivalent of 15% of the masks and 30% of the gowns that have arrived in Canada. 

John Koetsier: Wow.

Michele Romanow:  Mostly because we had connections in the eCommerce space and had done work in China for 10 years now. And then the last thing was, how did we think about Clearbanc during this time? And it was that our capital had originally been designed for true growth when you need to buy like Facebook and Google ads. And today, founders are thinking less about growth and they’re thinking more about runway. And so making sure that we launched a runway product that could allow founders to extend their runway when I think equity markets are in a really tough place right now.

But all being said, that hasn’t been easy.

I mean, me and my partner, Andrew are both in a long term relationship and running a company together. We decided it was very hard to do 12 hours of Zoom calls in the rooms next to one another. And so I get it, for all the extroverts out there that are just like me, I think this is its own personal difficulty too, because what we got energy off of, which is being around people, we just don’t get that opportunity today. 

John Koetsier: We’re going to dive into a lot of things around growth, around runway, around being a founder in challenging times. A lot of people know Clearbanc and what it does, a lot may not as well. Can you give the brief intro to what Clearbanc is and what makes it different? 

Michele Romanow: Yeah, that’s a great question. So, you know I was on Dragon’s Den, and one of the things that people don’t know is that when we film the show, we see 250 pitches back-to-back in 17 days.

John Koetsier: Exhausting!

Michele Romanow: Exhausting. And they’re almost all eCommerce pitches, they’re products you can touch and feel. And so I remember, it was like the tenth pitch that sounded the same, and it was like, this is a great business — it was actually a father-son team making like the wooden iPhone cases — and they’re like, ‘Look, we make each case for $10, we have $10 in ad spend, we sell it for $50, and we’re here on the show today looking for a hundred grand for 20% of our company.’

And I was like, this is such a bad deal for both of us, right?

For them, they’re going to be really resentful when I own 20% of their company, they really do need the hundred grand, they have positive unit economics, and so on the show I threw out a totally different deal type. I was like… I’ll give you the hundred grand, but instead of taking 20% of your company, why don’t you pay me 5% of your revenue until you pay me back $106,000. So I was only going to charge 6% for my capital, it wasn’t very much. And, you know, it was actually not debt or a loan at all, there was no personal guarantee, there was no fixed payment timeline, there was no compounding interest. It was a true rev share deal.

I said the only hitch to my capital is I want to see your Facebook ad account, because I bought more Facebook ads than any other product in my life, I know what I’m looking for. And that’s how this started six years ago on the show.

I don’t think we’d ever imagined that this would become this big. We have now invested over a billion dollars in 2,800 different eCommerce companies, that makes us the largest eCommerce investor on the planet right now. And it’s because today, 40-50% of venture capital dollars go straight towards Google and Facebook.

That means vendors are using the most expensive capital to do something that should be, by definition, repeatable and scalable. And so we started with ads, we extended way beyond that, we’ll fund inventory, we’ll fund any form of growth, we’ll fund payroll. But we want to do it in a non-dilutive way so that founders can retain control of their company. They’re not adding dilution, they’re not adding a number, another member to the board, and they’re not adding more risk to their balance sheet like traditional debt does.

So we think we have a real shot at building a new asset class, and it hasn’t been easy, but ultimately data has really helped us do that.

John Koetsier: That is amazing, and Google and Facebook must love VC. But let’s talk about growth … first, from your perspective, how did you get your first customers? And this is relevant obviously because other founders are out there that are starting up companies, they’re wondering how do I get my first customers, or how do I grow beyond that? We’ll get into those questions. How did you get your first customers? I mean, that’s maybe the first customer story right there, but after you made a real business. 

Michele Romanow: Yeah, no, it’s a great… so I’m going to go back a couple of years. So my second startup was a competitor in the daily deal space called Buytopia, and I remember Facebook wasn’t around, this is 2012 we were launching, no 2010, 2011. So I remember we had no money to buy ads, we were a completely self-funded company, and what we did is we bought a box of sidewalk chalk and we went outside every building in Toronto that looked like they had more than 400 employees downtown, and we would write in these massive letters like ‘The deal of the day is $20 for a mani-pedi.’

And it was like seven o’clock at night, we would go out every night and we would just chalk our deals everywhere. I mean, look, people hated us, we got lots of letters from landlords saying, ‘Stop doing this.’ But we got a ton of customers and our cost of customer acquisition was the $25 we spent on chalk and our time, which we didn’t value very much at the time.

And so I think the nut nut of that story is you’ve got to be incredibly creative. 

Even when we started Clearbanc, I mean, our first product was serving Uber drivers and we took Ubers and we pitched our product. And as a founder, you have to pitch your own product. You have to figure out where in people’s eyes they totally got what you were saying and where it needs to be fixed. And so even with eCommerce, like we did this deal on the show, but it took a long time of calling eCommerce founders, getting them on the phone, figuring out what the pitch was. And so you just have to be relentless and you have to do the work yourself. It’s not something where you can hire a sales team to get your first customers. It’s actually better if you do it in person, because you can watch the interactions.

And so today, I mean, in person is in Zoom, but still you can really understand what it takes.

John Koetsier: Talk about a captive audience. I mean, you’re pitching Uber drivers, you get the Uber and the driver is going ‘I can’t get you out.’ 

Michele Romanow: I’m like ‘I’m here to stay.’

John Koetsier: Amazing, amazing. Now you’re much more sophisticated now, obviously, right? And if I’m not mistaken, you hook up to a lot of a companies’ systems and then determine what you can give them and what they should actually take on in terms of funding, is that correct? 

Michele Romanow: Yeah, so we call the product “The 20-Minute Term Sheet.” And so that’s a play on the fact that usually when you do equity fundraising, it takes you anywhere from three to six months to get a term sheet. And so if a founder needs to connect a bunch of different data sources tasks, their payment processor, their bank account, where they’re  spending ads, so, you know, Google, Facebook, etc. And then we take that and we use AI to figure out effectively the same type of diligence that VCs used to do. What’s your return on ad spend? What’s your unit economics?

But we can do that very quickly because it’s all automated. The other benefit, and that’s for eCommerce, we actually do serve B2B SaaS companies which we launched earlier this year. And there’s a different set of payment processors that we use but it’s all automated, we’re not asking for a spreadsheet, we’re not taking a lot of time. You remember your passwords, which I never do, but if you remember them, the whole onboarding flow should genuinely take you 10 minutes, and then we can at least give you the option on this is how much capital we can give you and these are our terms. The other benefit John, of using data, is that, and you know this was kind of something that we figured out a lot later, was that we took a lot of the bias out of these investing decisions. And so the old world was really human to human. It was based on me pitching you and giving a compelling story, why I was the right founder to build this business, which was fine.

But that means it relied on us having a relationship and a warm intro and going to the right school and being part of the right circle. And one of the things that I’ve always believed is that founders don’t always come from a specific circle. And in fact, sometimes when your life has been a lot harder and a lot grittier, you’re a much better founder because you’re just, you’ve built so much more resilience into your life. And so we’ve seen that by just using data to make these decisions we’ve backed eight times more women than the venture capital industry average, which I’m really proud of. 

John Koetsier: Wow.

Michele Romanow: And again, we didn’t do this because we sourced differently, we did this because we just let data make our decisions. We have backed founders in all 50 States in America versus venture capital where 80% of VC dollars gets deployed in four States: California, New York, Texas, Massachusetts, and last year, there were nine States in America that had zero companies that got venture dollars.

Like, let’s be clear, that’s impossible for the most entrepreneurial country in the world. Like there was not no good founders in nine States, it’s that a human-to-human business could only reach so far. And I think we’re still, we’re seeing the same thing, you know, with minority founders too, is that there’s so many systematic barriers that if we can use data to take the bias out of the decision making, I think in years from now, we’ll see companies that will continue to change the landscape because they were founded by, just found with a very different background. 

John Koetsier: I love that, I love that. It’s amazing using data so you’re actually making better investments, you’re making them much quicker, basically in real time. I mean, real-time investments, that’s mind blowing, but also it’s blind. It’s blind to who you are, who you know, where you come from, what you look like, all those things. Really, really interesting.

Okay, cool. So there’s a point that a startup wants to reach, the founders want to reach, where they think they’ve found product market fit, where they think, ‘Hey, I have the right product, I found the right market and now the ball can start rolling downhill, a little bit.’ Right? You’re always pushing uphill… 

Michele Romanow: Let’s be clear, there’s never a day where it just started rolling on its own. 

John Koetsier: Exactly, but when did you know, and was there a point, was there a magical moment when you said, ‘Hey, we’ve made, we found product market fit?’

Michele Romanow: You know, this is so… for all the founders out there, trust me, this is so much easier looking backwards than when you’re in the moment. Like great innovation is…

John Koetsier: That’s the way predictions work too, by the way, they’re always easier in reverse. 

Michele Romanow: It’s like, yeah, the journalists get it. It’s like, man, that tweet from 2015 was really good, and it just happened to be that someone reminded me. But in the moment you’re never quite sure, and this is really important because it should get easier, and your unit economics should feel like they’re working, but it’s never like things are just rolling downhill. That’s probably the best way to explain it. And so we knew, and a little bit of tweaking can get you a long way.

And so, I say it throughout my whole career, like every time we had built something that someone later called very innovative, it took a lot of steps to get there.

And so Clearbanc, we started out thinking that we were going to build a bank for the new economy. You know, the part of the economy that was surging was this gig economy so we built a product for Uber drivers. I mean, we signed up hundreds of Uber drivers and we still couldn’t get our unit economics to work. We were then like, okay, let’s find Airbnb hosts because they need money to build properties. We probably put out, I don’t know, $10 million, these were not small projects, and then really figured out that the data integrity was really hard on that because Airbnb didn’t have an API. And so, when you’re trying to make financial decisions on what I call a shaky foundation, it gets really, really scary.

And then we were always, I kind of always believe in running experiments in the background. And so this had been an experiment we were running and I gotta be honest, even the first probably 30 companies we funded we had pretty high defaults, we had a lot of companies that didn’t make it. We had a lot of new things to figure out. The thing with investing is, when you make mistakes, they’re very big, they’re very expensive. And so I don’t want to misrepresent that at any point this was easy or this was the path straight forward. Then even when we knew that our unit economics were working and that our customers were really happy, we had to go and raise enough money on Wall Street. Like we’ve raised $350 million in debt.

And I can tell you, I sat through a hundred meetings on Wall Street being told ‘you don’t understand how small business credit works.’ Truly, these are the conversations, it’s like, ‘you guys are giving super high-risk companies capital with no security in their business with no personal guarantees.’ And I’d say no, no, no, you don’t understand, we’re using a completely different data-driven approach where we see data that’s never been available before, and we can see it in real time every day and that will give us a huge advantage, but in this market that had never been seen. And so it took us hundreds, like with an S on the end, of meetings to convince folks on Wall Street that we had a better product.

And today, I mean, we can say that and we have lots of history, and if you were to look at a default rate, we are far lower than industry average, but that’s what it feels like to be an entrepreneur. It feels like every day someone’s telling you ‘no.’ And even when you know that there’s a couple things working, there’s still something nagging in the background, and it’s just about calibrating yourself so you’re weighing more positive than negative. 

John Koetsier: I love that you went to Wall Street, which gave us the crash of 2008 by leveraging crappy investments or loans, told you you didn’t know what you’re talking about hundreds of times and finally made it work and now have a huge success.

That’s a wonderful story.

So let’s assume that whether you feel good about it, whether it came quickly or it came slowly, whether you’re still getting questioned 15,000 times by your internal voice, as well as external voices, you kind of find some level of product market fit. What does customer acquisition start to look like? And what does it look like for you today? 

Michele Romanow: Yeah, that’s a great question. And so this is probably like for first time entrepreneurs, it’s the hardest thing to think about because you think you’re going to build a business and then everyone’s just going to show up. And let me be clear, the people that show up is your mom, and your family, and all of your friends that owe you a favor, and after that, it dies down pretty quickly. And all businesses need to figure out if they have some form of repeatable customer acquisition. And those really look, they either look like paid loops where you can pay and it’s inexpensive enough to go to channels and look for customers. They look like referral loops where one customer can get you another five, or they look like partner models, kind of those have been the three most successful ones that I’ve seen in my career.

And we use all of those at Clearbanc. We do, we get a lot of inbound because we’ve been able to build something that was totally differentiated in the market. Then you can get referrals to leap on top of that, so when we find a founder, like I believe every founder knows another ten founders, and so you can start building in that community with people. We reach out to companies as well, so we have a whole outbound strategy. I mean, that’s the nice part about eCommerce and B2B SaaS, is that these companies have web presences, like they can be found. And so we look and use all sorts of data from the outside in, and then reach out to founders that way.

And then we have an incredible relationship of partners that we’ve now developed over time, you know, it’s the ad platforms as you were saying earlier, that obviously love our product.  Lots of folks, everyone else that touches the eCommerce space can be a partner of ours. But it’s really, you know, for old-timers this is what always happens, is I always like to test paid first because it gives you really one good limits test. If you can’t make paid work, you have to build something very viral and very organic, which is hard. I actually, haven’t done that very successfully in my career.

And you need incredible product people and they’ll kind of look like one hit wonders where you can get one hot-or-not product that everyone uses and then it’s like, you really try for the second one and it’s hard. So, testing paid is I think super important early in the life cycle of a company, so you can just gauge do I have enough margin here to really continue to grow, and then after that seeing when those unit economics break. But it’s really scary, I can tell you just personally, before even Clearbanc, I had done tons of equity investments and the number one thing I did is I’m like, okay, can we double advertising budgets this month and next month and see if things break. And I always say it’s much better to know that in two months than in two years from now, because you get two years of your life back. 

John Koetsier: Yes. And the good thing about paid is you have quick feedback cycles, you know what’s connecting, you can also see where it’s breaking in your funnels, right? You’re getting clicks but you’re not getting conversions or whatever the case might be.

Talk about that a little bit right now in COVID-19 times, because we’ve seen that paid acquisition is cheaper right now.  We’ve seen it perhaps discounts of maybe 30% or something like that as brands have bowed out of some of their advertising, there’s a little less noise in that market. Do you still see, and maybe differentiate between eCommerce as well as SaaS, do you still see Facebook/Google as really, really central?

Are you seeing some discounts there and do you have some different strategies that are between eCommerce and SaaS? 

Michele Romanow: Yeah, really, really good question. So I think you’re spot on, prices across the platforms are down by 20-30%. And so if you have a product that makes sense to be sold in COVID today, you should be spending way more on advertising. So I talked to a company yesterday, amazing company, they were actually on Dragon’s Den years ago and one of my deals: RVC, they’re the Airbnb for RVs.

And so, I mean, it has been a tough year for them because they went from like an incredible March to basically zero and then everyone realized they’re like, okay, wait a second, the only vacation I can take this year is in an RV. And so then it went just like through the roof, and to be clear, the decline in Facebook and Google prices are actually categories. They’re all of the events and all of the travel companies stopped advertising, which is probably about 20% of the inventory, which is how you get about a 20% drop. And so, when I talked to those standards yesterday, I’m like, you should spend basically every penny of your own cash flow plus our money today because you’re going to acquire a customer today that is 30% cheaper than it will be next summer from now. And so we think about that a lot.

I mean, I can even tell you at Clearbanc our prices on paid went up on Black Friday like three times. And I was like, guys, we’ve got to stop, we can acquire the same customer in January versus because we’re competing with basically our own customers right now. And so I think it’s important to be very clever around where these cycles go through because the 20-30% cost decrease in one of your biggest line items is enormous. And so the companies that know what they’re doing in paid right now and are still seeing good returns, eCommerce is still, I mean as a percentage of retail sales, eCommerce has skyrocketed from 14% of retail sales to 28% in 12 weeks. That I believe is a secular change. I do not think we will ever go back to our retail footprint before.

And look at the categories, I mean, people weren’t going to buy big bulky home items online. Now they’re buying that. They weren’t going to buy food online. That whole category’s blown up. They weren’t going to buy color cosmetics online. There’s so many categories that people are like, okay, now I’m comfortable doing that. And then the strategy is a little bit different for SaaS because it’s really based so much more on talking to a decision maker.

But I think in the first couple of weeks of COVID, everyone was scared and now everyone’s like, I’m here and I’m working from home. And so it’s a slightly different sale and a slightly different process. But on the SaaS side, I think we’re going through a mass digitization of everything now. I mean, look at telemedicine, at least in Canada, I mean, we have been pushing to have doctor billing codes through telemedicine for a decade now that were pushed through overnight with COVID. You couldn’t get married to someone legally unless we were physically in the same room. That regulation was changed. And so when you get these kind of crisis moments, you actually get great opportunities like that where I think that will produce secular changes. 

John Koetsier: It’s super interesting that you mentioned that because I just did a story on an Adobe report, and the analyst said that basically you’ve seen a four to six year acceleration in eCommerce and mobile commerce, we’re four to six years farther ahead than we would be without COVID-19 because it’s just pushed us to get there. 

Michele Romanow: Yeah.

John Koetsier: Very, very interesting. So we’ve talked a lot about, okay, some growth, some marketing, some customer acquisition. We’ve got somebody, we’ve got some initial interest, what about the sales process? How’s that changing? How’s that worked for you hunting, gathering, landing, expanding all those sorts of things? How do you see that at Clearbanc and how do you see that changing as well in COVID-19 times? 

Michele Romanow: Yeah, the sales at Clearbanc have really changed since we started the company. And so in the early days founders sell, and then you get a team together that can [sell]. And I’ve really kind of had to grow up. Now we have a hundred person sales team where we have a hundred people that talk to companies at Clearbanc. And so… I think this is like a trial and error process with so many of them. And I used to think there was way more prescriptive things, and now I want to throw all that out the window, and that’s just based on experience. And so in the early days, it was easy for all of us to be both hunters and farmers, right? We would fund a company and then you could follow up with that company.

And I mean, we have companies we’ve funded 10 times now. And so… there’s lots of people that come back to us as they continue to grow, we can give companies up to $10 million and so that kind of makes sense. And then we got to the point where we’re like, well, that doesn’t make sense because the skill set of actually hunting versus farming is the difference. So then we divided the teams, and then you never quite get the right ratios and the right everything. And so we actually in COVID, we redesigned our sales team around pods, and this is so cool because everyone at Clearbanc is basically a founder, we’ve all, everyone has started some sort of company here. We really try and empathize with who our end customer is, and the best way to do that is to have walked a day in her shoe or his shoe. And so now our sales teams are actually like, they have their own P&L they can choose if they buy leads or what software they use or whatever, there’s a couple of things that we mandate.

And then between an eight person pod, they choose different roles and we have something like eight pods and they’re all structured a little bit differently. Some of them have people that just do the farming part, some of them just do the whale hunting. And that has been a completely eye-opening experience for me to see how a little bit of creativity and ownership in a sales team can generate so much more. Because we’re, I think as sales teams get bigger, we’re so inclined to say, ‘let’s just stick to one playbook so it’s all consistent,’ but being able to empower people in small groups has been really cool.

And it’s not perfect, I mean, when you grow you have a lot of, you change things a lot, you change people’s expectations a lot. I’m sure that there are people that are frustrated with us because it was like a crazy time and we went through crazy things. So I’m not going to say this is perfect by any means, but I think it’s one of the things that’s working for us.

John Koetsier: I love that. I absolutely love that because most companies when they try to scale want to standardize everything, because it’s, you know, the machine factory 18th century production model. If I can segment everything, put it in a box, I can improve that. It’s the same experience with this pod as that part, but people are different and people are critical to your business. And some people have different skills and somebody is a great sales engineer, as well as somebody who can speak and talk and market, and somebody isn’t.

Michele Romanow: Totally. Yeah, and it’s so true, and you can’t lose that ownership and that creativity and like, this is a bit of a tangent, but this is actually why I’m finding it so hard to run a company from home because when you work with people, especially in a startup, you’re so mission driven, you are like, we are here to fight for these founders and we have so many stories of folks we’ve backed, and they’re all over the gamut, they’re people that could have raised money from Sequoia and had all the connections in the world, and then there folks that grew up in tough communities that frankly never had a shot at that, and they’ve been able to build $10, $20, $30 million businesses with our capital, and their stories make me incredibly motivated to keep doing what we’re doing. But it’s hard to share that same level of excitement when you’re not there in person, and it’s one of the things about small teams is that you can really bring people together. And I am learning how to be a Zoom leader like everyone is in real time. 

John Koetsier: Management by Zooming around. 

Michele Romanow: Haha, management by Zooming right? And it’s just a different world and I’m really empathetic to all of the founders that are doing the same thing I am…

John Koetsier: Absolutely.

Michele Romanow: … which is, trying to figure out how to motivate your teams without the conventional tools that we usually use.

John Koetsier: Absolutely. Most of these questions are crowdsourced and I’m going to go to some that are live here as well. There’s one that says, ‘Hey, is this webinar going to be available later?’ Yes, it’s being recorded, so I’m just going to go ahead and promise in Lloyd’s name that it will be available later on as well. But here’s one that’s interesting from somebody named Gary, he says, ‘Michele, does it make sense to have eCommerce as a function of your core business offering versus buying an eCommerce solution? Does the hybrid model attract investors or is it not focused enough?’ 

Michele Romanow: So, and does this mean using an eCommerce platform like Shopify or is it like building… 

John Koetsier: I think that’s what he’s talking about initially. Yes. 

Mathias Johansson: Yeah. So it’s a great question, I think that when you think about building an eCommerce business, your differentiation should be your product. And there’s a few things, like the eCommerce platforms are so good. When we built Buytopia, we were building on like an old Magento platform and everything was broken and building something that was custom was way better than the brokenness we had every day. But now these platforms are so good and they’re so inexpensive to start trying things and so I would be a big fan. There’s a couple great new ones. I mean, Elliot just came out that allows you to basically launch in 180 countries. So there’s some really cool things happening in eCommerce and then there’s all these tools, and then I would get set up with those and then figure out what your differentiation would be after that. And I think product ultimately is the best differentiation in the world, whether it’s a physical product or technical product you’re building, when you can get really deep and really good at one thing, that’s like no one wants to build their own servers and our own fulfillment centers and all of that stuff… that doesn’t give you the time and the head space to be able to do that, and so that’s how I think about kind of that predicament. 

John Koetsier: That is interesting, and it makes me think a little bit about the announcement that came out from Shopify about maybe two weeks ago, and they’ve integrated with Facebook and a few other things like that.  And, you know, it’s just one of the core challenges about eCommerce if you’re not just going to sell yourself on Amazon, is getting that registration, getting to registration and getting that credit card, right? And I’ve been buying a lot online. Guess what… 

Michele Romanow: We have haha. 

John Koetsier: Right?

Michele Romanow: I have a new leggings collection, you can tell me, I’ll be, I’ll go where in the world right, haha.

John Koetsier: But the lack of barrier with Amazon is hard to beat because they know me, it’s one-day shipping on a lot of stuff and I can just click and done, right? And so I think that’s a core challenge. I wonder if that integration that Shopify did with Facebook is something that could remove that hurdle.

Michele Romanow: Yeah. I think that we’re still seeing a lot of differentiation across the platform. So yeah, you go to Amazon for consumables, and you know most great eCommerce businesses have an Amazon presence, they have their own Shopify store, you know Shopify in many of their platforms have made it easier where, you know, if you’re a registered user on one site, they save your credit card and you could 2FA to pay and make that a lot easier. But I think it’s going back to what you were saying… what I was saying around product, it’s like ultimately people will go far and wide when you have something that other people don’t. And so if you’re in the commodities game, you’re always going to be playing on a price margin, but today people are looking for mission-driven brands. They’re looking for brands with story and a social conscience, and so many more things in the things they buy. And our ability to tell that story and then retain those customers just as a function of having such a big D2C economy allows for a lot of differentiation. And so, and then, you know, you build a big enough brand and people search for you on Amazon. So like great, then you just have another channel and platform to deal with. And so I would think a lot about product being the differentiator and that’s ultimately what allows people to build. 

John Koetsier: Yes. I’m going to ask another question from the audience. This one is from Gerardo and he says, ‘When do you know you’re ready for investment?’ And he says his situation is ‘they’re one year in development, they’re about to enter beta testing.’ That sounds very waterfall-y but no judgment, and should he ‘build value through revenue or seek investment now to fund the launch?’ What’s your thinking? 

Michele Romanow: So, thanks Geraldo. So here’s what I think. Right now, you know, there’s no problem if you look at what Clearbanc could do, it’s always an option. I think equity markets are very tough right now, so you can do it and you can try and go raise capital in the equity markets or VCs, but it’s going to be very tough, and I’ll tell you why. The first thing is that VCs have public LPs, and so with all of this uncertainty in the market lots of LPs got scared and they’re taking a lot more scrutiny in investments. So they’re actually, their capital base is more difficult with them. Second thing, is that you’ve lost your ability to meet someone face-to-face. And when you’re pitching, there is nothing like you telling the story of why you’re so special to build this business. And then the third thing is by meeting people face- to-face in a short period of time, you would typically get a bidding war going which would drive up your valuation. And that was really the third thing that was probably lost in COVID, and again, these things are not entirely lost, but they are significantly more difficult than they were pre-March.

And so if I were you as a founder, I would just spend this time focused, and building, and getting as much traction and as much early revenue as you can. With early revenue, you have control of your own company and you have a much better story to tell later, because I think that one of the things that’s really broken with the equity fundraising process is it just takes so much time. And so you can try it, you can do a couple of meetings, put feelers out there, but generally I think it’s just very hard and I would just focus on building right now because at the end of the day, it’s a really tough macroeconomic condition and many people, at least for me, I’m just like, I might as well bury myself in work. There’s no events, there’s no travel, there’s no, like I want to build stuff right now because I can’t spend all day thinking about how tough the world is out there. And it’s kind of, work in many ways has given me this like solace and this sense of goals to be driven for, and I think using that and look, the world is going to come back.

This is not going to stay this way forever, we’re not going to not travel forever. You know, it’s really easy to think that… I heard a great expert talk about how everyone said after SARS that no one was going to travel to Asia and that whole corridor were going to stop. I mean, you can see it in the bond data for Mary Meeker, international travel to Asia for the last 15 years has gone up on a curve like this. Like we’re going to come back and it’s not going to be forever. But now I would use this as an opportunity to grow and build versus an opportunity to raise capital. 

John Koetsier: Yeah, I love that. Work has been a solace for me as well and I also like that point about focus. I’ve been through two startups that raised and one where I was senior leader and one where I wasn’t, and the senior leadership team is just occupied for three months, six months or something like that on that, and you’re out. But it speaks to in terms of just diving into work, speaks to also product development and how that fits into your product market fit and your sales and marketing. And how do you decide on, and prioritize features? 

Michele Romanow: How did you decide… I didn’t hear you, practice features? 

John Koetsier: How do you decide on and prioritize features. You could work on 50,000 different things. How do you pick the three or five things that you’re going to focus on? 

Michele Romanow: Oh, I’m going to have an unpopular opinion here. 

John Koetsier: Go for it.

Michele Romanow: Well, okay. So I don’t think the world ever tells you what they really want. I don’t think any of us knew we wanted an iPhone til we saw it. And I think it’s so easy to fall into this crutch of just give the customer what they want. Like at the end of the day, the customer wants everything for free with no work with a million rewards, right? Like if we could give out free money…

John Koetsier:  Hah, that’s me, sure. 

Michele Romanow: And so I get really worried because this happens with all product teams when we over bias to just feedback. That doesn’t mean there’s no feedback, of course people need to know how to use your product. You need to watch them on a heat map on a screen and you’ve got to see if you confuse them. And all of that is true, but you have to imagine what’s… I would step back as a founder and be like, what is changing at this moment of time that could allow me to build something that’s never been built before. And so the iPhone feels like a trite example, but chips got small enough, we got to put GPS in these, we got to reimagine a whole new world. For Clearbanc, it was actually something different. It was that we got API access to digital data sources that had never been available and never been this accurate.

Like there was no way to plug into payment processor data and real time bank data and all of this before, like we couldn’t, it’s not that that VCs and banks were terrible, it’s actually that the technology didn’t exist to do what we were doing and just use data to make these decisions. And so when I think about product development, I think about it in that way, it’s like higher level, what technologies are we unlocking today? What behaviors are we unlocking today? I mean, look at all these unique behaviors on video and so many other things that people are used for. I mean, I think I did 20 Zoom calls in my life before this and now I do 20 a day or something, like there’s so many behaviors that have changed.

And in that environment, how do you reimagine something for the consumer? And then I’m a big fan of not asking, but just showing. Here’s the thing, even if the product is broken, even if it’s half like, you know, vaporware, let’s see if the customer wants to use it. Because I think we all do this thing, and market research has shown us time and time again that, I mean, I wish I could see everyone in the audience, but it’s like, how many of us wanted to go work out this morning? A hundred people are going to put up their hand. How many people worked out this morning? Four people are going to put up their hand.

That is why market research never works, because we tell people what we wish we were, not what we actually are. And so, you know, that’s why we click on garbage on the internet. I mean, all of us, I fall for clickbait, it’s just part of our humanity. And thank you, I’m very, see the one person that worked out this morning shared that with us, which is exactly my ratio that I was talking about. But that’s the way I think about product development, is I think about re-imagining things first, having audiences tested and then using customer feedback. Because if you just go on this feedback loop, people will tell you the same things every time, ‘I want everything and I want it for free, and I don’t want to pay anything.’ And that’s really not good data, that doesn’t help you build a better business. It does help you if you can think about how do I create a technology advantage to create something better that hasn’t been found. 

John Koetsier: Yeah, yeah. Let’s talk a little bit about capital efficiency. Pretty important right now. You don’t know when you’re going to raise your next round, if you’re going to raise another round. We had some comments in the chat about, ‘Hey, I have the opportunity to grow faster right now because my ads are a little cheaper right now, but I don’t know how hard to push the gas pedal right now.’ Can you talk a little bit about capital efficiency and when to pump the brakes or when to push the gas a little farther down towards the floor? 

Michele Romanow: Yeah. So I think one of the things that like, and I’ll just give you some of the practices that we do. So you want to have a really good sense of how much runway you have, because that will actually make you think, it’ll just give you a lot of psychological safety. When you are on one month of runway, trust me, the only thing you are thinking about is that you were on one month of runway. There’s no, you cannot be creative, you cannot launch new products, it’s very difficult because all you can see is people in front of you who are costing you money and it becomes just totally overwhelming as a founder. And so figuring out how do I cut and right-size this company to the point that I can get, you know, four months, six months, twelve months, two years of runway. And there’s lots of different ways to do that. So that’s the first thing, is getting yourself into a place where  you know you’ve got the right people and the right thing. Then you can start thinking about how do I create some immediate wins in this new market. And this isn’t easy, it’s not… like one of the things that I had to let go of is like the old world is not coming back tomorrow. Like, I am not going to a bar tomorrow with all of my friends and we are not going for a 25 person dinner, and as much as we kind of dream and wake up that this is all gone, this is going to be a far longer period. 

One of the exercises they do at Clearbanc and I’ve done with every single one of my companies is that, we call it “Project Weight Loss,” it has nothing to do with weight loss, but we cut the fat. And what we do every week is we look at every single line item that’s things have been spent money on, and our spreadsheet at Clearbanc has something like 500 items and it is mind blowing how many things you start spending money on that you just had no idea. And I mean, as much as I love SaaS companies, they are the worst at like one person on one of your teams signed up for something and it’s like, bam, $5,000 bill for Asana. You’re like who would …

John Koetsier: Enterprise level.

Michele Romanow: Enterprise level and they signed everyone up and no one’s even entered their account, right? Like that doesn’t seem, no founder is like no one talks at a growth conference about how to do that. But if you do, we do a project weight loss meeting once a week, every single week, it takes us half an hour to rip through the spreadsheet, and every week we found $5,000, $10,000 on the floor, all the time. Because when you grow fast it is really easy for costs to get out of control. And if you do this once every month or once every six months, you’re like, first of all, you can’t go back on some of these things, you can’t sometimes get the money back from them and you just don’t even know all the things that are happening. And so it’s been, it doesn’t take us a lot of time, it gives you a really good sense of what’s driving value in your company versus not, and how to think about the trade offs you will make. Like ultimately, people even within an organization are many things, but sometimes you can have a really expensive executive that could be worth five people versus five junior people. And you need to be constantly thinking as an entrepreneur about making those trade offs and making the best decisions, especially when we’re not in times of plenty. And the discipline around — and I don’t call it cost cutting for the sake of cost cutting, I’ve always hated that word — this isn’t about saving money, this is about making sure you’re doing your highest leverage activities. 

John Koetsier: Yes. 

Michele Romanow: So for every $5,000 I accidentally donate to Asana because someone couldn’t shut off a free account that we weren’t using, I lose an engineer from it. Like that’s a very real trade off, and so I think we get into this mood where it’s like, oh, I’m a start up and we have to spend money on everything. And like, you know, we don’t want to be cheap. It’s not about being cheap, it’s about money can give you a lot of leverage, and so are you spending your dollars on the things that can actually grow you the fastest, versus the things that just don’t matter? 

John Koetsier: Love that, love that. We have a question here that I’m going to ask you and we’re coming towards the last 10, 12 minutes or so of our time. And this question is ‘How do you spend your time realizing that no two days are the same?’ Although that might have been pre-COVID-19 I’m not totally sure. 

Michele Romanow: I was so, they’re like too much the same. 

John Koetsier: Exactly.

Michele Romanow: You know, one person on my team told me that they order takeout on the weekends to differentiate weekdays from weekend. 

John Koetsier: Love it.

Michele Romanow: I started doing it because I was like, ‘This is fantastic!’

John Koetsier: Yup, yup, exactly. And of course you are a unique situation because you are a very senior level executive at Clearbanc, you’re the president, but you also have outside interests and investments and other things like that. So the question was, how do you spend your days? 

Michele Romanow: The best answer to this question is I spend my days the same way I was talking about costs and what gives you the most leverage. I think about what’s going to move the needle today for me, and then in many ways you distill that list to three things, right? You say, Michele, what are the three most important things, and every day frankly, I mean they’re kind of similar on maybe a weekly basis, but they can be very different. And so it’s like, do I need to close one big deal that someone’s working on? Do I need to drive alignment and a part of the organization that’s not working? Do we need a new leader in one area that I need to recruit? Do I need to follow up or respond to something in the external environment that’s so urgent?

And so you’re right. I think it’s the best part of running a company and being a leader is that no two days are the same. Like I get such a variety of work and challenges and f—ing curve balls that smack you sometimes. But, you know, I think that’s the best way to think about your day is what can give, it’s not like how do I get into my inbox and how do I kind of go on with the little tasks… and we all need to do that, but it’s really like, just step back. I have another CEO friend of mine that spends an hour with his paper notebook every morning, and he used to do it in a coffee shop every morning, he can no longer do that. But I always liked that idea, to sit down for 10 minutes with no distractions and be like ‘What moves the needle’ and then that allows you to focus. And the other thing that allows you to do is as soon as you do two or three hard things, then you actually get this momentum in your day where you’re like, I got a bunch of hard things done, we’re already moving, like I might as well just keep going today. And so there’s, yeah you’re right, there’s no days that are the same. They’re now starting to look the same, but definitely lots of different challenges. 

John Koetsier: That is really challenging, right? I mean, because the things that are urgent, they ding, they ring, they ping, they come into inboxes, probably 5 or 6 of them, maybe even 10 or 15 for some of us, right? But the things that are important don’t always do that and that’s challenging to focus on those things. There’s another question that’s kind of related, there’s actually two. The first one is ‘What do you wish you did less of?’

Michele Romanow: I wish I did less meetings. That would be my… yeah… there’s nothing quite like a day full of meetings where you’re like, did I get anything done today?  I’ve started actually just picking up the phone more, especially with all of my senior executives and senior team. I think we get into like Zoom fatigue where it actually like your eyes hurt from trying to read delayed microexpressions on people’s faces. There’s an amazing article in the New York Times of why Zoom makes us so exhausted, and it’s because our eyes are very sensitive to microexpressions and there’s this delay, and so all day long our brains are trying to match a delay in microexpressions. And so I wish we did less meetings. I think we all wish we did less worrying. I think, especially when big things happen, it is really like I mean I read more news the first month of coronavirus than I did in the last four years, right? Like it was impossible to not feel like we just have no idea what’s happening and how big this is going to be, and what to do, and how to manage that as leader, and how to even talk about that. I just kept saying to my team, ‘Look, there’s no playbook for this, like I know as much as you do and we’re all gonna get through this together with a lot of creativity.’

John Koetsier: Yeah, yeah. Love that. I actually did a story on that, and I’m in the news business, but… 

Michele Romanow: Yeah, you saw all those eyeballs, they were all me 1:00-4:00 AM. It was like, I just couldn’t stop reading.

John Koetsier: We have to limit that because there was a study that I reported on, it’s probably not going to be a surprise. The more news you consumed the less happy you were, the more anxious you were and everything like that. There’s a degree that you can take, you need to know what’s going on, but beyond that… 

Michele Romanow: Yeah, I think those are wise words coming from a journalist.

John Koetsier: Haha, exactly. 

Michele Romanow: Yeah.

John Koetsier: Flipside of that question is what do you wish you spent more time on?

Michele Romanow: I think…. I wish I spent more time, like it’s almost this unstructured thinking time. And often that used to happen late at nights in our office where someone would order dinner and then we’d hang out and you kind of were just like metaphorically around a whiteboard, but you don’t have the treadmill of your day where it’s 2:54 or whatever, like, you know what I mean? We’re all on the next six minutes next, and so it really limits our thinking. And so I’m trying to figure out how to recreate some of that, and you know you can do it with calls, but it’s like this unstructured thinking where you can take everything that you’ve learned in your day and be like, is there another product innovation? What else should we be thinking about? How do we move the next ball forward? And that’s such a natural thing when people are out for dinner and drinking together, and there’s this natural excitement that comes into brainstorming, especially with your colleagues. So I miss that and I wish, and I’ve got to figure out, and I’m totally open to suggestions about how we recreate that in this Zoom world.

John Koetsier: It is really, really challenging. What I tried to do when I was helping to run a startup in San Francisco about six, seven years ago, I tried to do all my meetings as walking meetings. At least the one-on-ones…

Michele Romanow: Yeah, so good.

John Koetsier:  That way I’d get some exercise, some outdoor time and we’d have some one-on-one time but also just unstructured. There was no whiteboard, there was nothing, we could only talk and think.  And you know, maybe I was patterning after Steve Jobs, I don’t know, he did a lot of one-on-one walking meetings too. 

Michele Romanow: I think there’s a lot of science that that’s good for us and there’s actually something about walking that helps our brain move and think, so big, big fan of that.

John Koetsier: Cool. And then this is a bit of a risky question because I’m not sure if you’ve seen it in advance, it has been there, but I don’t know if you’re a big reader or not, but here’s the question, which is ‘What are some of the books that you’re currently reading or have read recently or in the past that you would recommend, or that have changed kind of your perceptions, your thinking, and maybe even your activity?’

Michele Romanow: Oh, yeah, for sure. I’m a big reader and I read a lot of news and articles and then I Audible a lot of books, which I found was an amazing hack for me because I listen to them before I go to bed, they can put me to bed which is really nice. And then all of that time that we used to lose in Ubers and in airport waiting lines, I got through books then because it was always like before, it was just like, I never have enough time to read, but it was like if I could make use of kind of this wasted time and it was a lot better than the senseless scrolling through social media. So I kind of like a bunch of different categories. I like books that are bystanders and I like the books that are by founders, where they have nothing to prove anymore, right? You know, like Steve Jobs’ book had nothing prove when that came out. Like even I found the Alibaba book, which, you know, there’s a lot of censorship from China, I found that actually pretty honest. I loved Chip Wilson’s book. I don’t think he cared at all when he wrote that in the story of how he built Lululemon, which I think is a great Canadian company, and it was just so honest about how he spotted trends and saw things earlier. And I think every time you read the story of a founder, you realize that no matter how big and successful these companies were, they almost didn’t make it not for the first two weeks or two years, but like the first decade. And it’s a great reminder as founders, you know, I think there’s some incredible structural business books. Like I enjoyed Ray Dahlia’s book. I loved Robert Cialdini’s books on selling apart influence. Chris Voss’s book I’d Never Split The Difference is incredible. And then a recent one called The Effortless Experience that was a really unique take on customer service, it’s kind of in the business book section. And then the last thing is I’ve now tried, I started White Fragility and I wanted to do more education, especially during this Black Lives Matter movement, because I think all of us have the opportunity to learn and learn about a completely different way… and what we’ve probably missed. So that’s my last category of books that I’m looking at right now. 

John Koetsier: Wonderful. Well, Michele, it has been a very pleasurable hour. It has been a very informative hour. It’s been a very engaged hour, I mean, the chats have been flying… 

Michele Romanow: Yeah!

John Koetsier: Questions have been flying back and forth. It’s been awesome.