Jason greets guest Jody Sherman, CEO of Ecomom, a marketplace for eco-conscious, health-minded parents.
Hello and today on This Week in Startups, how much is too much when deciding a finder’s fee? We speak with Ecomom CEO Jody Sherman, and Tyler plans his first 10 insight episode. Hmmm. All that and more coming up on This Week in Startups.
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JC: Jody Sherman is here with us. I’m very excited to have him. He’s been in the Internet business since almost the beginning. You were one of the first employees at Lycos, which means you started in the business in 1994?
JS: No, 1995. I was the first Biz-Dev guy on the West coast.
JC: First Biz-Dev guy on the West coast. At that point I knew Megan Carmichael and Bill Townsend and Bob Davis, who became the CEO. You guys had a tiny little table at the first Internet World in Boston, in the ghetto section I remember. Your logo was the spider. This hand-drawn spider thing with 8 legs. Remember how ugly that was. So you’ve been around the block.
JS: It feels like it. The table we had in San Jose wasn’t any better. The only thing different about the logo is it became a stock photo of the earth.
JC: We’re going to get into what you’re doing now at Ecomom, which has been pretty successful for an early stage company, and you have a lot of exciting stuff going on there. But everybody knows we start the program with an Ask Jason question, so let’s do that.
0:04:10 Ask Jason
JC: On the line we have Mr. James Cox. James, are you there?
James: I am Jason.
JC: You look like you’re in a hotel lobby or something. Are you in your living room?
James: I’m travelling right now. I’m in Reno.
JC: Reno? Really? I played poker there once.
[Jason and James chat about poker for a few seconds]
JC: So you have a question for us? What’s your question?
James: I’m working with a gentleman who can open some doors for us. He can get us connections into an association that can be big business for my product coming out. I’m building a product for Facebook forreal estate to help realtors market their properties. So he can get us connections into all the different associations. We talked about a 15% finders fee, and he kinda blew it off and said he was looking for more than that. But all he’s doing is opening the door. We still have to close the business. All the risk is on us, not on him.
JC: So he wants 15% of the potential sale or 15% of what you close.
James: Of what we close using his connections.
JC: This is a tough one. It’s not like these guys around town who try to broker a deal with VCs. VCs hate that stuff. It’s generally looked down upon. What you have is sort of a business development executive, except he’s not that hard working and he’s got some connections he wants to monetize. It feels a little smarmy, I’ll be honest. If there’s one person like this, there are probably many. You may need to shop around a little bit. 15% seems like a lot just for introducing you to somebody. And what’s to stop you from just going to an event and doing some networking on your own? Does this guy give you some massive credibility? Is he going to be at the meeting?
James: Yes. All the above. He is a personal friend with the president of the association. He’s going to introduce us to the president, and then the president is going to pitch our platform.
JC: It feels a little smarmy, I’ll be honest. If you have a good product there shouldn’t be some [vig] you have to pay. Maybe you buy the guy dinner or get him a gift certificate. I’ve bought people gifts before for doing something nice for me. I’ll send them a bottle of wine or a gift certificate to Barney’s. I think the most I’ve sent is a $500 gift for doing something really major. It feels like you’re being scammed a little bit. But it is the real estate business, which is sort of a scam to begin with.
What do you think Jody?
JS: If all he’s going to do is make an introduction to his friend, and then you’re banking on his friend doing all the work, and this guy’s taking no risk. It’s costing him nothing. For that I wouldn’t pay more than 5%. If you’re doing business development for someone, you have to close the deal. You have to do a lot more work than just an introduction. He’s basically telling you that for 15% he’s going to introduce you to someone that he’s assuming is going to do the work that someone would do if you hired them to do business development. You don’t even have a guarantee that that’s going to happen.
JC: You also don’t have much risk because if you don’t close the business he gets nothing. You could mark your product up 8% and effectively pay him 7%. It’s not the worst thing in the world.
JS: If you have to game the by upping your pricing…
JC: Yes. If you have to do that it probably means one of two things. Either your product is not good enough to stand on it’s own, or you don’t have time and resources to do proper business development. Which is it?
James: It could definitely help us get our product to market faster than if we were to go out and do it. It would probably shave 6-9 months, possibly 12 month off our time.
JC: I would challenge him and tell him you think that he’s great, but we want a little bit more. Try to curate him as an advisor. An advisor usually gets a quarter point to a point in the company, wouldn’t you say?
JS: Yes, depending on the stage, but the question I want to know is ‘Why is this guy the only guy that can get you to the president of an association?’ The president of an association that people know about. There must be other entries to him. I’d either pick up the phone and just start dialing or show up at their office if it was important enough. There’s another way to get into this guy. You don’t have to give up 15%. It feels like this guy s the only way to get to him, he’s the gatekeeper, then you sorta gotta do it.
JC: But if this guy runs an organization then your job is to be available to the industry. Something doesn’t jibe. It feels like your getting suckered. Who are you trying to meet?
James: Realtors in Nevada.
JC: I would suggest a better way to do this is to do some unique marketing to the realtors. I rather see you take $1000 and buy some interesting marketing device and tell them about your product and build your own mailing list. Or take the $1000 and host a cocktail party for these people, or take them out to coffee one-on-one and build a deeper relationship with them directly.
JS: It doesn’t sound like you’re building a champion. If you could find one or two realtors in the Nevada Realtors Association that were in love with your product, you have some proof of concept and it would be easier to swim upstream to the president because you’d be bringing one of his members with you.
JC: You really have to look at the product and ask the question ‘How amazing is this product that they can not live without it?’ Another approach is to tell them that you want to set them up as a reference client and you’re willing to setup their site for free, or I’ll give you the first year for free. You do that for 5 or 10 people and you have people using the product and boy are they going to be champions. I’ll I want you to do is be honest about the product and tell people who call how it works for you.
James: That’s why I’m in Reno right now. I’m setting up 2 people in Reno and 2 people in Vegas to be my champions.
JC: I would say focus on the champions and forget about the guy who wants to take 15% for the introduction. Two experienced entrepreneurs agree. Focus on what matters. Product, product, product. Relationship, relationship, relationship. Over-deliver and make those customers love you.
JS: Totally. It’s almost business 101. Developing champions is going to do more in the long run than a guy who’s threatening to take 15% for an introduction.
JC: I’ve met a lot of these guys, especially early on in my career, but I’ve made more progress by showing up with a great product.
JS: Exactly. It’s the same with fundraising. You’ll have guys coming to you all the time offering to introduce you to their buddy for a price.
JC: Good question, and good luck with it. Good luck with the hustle. Over-deliver for your clients.
James: Thanks Jason. [end call]
JC: I understand. People want to take shortcuts and get their quicker, but you need to focus on product and relationships.
JS: If the products any good, it’s not like he’s taking any risk by taking a little longer to develop a champion whose going to ultimately get him some real business.
JC: Another good point. If you take a little longer to refine your product you’ll go from a 7 to an 8 to a 9 out of 10 before you go to market seems like a better way to go. That’s better than some guy’s endorsement that wants 15%.
JS: It seems like it. If the product isn’t compelling enough where he’s just got to hurry up and get some customers, he doesn’t really have a business anyway.
JC: Correct. I think he’s got to focus on the product.
JC: So you’ve been in the business forever. We’ve mentioned Lycos before. How did you wind up at Lycos? How did you wind up in the Internet business?
JS: I was selling for a company called Parametric Technology. We were selling cad/cam software. My customers designed spaceships and lasers. Silicon Graphics (SGI) was one of my customers. I was selling software to SGI and had sold enough software that I had to go pretty high up in the company to make the deal, so I met Jim Clark. When Jim started Mosaic they started it the same building where I worked. At the time SGI was a rock star company so his leaving was big news.
JC: At the time SGI had the biggest-UBER boxes. They made there own chips. Far beyond where other chipmakers were at the time. So you were a sales guy.
JS: I was a sales guy and I had a big commission check coming. I had a 300K-commission check coming. Must be present to win things. I ran into Jim in the elevator a couple of times and I got a copy of Mosaic. I went home, and I got on the computer at my home office and that was on Friday evening, and I didn’t leave my office until Sunday. There wasn’t a lot to see, but I was in love. I left Parametric and went to another company called Alias. The day I joined Alias, we were bought by SGI.
[Jody and Jason discuss the early days of the Internet, stock vesting, Netscape IP0]
JS: I learned a lot as a sales guy. I knew how to close deals. I knew that because this was a new industry there probably weren’t going to be a lot of deal guys yet, so I decided to jump on it.
JC: When you sales for an Internet company, what do you think the core best practices are for great sales at a startup?
JS: Having a real deep understanding of the problem you’re solving for your customer. If you’re going to someone and trying to sell them, for example my wife used to fell copiers, a commodity product, but she found a solution to a problem for her customer, and therefore she was successful. In a startup company you’re starting a company, hopefully to a real problem versus to a problem that you’ve manufactured and then you have to go market pain that doesn’t really exist.
JC: Basically convince yourself that this thing solves a problem that people have, when in fact people don’t have that problem.
JS: Or they don’t know they have it, which is just as difficult a challenge. So let’s assume the company actually has a problem that it has identified and it’s solving. I think the best sales guys understand the problem and the solution that their product brings to it. And they sell that. They don’t sell fear. They don’t sell greed. They understand that the customer has this problem and they develop that customer as a champion by convincing them that you have the solution. I think the advice that you gave that guy is good. If it’s early, you may have to do some unnatural act, like giving your customer a free version of the product. Create someone who’s a real proof point, and then use that proof to generate more proof.
JC: And in early stage startups, in some ways sales is R&D. When you bring the product out you’re the first person showing it to the customer.
JS: Your first customer is really your Beta customer. They’re going to do things to the product that you couldn’t imagine in testing. And they’re going to break it. Or they’re going to find things that product needs. I think the other thing that a good sales guy does is being an advocate for the customer. At the end of the day, your customer, if you’re a sales guy, is paying your paycheck. If you’re really good at listening to your customer and solving their pain, you help your company and you get the right to ask them for everybody else like them. It goes a little viral.
JC: To get them the leads. It’s the most annoying thing in the world when someone who’s a bad sales guy says “I know I wasn’t able to sell you on this, but who are some people that I can get to buy the product?” Why do they do that technique? Is it in some book somewhere?
JS: I don’t know. Maybe they’re closing for something and that does bring up a good point. I think the other thing that good sales people do, is they understand what they’re closing for in that particular meeting or call. So in my old days when I was trying to get demos to show our software, my first sales call was a telephone call just to try to get someone to give me the time of day. And once I closed for that and I got the meeting, stop selling. And then when you have the meeting, you need to know what you want to get out of that meeting, and then you get that, and then you stop selling. Because you can un-sell in the room. You continue to move the process forward that way by just keeping the process moving forward. Each one of those wins gets you closer to the goal.
JC: I just want people to understand the product. I just want them to understand that they could possibly use this. Just something as basic as that. As opposed to the spastic “are you gonna buy it or not?” People just have high pressure tactics.
JS: If you’re selling a ‘fast twitch’ product, like a car, you don’t need to go through 4 or 5 meetings, so we’re not talking about those kinds of deals. We’re talking about selling tech. If your solution is so amazing that when you show it to someone they think they’re ‘staring into the face of God’, you can ask for the order on that day.
JC: I love going on sales calls. It’s the greatest feelings in the world to know they really want to buy it.
JS: It’s one of the best feelings in the world. You feel like you can do no wrong.
JC: Tell me about what you’re doing now? Let’s talk about Ecomom. I’ve taken a look at it, when did you start this company, and how did it come about?
JS: We launched last February. When I left my last company I didn’t know what I wanted to do, other than I wanted to solve a problem people had, and that also, if it solved that problem would do some social good. I was an entrepreneur looking for a problem to solve. My filter was just those two things.
JC: Help somebody and do some good.
JS: Exactly. And I felt like if you were solving a problem that people had, and you were doing some good, a business could be built around that.
JC: You want to do well and do good.
JS: As long as I found a market that was big enough, obviously. So I started looking around and I had played around a lot with the social web, which can keep you inside al day. So I started getting out a looking at what people getting together, social networking, we’ve been doing it since the beginning of caves and fire. People used to get together and talk, now we do it online. Once I realized that, I realized that there has to be some audience that was authentically social in the real world and social online. So I came up with two criteria. One was that they were truly social in the way they lived their life, and the other was that they had to be committed to spending money. They had to have a budget. The two groups that were very obvious to me were moms and pet owners. They have very similar characteristics. I happened to be in Whole Foods instead of Petco when I made my choice. I saw a really pregnant lady that sat and talked for 20 minutes with a lady and her toddler. I just watched them talk, and then I went and talked to them. Then I started talking to moms everywhere and asking a lot of questions. I was asking them about their life and their children. People love to talk about themselves. What I found was that moms are extremely focused on doing things that are good for their families. There wasn’t anybody that was good or authoritative on which products were good, safe products, and once you found those products you could buy them there.
JC: Good Guide is a company that launched at TC 50 two years ago. How has that done?
JS: It’s done pretty well. It’s really well respected. On the content side they’ve made it really easy for people to filter on the product that are safe. They’re a compliment to me. My background, because sales is in my DNA, I’ve always felt like the best relationship is the kind when they give you their credit card. Then you earn the right to go back to them and ask them for more money as you get different products.
JS: We find products for moms, from the point that they first find out they’re pregnant to families with later, grade school aged children, we find products that are safe for them. The first criteria is simply, are these products safe? By safe I mean is there anything harmful in it. Do the products work as advertised? If it doesn’t work, it’s not a good product. Then last but not least, are the products cost effective? We want to change peoples purchasing behavior. We want them to get that healthy choices are easy choices. We find those products. We test those products. Everything that we sell, we use.
[Jason and Jody look at the Ecomom site and discuss the offering]
JC: You are vetting and curating all the products that you sell.
JS: Exactly. We have what we call ‘Ecomom Approved’. To be ‘Ecomom Approved’ it has to pass a number of criteria. In some cases, if it goes in your mouth, it actually goes to Doctor Green, who is one of the most respected doctor’s in the space. If he says that it can’t go in somebody’s mouth, we won’t sell it.
JC: Even down to the clothes and toys and books your team looks at and plays with?
JC: How do you communicate that to the user? Is there a way for someone to know how much care goes into the selection of these things?
JS: On the site we tell people our criteria. Simple, safe and smart. If someone wants to understand the the science behind it, they can. We expose that on the site. But we go a lot further than that. On our site we have manufacturers information, our advice and then a network blogger moms who actually use the products.
JC: Social entrepreneurship. I’ve been hearing this a lot. I’m an advisor to CauseCast. The driving force is not the bottom line. The driving force is the mission statement. Am I correct or not correct?
JS: If we can shift peoples behavior to go from a conventional product to a product that is better to put around their family. But we go further than that. 1% of total sales, not profit, go to several different charities, the main one being Healthy Child Healthy World. When the earthquake hit in Haiti, we taxed our business 10%. We tell our customers when they’re doing something good for their families, they’re also doing something good for the planet.
JC: Does it confuse the running of the business on a management level or does it take out the wrong people working at the business for the wrong reasons? You probably draw some talent that want to do good.
JS: Most of the people that work for me aren’t paid. We are a startup an we’re running like a scrappy startup. I have less than $3500 a payroll right now and we do thousands of transactions a month. If you want to take a page out of Tony Hsieh’s book (Delivering Happiness), it’s a culture thing. I have 6 people on my team. If I add one more person, I’m adding 15% to my team and how that can upset the early culture of the company is critical. When you’re 100 people and you add 1, it can still upset the culture, but not as significantly.
JC: Let’s take Wal-Mart. How do you compete with them on some of the same products f they beat your price by 20%-30%? Will they spend more to feel better?
JS: If you look at product that we sell, that other companies sell, I’m buying at the same price that they are. I know that because I have tight relationship with my vendors. You don’t make a lot of margin on the commodity products. In many cases we are slightly below many of the retailers out there. You do that so you can get repeat business and refresh the relationship.
JC: That’s the Diapers.com model. They’re the 800 pound gorilla in the space.
JS: How you compete, according to our customers, who I call everyday, is that we believe that building customer loyalty is the best thing I can do. When I get a customer, I keep them. I can’t outspend a Diapers.com or Wal-Mart. You guys are making me feel safe.
[Jody describes how life, and having kids is like a game with different levels and rewards]
JC: We’re just getting back to the Ask Jason question which was about building loyalty etc., by calling those 10 people and asking them how they like the products, you’re making them into evangelists for the company and brand.
JS: I think we do that for all of our customers. When you get an order from us, it almost always contains free samples and some discount cards to give to your friends for a discount on their first order. When people send in a friend I write them a check.
JC: If they send a friend they get $5 or something.
JS: They get $10. For every friend they refer. There’s and unlimited amount. They get a 15% discount for their friend and they get a $10 check.
JC: Your building a community that happens to monetize by product.
JS: Exactly. We’re building a brand around products that have value and are safe.
JC: There is a value to that. How many products do you buy that are disappointing? If one out of ten products are disappointing or several are damaging, and you regret buying them, then paying 10% extra winds up being a wash in some ways if you’re getting curated away from making mistakes and towards finding things you love.
JS: Exactly. If you feel good when you buy food from us, you’re going to feel just as good when you buy sunscreen from us. And when you’re putting something on your kid’s skin, that’s their biggest organ. Anything you put on there the body absorbs it.
JC: It seems like the organic and natural products get stamped willy-nilly. There’s no seal of approval to ensure that it’s good.
JS: We call that green wash.
JC: Instead of white-washing, you green-wash it.
JS: Exactly. There are a lot of products that kind of live under the banner of Organic or Green. Just because something is Organic doesn’t mean it’s good for you. What if High-Fructose corn syrup is made from Organic corn? It’s still garbage.
JC: Who’s the biggest offender? Like green-ified, but really not green.
JS: Look at hand sanitizers. Everyone was using them for the benefit of preventing germs, but then it comes out the tryclosan is really bad for you and bad for your kids. And you’re rubbing this on your hands, and on kids hands and in hospitals and everywhere else. Turns out it’s not good for you. Or how about BPA plastic? For a long time the eco-nazis knew that BPA plastic was harmful. We don’t sell any plastic bottles.
JC: Have you burned a plastic bottle? It smells worse than death. Heating it up can’t be good.
JS: It can’t be. Plastic becomes liquid at high enough temperature and some of those chemicals must leach into your foods.
JC: Once my wife got pregnant, all plastic was gone. Now we have glass and Sigg bottles.
JS: But there was a whole problem with Sigg though. It turns out that they were lining their bottles with BPA.
[Jason puts his head in his hands and shakes his head]
JC: I can’t keep up with it.
JS: They said, “we can’t tell you what our lining is, because it’s proprietary, but it doesn’t leach.” Then late last year they said, “It actually does leach.”
[Jason shakes his head again]
JS: We said send us your Sigg bottles and we’ll replace them for free.
JC: What’s a good bottle? I hate to make this a personal consultation.
JC: You’ve actually proven the value of the site by addressing all these issues I have. You guys are 10 steps ahead.
JS: Well that’s what we do all day.
JC: You take the more conservative approach.
JS: We had a customer who sent us an email about an ingredient in a product. And the amount was deemed safe by everybody, including the people who are really knowledgeable. But I went to Doctor Green and he said that this is exactly what your company exists to do, to make people feel safe, and there are alternatives to this product that are safe. So I called the customer and told her that I can give you a million reasons why this product is safe, but the I’m not going to do that. I’m going to take the product down based on the information that you’ve highlighted for us. We chose to take the gray area off the table.
JC: Yellow means stop.
[Jason reminisces about a Taxi episode]
JC: Most people say that e-commerce is over. They said that about Zappos. People will say it to you. Why do you think people keep figuring out a new angle to it? How many more angles are there? Will Amazon do this at some point?
JS: It’s clear that they’re some of the smartest people in e-commerce. But I don’t think that any of us is doing something that hasn’t been done in the real world for a long time. What’s the difference between a Blue Light Special in a Kmart in 1975 and Groupon or Gilt right now? The difference is that there are so many people on line that you can incent them to ‘fast twitch’ and get their friends to take action.
JC: The virality is different, and the scale is different. What else is different?
JS: I think access to information is very different than it used to be. Information has been democratized and the power is put in the hands of the people doing it. The cost of hardware is different. I can run a business in the cloud for $100 a month and run a million dollars off transactions through it.
JC: It’s amazing how lean you can be as a startup. It’s transformative.
JS: It allows you to do a lot of testing. It allows you to test your theories before wasting other people’s money. That’s really the responsible way to do business.
JC: That’s what you guys have done. You’ve used such a small amount of money to build a core audience. What’s the future? Are you going to raise money?
JS: We’re in the middle of it now. We just got a lead investor today. They’re really knowledgeable in the industry. They promote social proof. You’re one of the guys who represent social proof. If Jason says, he’s investing, then a lot of people follow you.
JC: I set myself a very low benchmark of investing in 10 companies to try to help out. Now this angel investing has become the hip thing of the moment.
JS: I think it’s the same thing that’s happened with technology. The cost has come down to where a guy in a dorm room can start a company for 15K. YCombinator for example. I think angel investing has done the same thing. If it only cost 100K to launch a company, get some customers and get some revenue, then you don’t need to go to an institutional investor, you can go to 10 of your friends and get 10K a piece. Access to technology and the reduction in costs is allowing peope to invest more.
JC: We can invest in many more companies. Take many more swings at bat.
JS: Absolutely. I think you’re going to see a lot of dumb stuff get funded, which happens in every market. And the more money there is available the more deals people are chasing, the harder it is to filter.
JS: Some of the deals are so hard to get into you’re kicking yourself later.
JC: I get 4-5 people after every investment asking me to help them get in.
JS: I read something 4-5 weeks ago by Ron Conway that said, if you have some guys that are willing to run a company, and they have the passion and they have some domain expertise, they should get their experiment funded enough to prove their model.
JC: It’s an efficient use of capital as well. If 9 out of 10 of these angel investments do not turn into a venture backable business, that’s ok. They may still be a nice boutique business, with 4 or 5 salaries. We’re in this angel investing world that seems red-hot, and then you put on CNBC and its 10% unemployment and the country is in this big disaster. How do you reconcile that? Have you thought about that?
JS: I do think about that? I sat for a year after I left Virgin, thinking about what I want to do next. I went on a news fast because it was so depressing. It’s self-fulfilling.
JC: They’ve done tests on that.
JS: I think that if the news would collude for a week and tell everybody that the economy is fine, people would start spending money again and then the consumables would need to be replaced. Then jobs would start again. I think startup companies are going to create more jobs.
JC: I agree. The small business is usually what pulls us out of the recession.
JS: The other thing about entrepreneurs is that it doesn’t even come into our thinking that we might fail.
JC: Being delusional, egotistical, quixotic and pigheaded is what it’s all about.
JS: How many days do you sit around and say, OMG my company is going to fail today. It probably never occurs to you. I’m sure you’ve had bad days, but never bad enough to say, ‘I’m shutting my doors tomorrow.”
JC: I’ve had bad days yes. It is my philosophy and commitment to actually get it across the finish line for my shareholders and employees. The CEO title sucks because you’re ultimately responsible.
JS: Any when you’re having a bad day, you still have to put your game face on, because the people in the other room can’t know.
JC: They can’t know that you’re bummed out. If the leader’s not inspired to storm the beach, it’s going to be a bloodbath. Fake it ‘til you make it.
JS: My worst day is nobodies business. I’ll figure out how to deal with it later. I think that people, who think that way, kinda alter reality until it becomes reality.
JC: I think that’s what delusional people do.
JS: I don’t know if it’s delusional, but it is irrational.
JC: Failure is terrifying. Any entrepreneur that says that failure is not terrifying to them is a liar. Thank you for being on the program. Thanks for being so honest about entrepreneurship and business. The business is going to be a huge success.