Interview with Patrick Henry, author of PLAN COMMIT WIN
In this interview with Patrick Henry, CEO of QuestFusion and author of PLAN COMMIT WIN: 90 Days to Creating a Fundable Startup, we discuss the genesis of the book and how it was designed to help entrepreneurs, company founders, startup CEOs and business owners build great companies and get them funded. Patrick bases the principles in PLAN COMMIT WIN on his decades of experience in building businesses and running startup and growth companies.
Amanda: Hey everyone. It’s Amanda with the San Diego Lifestyle. I’m here today with Patrick Henry, author of Plan, Commit, Win. As a lot of you already know, we blog a ton for the San Diego Lifestyle, and Patrick has written a lot of stories for us. We’re really excited to have him here today talking about his book.
When he’s not writing stories for us, he does business consulting right here locally in San Diego. I wanted to bring him in to talk more about the details that are in his book, and how it can help any business owner, even if you’re not looking to take your company public or do a huge deal with investors. You can still use a lot of the great content that’s in here. Welcome today.
Patrick: Thanks a lot, Amanda.
Amanda: I want to dive deeper into your book and give people a better feel for the content. One of the main things I wanted to talk about was at the beginning of your book. You talk about a hierarchy of needs that you have for raising capital for your business. Tell me a little bit about that.
Patrick: In addition to working on the San Diego Lifestyle with you, I run a professional consulting business where I focus on providing strategic guidance to startups and entrepreneurs. I help them raise money. The catalyst of the book was that a number of different entrepreneurs who would approach me wanted to raise money, but they didn’t have some of the basic things that you need in place.
I feel that you need these things based on my experience of raising a lot of equity capital for my companies. I run three different companies. I’ve raised over $200 million in equity financing. In a 30-minute consult or one-hour meeting, it was very difficult to convey all of those concepts.
I sat back and said, “What do successful companies do in order to be successful and raise outside capital from angel investors or venture capitalists?” The thing is, you build a great company. The book is about how to build a great company. I believe, if you promote that properly, great companies get funded. Even though the process of raising money is always challenging, difficult and takes time, you will have the fundamental pieces in place. As I took a step back from that, I developed this hierarchy or requirements for raising outside capital. It starts with intelligent ideation.
There are lots of good ideas, but what really makes a good idea? Then there is strategic planning, understanding your market, target customers and the competitive landscape. On top of that, there is the business plan. How are you operating your business? Do you have an annual budget? How are you holding yourself accountable? How are you setting key milestones, measuring and meeting them?
Then it’s about execution and doing the things you said you were going to do. Typically, when you’re meeting with investors, you’re not going to have a first meeting, and then someone is going to write you a check. You will be meeting with that same investor two or three times over a period of several months. They will want to know how much progress you’re making towards those milestones.
If you’re building anything beyond a sole proprietorship, it’s about building a great team. I think startups are a team sport. You need to get the best people around the table. I have a chapter on teamwork.
Eventually, you need to have a great presentation, which isn’t just the investor pitch deck. You need a strong elevator pitch, executive summary and an understanding of the frequently asked questions that investors, plus having a great presentation. That’s the hierarchy that I cover. I developed a process around how you climb that hierarchy as an entrepreneur in order to successfully fund and build your business.
Amanda: That’s great information. I know that everyone just wants to get to the top of the pyramid, put their presentation together, email it to some people and hope it works. Then they want to answer questions along the way. Take it back to the idea. How do you know as a business person if your idea makes sense and should be a business?
Patrick: I think a lot of people get caught up in this. Most of the companies that I advise are further along. They’re beyond the idea stage. They’re beyond the bootstrapping stage. They’re raising their first round of institutional financing from venture capitalists. If you get into that early-stage company where you’re looking to raise some seed financing, you still have to be able to explain why you think your idea is a good one, and why you think the market is important. There is not a consistent set of beliefs around this. There is controversy.
Amanda: People say, “Follow your passion, no matter what, even if it’s not going to make you money.”
Patrick: Follow your passion, but do you know if you have a good idea when you’re at the beginning stages? A lot of these concepts are from the lean movement. Lean startup. Lean entrepreneurship. It says, build a minimum viable product. Get it into the market. Test that and get feedback from actual customers.
I think that is sage advice, but there are things that you can do before that. Is there even a market opportunity for the products that you have? Who are the target customers? If you do build a minimum viable product, you have to know which customers you’re going to go after, who you’re sampling it to and what solution you’re trying to replace.
Is there a substitute product in the market today? How are those customers solving that problem today? Is it an extremely important problem for those customers? In my experience in dealing with many business opportunities over the years, customers have tens if not hundreds of problems.
If it’s not one of the top two or three issues that they’re dealing with, they’re not going to work with an unproven startup to solve that problem. It’s never going to boil up to, “I’m losing sleep at night over this issue. I’m really desperate for a solution. I’m going to rely on an unproven startup for this solution.”
In the chapter on intelligent ideation, I go through a set of six tests that you can do to help you get a better idea. Do you even have a good idea? Is it a viable business proposition? Not all good ideas can make money. It’s about having a good idea that has a market opportunity where you can make money.
Amanda: After that, once you’ve decided on your idea, you’re going to go for it. You think it’s great. You’ve looked at the market a bit. I know that a big chunk of your book is about taking that idea and getting down to the basics, looking at the market and having a strategy and plan before you get to a business plan. What are the things overall that people need to look out for, plan and know that they don’t already know? Can you give us insight into the problems that you look for?
Patrick: I’m a proponent of planning. In the book, I talk about planning over a three-year horizon. I don’t think you really need a five-year plan. I think it’s extremely difficult to forecast revenue over a three-year period much less a five-year period for a new company, especially if you’re in an innovative area where there isn’t an established market.
Some investors may request a five-year plan, which you can extrapolate from the third year. A lot of it is the fundamentals when you’re doing strategic planning. It’s about the situation analysis. It’s the topographical map of your market landscape. Who are your target customers? What is your customer avatar? How big is the market opportunity?
Are there different segments of the market where you’re going to go after an initial defensible niche first, and then fan out to additional opportunities over time? What does the competitive landscape look like? How long will it take you to get from Point A to Point B if you’re building a new product? How quickly can a new customer adopt your technology? How much does it cost you to acquire a customer? What’s the lifetime value of that customer?
These are the same questions that sophisticated investors are going to be asking you when you get in front of them. You have to do this homework and have some set of assumptions, validity and testing around those ideas. This is especially when you’re raising institutional financing. They’re just going to blow you out of the water. You have a very limited amount of time when you’re dealing with professional investors. It’s short attention span theater.
If you don’t have their interest and attention in the first five minutes of a meeting, you’re going to have a real problem trying to keep their attention for a longer term. You have to know your stuff. You might have watched Shark Tank. They nail you with all of these questions right off the bat. They want to know if you really understand your business. Although there are some things in Shark Tank that aren’t really accurate in terms of how you raise money, a lot of those elements of it are very important.
You have to be able to think on your feet. Part of thinking on your feet is being prepared. Have a strategic plan. Understand the customer, the market and the competitive landscape. Know what it takes to get from Point A to Point B with a new product. These are all very important.
Amanda: A lot of it is looking around at your competition. That was a huge part that I didn’t really understand until I started to read the book and learn how much the competitive landscape has to do with it. I thought, if you build a great company, no matter what, you’ll be successful no matter who else is out there.
I started reading all of these things about your competition and thought, “Wow, there is so much else to do.” Companies try to be successful. Then there is another company that’s doing exactly the same thing. I know you have a few exercises in there that people can go through when it comes to the competition.
Patrick: Competition is interesting. There can be direct competition with people that are doing the exact identical thing as you. What is your differentiation? It’s always important, if you’re building a business and you want to make money, to have a unique value proposition. How is what you’re doing different and unique from all the other folks out there?
In most businesses I’ve built, that requires some kind of differentiated intellectual property. There are other companies that build big consumer brands and it’s more around soft things. For instance, you can look at Airbnb. There is not a whole lot of technology involved in building Airbnb. They built a good brand. They have an innovative idea. They use the available technology in a way that other people haven’t used it before. It’s an interesting way of cobbling together what already existed.
The important thing to understand is, even in an emerging market where there isn’t an established set of competitors for what you’re trying to do, customers are typically solving problems in some way. There’s a substitute product. There’s a substitute solution. There’s something that you’re replacing that currently exists.
That gives you a proxy for the market opportunity. Is the customer losing sleep at night because the current solution is so horrible, so expensive, arduous or difficult to use? They say, “I wish I had a better solution.” Then you come to the rescue with a better solution.
Amanda: It’s like folding socks and laundry. I put it in the washer and it washes. I put it in the dryer and it dries. Now what? Why isn’t there a machine that does the rest for me? It takes all night to match up these socks. It’s terrible. Where is the sock machine?
Patrick: When you get through that, how much is someone willing to pay for it? If it’s just a pain, people will say, “I’m not going to pay you for a sock folding machine because that costs more than my washer and dryer.” Then there’s probably not a big market opportunity.
But if it’s something that you can slap on the table that costs $10 or $15, and it folds all your socks, maybe it is a great product. It’s about what the customer is willing to pay for it, how effective it is for solving the problem and how important the problem is to them.
Amanda: Do you need to figure that out before you get it into the customer’s hands?
Patrick: I don’t think so. You can have a proxy around it. This gets back to the lean movement. You have to get something in customer’s hands to really test it out. Even in intelligent ideation, there is a portion about testing and refining the idea. Once you go through these basic things, like if there’s a customer, a market, and a competitive solution that already exists, you still need to get something into the marketplace. Then you’re going to iterate.
You’re going to learn things every time you give something to a customer. They’re going to say, “I like this. I don’t like this.” You build those new things in and take out the things they don’t like. You continue to make it better.
Amanda: For all of the local business owners in San Diego that already have their idea, a plan and a business that’s running where they’re making money but they’re a little confused or not running the best that they can, I know you have a big chapter in here on teams. Talk a little bit about that and how you hire more people when it’s just you and you’re finally ready to take it to the next step and build a good team.
Patrick: Team building gets back to what is essential for you to build your business. What core competencies do you need to have? If you’re building a super high technology company, you probably need some engineers with specific expertise in particular disciplines. If you’re building a biotech company, you probably need scientists, people with medical backgrounds and people who understand the FDA approval process.
You’re looking for best-in-class people and hiring for skills and abilities. On top of that, it’s not as if you want 15 or 20 individuals who are amazing in their own right but can’t work together. It’s a team sport. I think a lot of entrepreneurs focus purely on roles and responsibilities or skills and abilities. Those are critically important.
It’s very important to get the best, most talented people that you can, but then once you get all of those people in the same boat, you need to get them rowing in the same direction. That requires communication, a common set of beliefs, culture, vision and passion around that vision, especially with Millennials.
This is even more important. If Millennials don’t buy into the vision and mission, they will move on to the next thing. It’s always been important, but it’s even more important with today’s workforce.
Amanda: I know that you’ve done a few different videos on culture. They’re really interesting videos. I never thought about that. Is it possible to create what you want your culture to be and then feed it to the rest of the people? Do you get together as a team and decide what you want your culture to be?
Patrick: I think it’s both. You need to have a vision of what you want as a company founder, what you want your company to represent, how you want your company to be perceived, what you want to accomplish and your passion. This is not only in the marketplace but from a softer standpoint.
How are you trying to change the world in a positive way and not just make money? What’s your purpose beyond making money? If it’s just about making money, I don’t think you’re going to be able to build the team that is necessary to accomplish great things. Don’t get me wrong, I think it’s great to make money. I’m a capitalist. I think that’s fantastic. But I think you need to have that purpose, passion and drive beyond that.
Then, as you add other people to the puzzle and to your team, they will have some say on how things develop, especially that core team, the first 25 to 50 people. As you get those people into your company, that’s going to establish the foundation of your culture and what you will represent. As you start getting past 100 people, it’s pretty well set at that point. It’s hard to come in and completely change a company culture when it’s already been established.
Amanda: That’s the ultimate goal, right? It’s to build a large company and have an end result of another company buying you or going public.
Patrick: Not necessarily. There are awesome companies that have 5 to 15 people. Not all companies need to be enormous, like Apple, Google or Facebook. If you want to have a multi-billion-dollar valuation and address a multi-billion-dollar market, then you need a bigger company. The backbone of the US economy is small to mid-sized businesses.
A lot of the principles in Plan, Commit, Win apply to those businesses as well. You might be addressing more of a niche market. You might be addressing a more concentrated geography. You might not have the desire to raise hundreds of millions of dollars.
In the event that you have that kind of business, good business principles are good business principles. Understand your customer. Understand your market. Understand your competitive landscape. Understand how you win. Build great teams. Execute. Hold people accountable. All of those things are important in any business.
Amanda: Do you think that everyone who reads this book will end up on Sand Hill Road or are there other ways that you can meet with big-time investors and have a successful company here in San Diego?
Patrick: It’s been interesting. I had a relatively successful Kickstarter prior to the launch of the book. I raised between $12,000 and $15,000 in the Kickstarter.
Amanda: Congratulations on that.
Patrick: It was great. There was a lot of interest around the book. A lot of it was from small to mid-sized business owners. Maybe that was one third of the people. Two thirds of the people were investors and people in my ecosystem that supported that as well as people who are entrepreneurs.
There’s a mix of people who are interested in the book and the concepts. For instance, some of the endorsements that I have on the book are from venture capitalists, big-time board of directors and angel investors who sit on a lot of startup company boards. They think this is valuable information for their companies. It’s been interesting.
We’re at the very early stages of the book. There’s a lot of excitement around it. We’re only a month and a half into the launch. It’s exciting.
Amanda: Tell me exactly where people can find the book.
Patrick: It’s on Amazon.com. We have it in three different formats. It’s in the paperback version. It’s on Amazon Kindle as an ebook. It’s also on Audible if you like audio books. In the initial launch, we just did the paperback and the Kindle version. I got a lot of feedback that people wanted to audio book version. I worked with an actor who does this type of work for a living.
Amanda: It’s not you reading the book?
Patrick: It’s not me reading the book. He’s a very solid business person who understands business and technology. He’s a professional that does this type of work for a living. I think he did a fantastic job on the book. I worked for a month and a half in collaboration with him to get the audio book done. It’s now available on Audible, iTunes and Amazon. It’s out there in whatever format you like.
Amanda: I like to have the book so that I can put my notes in there and highlight things so that I remember them later when I’m doing things in my business. Thank you so much for all of your help with me and my business in making San Diego Lifestyle so successful. Thank you for writing for us, and writing this book. I appreciate you coming in and talking about your book. For anyone who wants to be more successful in your business, make sure you pick up a copy of Plan, Commit, Win. You can go on PlanCommitWin.com and pick up the book. Thank you so much, Patrick.
Patrick: Thank you, Amanda. I really appreciate it.