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Turning Customers into Evangelists and Attracting Talent – Interview with Patrick Meenan

patrick_meenanPatrick Meenan is a Partner at Arthur Ventures. Prior to Arthur Ventures, he worked for Microsoft where he spent his time in the Corporate Development group, executing merger and acquisition transactions and in Operations for Microsoft Advertising, executing strategic partnerships and key operational initiatives. Prior to his time at Microsoft, Patrick was an investment banker with Piper Jaffray’s Technology Group.

Patrick recently visited Cincinnati as part of an Immersion Day. We talked to Patrick about Arthur Ventures, how startups can attract talent and the best way for a company to turn their customers into evangelists.

Cintriftuse:  Can you tell me a little about Arthur Ventures?

Patrick Meenan:  Arthur Ventures is an early stage venture capital fund that invests in B2B software companies outside of Silicon Valley at the Seed and Series A stage. So when I say outside of Silicon Valley, we’ve invested anywhere from Minneapolis to Seattle, Phoenix, L.A., New York, Chicago to Detroit. We haven’t come to Cincinnati yet but we’d love to.

Currently, we invest from a $45 million fund and we’ll make initial investments of up to 3 million but most often we invest $500,000 to $1.5 million in rounds of one to five. We’re happy to lead rounds, be syndicate partners in rounds, partner with other firms or go solo, it doesn’t really matter.

CF:  Aurthur Ventures is Located in Fargo, ND right?

PM:  We are. All the partners are in Fargo except myself, I’m in Minneapolis. The reason we’re in Fargo is that my partner, Doug Burgum, built a business called Great Plains Software. He joined as employee number five and became CEO of the business for 20 years. He took it public in Fargo and eventually sold it to Microsoft for $1.1 billion.

Today, Fargo is Microsoft’s second largest campus, outside of Redmond, Washington. So we’ve seen the impact a 2000 person company had in Fargo and we believe there are a lot of other cites you can do it in too. So that’s why we’re there.

CF:  When you go out and you look for a startup to invest in, what are some of the key things you look for?

PM:  So lets talk about the boring stuff first then get into what really gets us excited. First off, we typically invest in B2B software. That’s the first cut. Then next cut is location, is your startup outside of Silicon Valley. Third cut is the stage. So this is the stuff that initially filters out companies that we either will or won’t invest in. And there’s also the boring stuff like making sure it’s a large market and making sure the company has some traction. We very rarely invest pre-revenue so we make sure a company has some momentum and that they’re capital efficient.

But what really gets us excited and really makes us jump out of our chair and want to invest in a company is when we see a lot of the customers acting like a community. We’ve invested in a lot of companies where the customers are so passionate about the product, they’re telling others about it via word of mount or creating presentations about how the company’s product changed their business. We look for companies with customers doing all this stuff without guidance from the company.

[pullquote]What really gets us excited and really makes us jump out of our chair and want to invest in a company is when we see a lot of the customers acting like a community.[/pullquote]

CF:  So you look for companies that have evangelists?

PM:  Absolutely. A lot of what we fund, and this isn’t necessarily a rule, but if you look at the companies we fund most are lower price point, high customer volume. They’ll have 3000 customers paying $30 a month for products versus Kroger and P&G paying thousands of dollars a year. Some great example are LeadPages, When I Work and Ionic. These companies have people on Twitter saying “Oh my God, this product is changing my life you should totally use it”. When a company’s customers are acting like evangelists without being prompted by the company, it allows them to grow really fast.

CF:  Essentially they create 30,000 sales people.

PM:  Exactly. So when we see stuff like that we really get excited and if you look at the companies we fund, there’s a lot of that going on. Most of our companies don’t have any sales people and yet some of them have 40,000 customers.

CF:  How does a company create that kind evangelist community?

PM:  Just create products and have a great customer experience.

CF:  Can you give an example of one of your portfolio companies that gives a great experience?

PM:  Sure. Let’s talk about two things really quick. First is the mobile development framework called Ionic based in Madison, WI. These guys are, in a sense, a mobile application framework for web develops. So rather than people creating native mobile applications they can use the Ionic framework on top of their stuff. They just built a great product that saved a ton of people time. There was a whole class of software developers that struggled because they didn’t understand the depth of coding and their abilities were limited when it came to creating mobile applications. Ionic put them in a position to create mobile apps.

Right now Ionic has something like 20,000 Twitter followers and there are Ionic meetups held on every continent except Antarctica. There are Ionic meetups in Argentina and Russia and Turkey and the company has nothing to do with any of them. That’s because people are so passionate about the platform and what it has done for their business that they just go and create meetups and presentations. It’s incredible

Another one is When I Work. They do hourly employee scheduling. In the past, this has been done with a spreadsheet so they made this great mobile application that makes it painless for managers to schedule their employees. Their customers range from ice cream shops to Uber and GrubHub and Tesla. Their customers are tweeting, writing letters and telling other people about their product because, when you think about it, their app is the difference between a store manager having an extra hour and a half with their family or having to schedule their employees.

Really cool things happen when you have solutions that work and that have a real impact for the user.

CF:  What kind of qualities do you look for in an entrepreneur?

PM:  I think there’s a couple of things we look for. I would say two things really stick out. One is really, really knowing the customer. Again, those companies I mentioned are great examples. Just knowing what will resonate with your customer to drive value is something that is incredibility important. But above that, I would say the number one thing is hiring better people than yourself.

One of the mantras of LeadPages is “Growth Over Ego”. I think a founder has to be selfless and has to hire people better than he or she is. When they can do that, they can accomplish great things. Some of the most successful companies we’re involved with are constantly hiring great people. Constantly. Some people have a hard time with that.

[pullquote]I think a founder has to be selfless and has to hire people better than he or she is. When they can do that, they can accomplish great things. [/pullquote]

You might be a product focused CEO and be nervous about hiring a VP of Product or your core skill might be marketing so you’re scared to hire a CMO. But you have to do it. You have to build like your going to be really big. When I think about failure or success, I think the founders that are really successful are the ones that attracted top talent.

CF:  Were these founders able to to attract talent because of the compensation offered or was it their charisma?

PM:  A lot of it is charisma. The companies we work with now are well funded. They can pay market salary but if you want to pull talent from corporations you’ll never be top dollar. So you have to paint a picture that your company is going to be big.

CF:  Can we talk a little more about that? We have a good talent pool in Cincinnati and we have great universities producing talent but how can you entice people from large corporations to work for a startup?

PM: I think it’s doing it at the right time. A lot of folks spend a lot of cycles trying to hire big timers. When our companies went from zero to thirty people, it was honestly just scrappy people who just wanted to work at the company and they did a really good job at their function. These were the people that took it from $0 to $5 million recurring revenue. It was that class of people. But when you start to recruit people from those large companies it’s when you’re starting to scale.

CF:  So right when you’re about to scale, that’s when you should look for corporate talent?

PM:  Yeah or when you think it’s around the corner and you have the resources to do it. Some people think “I’ve got three people at my company so now I’ve got to pull someone from Kroger or P&G”. That’s too expense, too hard and, quite frankly, at that point they’re probably not a good fit for the company anyway. But when you get to the point when you have some legit traction folks at large companies get more interested. They may want to be COO of a company that’s growing fast or doubling revenue year over year.

Most of our companies in Minneapolis aren’t pulling people out of Target, Best Buy or General Mills. What most of our companies are doing is pulling from other successful tech startups. For example, the head of marketing at LeadPages came from Rally Software in Boulder, CO.

CF:  Whats the best way for a founder to approach you?

[pullquote]Most of our companies in Minneapolis aren’t pulling people out of Target, Best Buy or General Mills. What most of our companies are doing is pulling from other successful tech startups. [/pullquote]

PM:  VCs or Arthur Ventures specifically?

CF:  Both.

PM:  So with VCs everyone’s going to say warm intro and I get that but, to me, there are other more creative ways to do it. Just find the way the VC communicates. Some people are really active at conferences so if there’s one nearby then go. There are other people really active on Twitter so interact with them there. You don’t have to ask them something right away, just comment on their blog, favorite their tweets or write them back. Establish a relationship that way.

I know at Arthur Ventures we read every email that comes to us. Some people will tell you that if they get an email from someone they don’t know, they won’t reply to it. Arthur Ventures is at a stage where we can scan most of that stuff so we’re not going discount someone because we don’t know them. Of all the companies we funded, two or three have been from warm intros. We’re also proactive. We reached out to 14 of the 15 companies we invested in.

I would say, in general, the warmth of the intro to a VC is inversely correlated to the amount of traction your business has. So if you’re very early and don’t have too much traction, then you should work really hard to get a warm intro. If you’re company’s kicking ass, you can probably reach out to people. That’s the way I would look at it.

CF:  How should a founder or startup prepare for a meeting with VCs? In general and specifically with Arthur Ventures.

PM:  I think two things. One is be true to yourself. I don’t think you need to tailor your meeting just because of what you think a VC might like or might not like, being authentic is the way to go. If it’s not a fit with someone, don’t sweat it. I see a lot of people trying to be a chameleons and really blend into what they think is going to work. I wouldn’t do that.

Second is research the VC. For example, it’s pretty easy to look at the companies Arthur Ventures funded and know that we’re not the kind of firm to fund a company because they have a pilot with P&G. Some funds love that but we’re just not into enterprise sales. There’s an amazing wealth of info out there so just do your research. If you have a 60 minute meeting you don’t want to spend the first 30 minutes learning stuff you could learn from a website.

And don’t overthink it. Just have fun.

CF:  Why do you work in the venture capital world?

Entrepreneurship is something I’m very passionate about and I think it’s such early days for cities like Cincinnati and Minneapolis that are trying to do local initiatives to get startups going. I’m excited to see what will happen in these places.

[pullquote]Raising money is over glamorized in the media and I think the best thing you can do, the number one thing is to build software or a product that resonates with your customers and to hire great people to work with you.[/pullquote]

The other thing I love about what Arthur Ventures is doing and where we’re focused is I truly believe you can get very far without a sales team. I mean eventually you have to build a sales team, when you get to $5 to $10 million ARR you have to develop a sales team because you have to get really big. In the early stages, however, I think you can grow fast without one and it’s really fun when we find a company that fits with our investment strategy. There’s nothing I enjoy more than working with them and watching the founder build the business.

In general, my core belief about startups and venture capital is the best thing a startup can do is build a business that doesn’t require venture capital. Raising money is over glamorized in the media and I think the best thing you can do, the number one thing is to build software or a product that resonates with your customers and to hire great people to work with you. The rest will honestly take care of itself.

All the businesses we funded were growing like crazy and that’s why we invested. If I was a founder that’s what I would focus on and I would tune out the noise. People will say “I’ve got to raise a round, I’ve got to raise a round” and I say you’re solving for the wrong thing. Solve for real business growth, solve for market leadership and deal with capital third. Just build something that matters.

 

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