All right, first of all, let me introduce to you the Founding Team.

I’m Yonatan Stern. I’ll talk about myself at length later on.

Libby is a co-founder and the COO. Basically, everything you see here was organized by her. She took the full responsibility. You see her email address here.

Anybody who wants to get in touch with me, please do it through Libby, because she organizes. We get tons of requests and people interested, and we want to keep track of everything. So please do it through Libby. In that case, we will have tracking, and we understand what we’re doing.

And my email address is there as well.

Ayala is sitting there, and she’s the CFO and co-founder of SmartUp. And, there’s a lot of complexity in running this business and helping all the companies with their legal stuff and finance stuff, and that’s what Ayala does.

Okay, let’s start with myself.

So, I studied at the Technion in Atuda Academit. I won’t tell you the year, because that might disclose my age. And then I went to 8200 at the time when it was a huge secret, and I couldn’t say where I work or what I’m doing. The only people who knew what I was doing were all the Arabs working in the strawberry fields around the base, but that’s about it.

Then when I left the Army, we started a company called Rosh Intelligence Systems. I left that company in 1992. At the time, we relocated to Boston, which is where my accent, the American accent, is a Bostonian accent, for those of you who recognize.

And I left the company—we started the company in 1985—I left in 1992, and then the company changed its name to ServiceSoft, and later on was sold, and there was an Exit and a public offering and whatever.

I didn’t see a penny out of it, but it was an Exit.

Then I started a company called Cardscan, which I’m very proud of, because it’s the only company that I can explain to you exactly what it does.

It’s really simple‚ I can even hold it in my hand, and so it’s good to talk about something like that.

It’s basically a small scanner that scans and read business cards, create a database out of it automatically, and it was very successful, and the company grew, became profitable, and out of it, we started another company called ZoomInfo.

We have a few representatives here from ZoomInfo.

So ZoomInfo was started in the year 2000, almost as a spinoff from Cardscan. We didn’t do it as a spinoff, but it was kind of a spinoff to the shareholders, and we financed the company from the profits of CardScan.

I’ll talk about profitability at length throughout this course. So that’s why I stress all of that stuff—that we generated a lot of money at Cardscan, and we used it to build another company called ZoomInfo, started in the year 2000.

Zoom Info became profitable itself in the year 2002. And we built a directory of people. We’ll talk about it in one of the lectures.

And we started having a lot of traffic on our website. And we tried to build a business of advertising on our website on Bizo.

It went okay.

We reached about $750,000 a year in sales, which didn’t make a lot of sense for us. So then we changed.

It was again spun off from ZoomInfo and in 2007. And then we switched the business model to use the data from ZoomInfo as a targeting data.

And we sold Bizo to LinkedIn in 2014, I think, for $175 million.

Then I started SmartUp Academy, which we’ll talk about it later. But, out of it, one of the first companies that joined us was a company called Opster. And we sold Opster to Elastic in October/November of last year.

So I had quite a number of Exits that I’m very pleased with.

So then I thought, ‘Okay, I did all of these companies. What did I learn from all of these activities, and what am I going to do with it?’

And gradually, it came to me that the companies—even though they were different from one another and were doing different things—there were principles that were common to all the companies that we were building.

And that these principles led us in a fairly safe way through the lifecycle of a company.

And I thought that we can teach it to other people.

So we started SmartUp about three, four years ago. And the idea is to teach entrepreneurs, people who want to be entrepreneurs, people who are in SmartUp companies, the profession of building successful companies.

And as you see, the word profession is highlighted. And the reason it is highlighted is that it’s a profession very much like any other profession.

So you go to an engineering school, you study civil engineering, you are on the Dean’s List, and you finish the Technion. Nobody, but really nobody, will let you design a high-rise building, right? Because you have no idea what you’re doing. A few of you know that.

Why? Because then you left the Technion, you go and you work at an engineering firm for a few years. You learn and you specialize—whether you want to build bridges or high-rise buildings or tunnels or whatever it is—because it’s a profession.

For entrepreneurs, there is no place to learn.

You have a great idea, you work at a company, you develop an algorithm or whatever it is, and you say, ‘All right, great, I’m going to go and raise money and start a company.’ And honestly, you have no clue what you’re doing because the software you develop is the easiest part of what you can do. Literally, the easiest part.

In all the lectures I’m going to give, I’ll never talk about product development, because most entrepreneurs come with knowledge about the product they want to build and zero knowledge about everything else, which is what we’re talking about now.

Now, how I define “successful company.” So, first of all, profitable.

Profitable means that the company is a grown-up company. So you have kids—many of you have kids, I guess—and if the kid is 30 years old and still lives at home and gets money from the parents every month, they are not grown-ups.

A grown-up is when you can sustain yourself.

A company that needs investment all the time is like a baby. They can’t survive. The moment you take the investment out, they die. So, a successful company is a profitable company.

It’s fast-growing because, otherwise it’s just not interesting.

So if you have a company selling a half a million dollars a year for ten years, it’s good. It’s a nice vacation, I would call it, but it’s not an interesting, successful company.

And the last point is, what we’re going to teach in here is how to do it with a modest investment. And we will talk about that in following lectures many, many times.

So, what is the modest investment? It depends on the company you want to build, but definitely, it’s not in the tens of millions of dollars.

I’m laughing now that they call “pre-seed” with the $5 million round. I started CardScan and ZoomInfo and Bizo for less than $5 million altogether, so I don’t understand what that means.

You can see the words “work in progress.”

Honestly, we are doing the methodology that I’m going to teach you internally here, which is we try things, we see what works, see what doesn’t work, and we keep improving.

So those of you who were with us at WOPA—the other building and small office—so as you can see, we have progressed. This is a much nicer office.

Yeah, stop laughing at us. They were sitting next to us in the office building. Yeah, in the same floor.

So what we originally started back four years ago, is we started helping and building companies. So we built companies. I’ll show you later what we built.

But that’s kind of narrow because it’s a lot of work. It takes a long time to build a company. So were looking for ways to teach and train more people on the profession of building a company.

And so what we decided to do is several things:

First one is the Foundation Course. You are on the first lecture of the first round of the Foundations, and I’ll talk about it later.

And then we’re going to do workshops.

So here we’re going to talk about this in general terms, but later on we would like to do workshops. So, if you want to talk about ‘how do I do marketing for my company?’ we will put three or four companies in a room and work with them on their specific needs. So they will learn how to do so, and others will learn, as we do that.

The last element is the Residency Program. As you can see, we’re talking about a very, very long period of time.

It takes years to build a successful company, usually anywhere from three to five to even ten years. Takes a long time to build a successful company.

That doesn’t mean that it’s crazy hard work—you don’t sleep at night—to the contrary. But there is a time it takes to do things.

So, the Residency Program is a big investment on our part—there are a lot of people in here who are in this Residency Program, and they know how many hours we spend with them throughout that period. So we’re very, very selective at the companies we take for the Residency.

So now you see the logic, which is the course—anybody who wants to join is welcome to join. They will learn as much as they can. The workshops is kind of in-between—not a big investment on our time, but much more specific to the specific companies. And the Residency Program—we’re going to be very, very selective at who we work with.

So what are the companies?

The first one is Altnext. Was one of the first, we started working with them, and we failed.

Okay, so, with all due respect to how smart we are, we failed, and we had to shut down the company.

Then Opster, I told you, was in a very arcane technology, Elasticsearch, and they built tools for DevOps in Elasticsearch. And we were very successful there. We sold the company to Elastic, which is the company that produced the technology.

Bioforum is in the clinical data, clinical trials data, and we have two companies with them: Bioforum and BionData joined us three years ago—two years ago? Three years ago. And we’re doing really well, I think. We’re very excited about what’s going on there. I won’t go into the details because I’ll talk about it in one of the following lectures.

Tickchak, I’ve been with you, kama shanim [how many years]? Okay, so I’ve been with them for a year and a half or so, and we’re moving really, really nice. Again, I won’t talk about it because there’s a whole lecture where we talk about these companies and show what we do there.

Intellichain is another one. We work with you for a year, right? About a year. Same with Sogomatic, which, right here. And, ClinicalSite is a company that we developed in-house. And actually it’s now on hold because we just don’t have enough resources to do all of these things together.

Okay, so what is the Foundation’s Course?

We aimed, we timed it as if it is a semester, 13 lectures. And the reason is that next year, I’m going to give that as a course in university, so I wanted to try and build the curriculum for a semester. So, there will be 13 lectures every two, three weeks. There are holidays in between and so forth.

And your feedback and input is vital. So really, as we do it the first time around, anything you can tell me—good, bad, ugly and actually what you are missing that I didn’t talk about, please let us know.

Who do we expect to be the audience?

So, obviously, the SmartUp companies, as you can see, they have a representative here.

Entrepreneurs, founders, CEOs, executives of companies are welcome to join us.

Angel investors, because we are—I will not get to it now—but in one of the lectures I will talk about funding. So, you will see that the funding issue is a critical issue in all of these discussions. So, we would like to help angel investors invest in these companies.

Obviously, startup companies. When I differentiate between the entrepreneurs and founders and startup companies, I’m talking here about companies that are already midway—they raise money from VCs, and they get stuck. They feel that they need help.

And others, which means I have no clue who is going to come.

So, what’s the curriculum of the course?

I’m going to take you through two minutes on each subject. I will not dive into it, but so you will understand what’s going to come in the next 13 lectures.

So, the first thing is, what is the language of business?

Remember that what I said is that most entrepreneurs come from an idea, a technology; they think they can change the world and all the good stuff.

But the reality of it is you move to a different domain, which is business. You need to start speaking the language of that business.

I’ll bring an example. Galileo Galilei, he says, “Mathematics is the language in which God has written the universe.” He was the first person who wrote an equation, which means he took measurements of speed and weight and whatever.

And you see the famous experiment of dropping two balls, a big one and a small one. And despite what Aristo said, the two of them reached the ground at the same time. So, he wrote the equation. They changed the world. Newton came after him.

What is the language of business?

Money.

Try to run your company without being able to pay salaries, and you will realize very quickly that it’s not working.

So what we’re going to do a lot during this session is convert everything to models where you can evaluate options.

You want to do something? Convert it to money. Figure out how much it’s going to cost you, how long it’s going to take you, and what are the expected results in money.

If you can’t convert it to money, you’re dreaming.

Okay, so the first lecture—which is going to be today—we’re going to talk about the VC, Venture Capital, business model and the impact that this business model has on the venture-backed companies. So, I’ll go into a great detail then.

And let’s start with the kind of top line of what VC tell every company that walks in the door:

• We expect that out of ten companies that we invest in, five will shut down.
• Three kind of barely return the investment or just drag along. I’ll explain later on what the “walking dead” means.
• One will generate a return—about two, three times the amount of money invested.
• And one, the jewel in the crown, will be a star. A huge Exit.

Usually, when people talk about “huge Exit,” they talk about an IPO. Yes, there are M&As, mergers and acquisition—basically selling the company to another company. Very rarely, you will see the number attached to it—they sold this company at 300 million or 400 million. In most cases, they just say it was sold and acquired.

When we were at Opster, the VP of Sales came one day, all beaming, and she says, ‘Oh, my previous company was just sold for $50 million.’

I said, ‘Oh, great, congratulations.’

She says, ‘Not really. The investors invested 100 million, got 50.’

So, when I do all the analysis, I only do it on the IPOs, the public offerings. And the reason is because the numbers there are disclosed. You can see the numbers; you can do all the calculations. Remember, the language of business is money. So we can calculate.

However, if one out of ten succeeds, that means nine out of ten companies fail.

All of you are entrepreneurs, not investors. So, you really care about the nine out of ten that fail more than about the one that succeeds.

It’s really suckish to be in a company that fails.

Then we’ll talk about what is the Finite Game and its impact on the Exit on founders, profitability versus an Exit—I will not go into details because in about ten minutes, we’re going to get into it in big details.

And the main thing I want you to think about is why fail if you can succeed.

So, the purpose of this Foundations Course is to give you the foundations of why fail if you can succeed.

Do I believe that all of you will finish the course and know exactly what you’re doing?

No.

But I hope at least to broaden your thinking, understand a few more ideas and how to do things, and at least think about them before you start or when you run your business.

Profitability. Remember, I said that’s the number one objective that you want to accomplish.

So, how to build a profitable company?

And the most important thing is that virtually everything you do will impact the ability to be profitable. Virtually everything you do.

Second, we’re dealing with terra incognita. Terra incognita, obviously, is Latin; it’s not English. And it means “unknown territory.” Right, “terra,” “territory,” same word.

Which means you start a business, you start a company, and despite the fact that you know everything about the business, you always are surprised that things just don’t go the way you expected them to go.

Life is hard.

So my formula for being profitable—remember, it’s all equations, money.

Spend less than you make. Really simple.

Why?

Because you can have expectations and you have projections and whatever, and life is hard. And so try to spend as little as possible and spend it only after you make the money.

The order of activities have a great impact on profitability.

People don’t think about it, but most companies that you will see come and start with building a product or a prototype of a product.

So, they go and they hire ten engineers or scientists or researchers or whatever you want to call them, okay? Now, they have five or six or ten people on the payroll. They work for a year. Ten people times $150,000 a year. It’s a million and a half dollars. And you haven’t sold a little, one piece of things.

What if you start with marketing first?—or actually, branding first; we’ll talk a lot about that—and start selling before you have the product.

I know, you look at me like I’m crazy. But the reality of it is that’s the right way of doing things.

And then you don’t need so much money because you didn’t spend a lot of money building a product that you have no clue who is going to buy it.

So I just said it. The size of the team—the biggest weight on profitability. At the end of the day, if you look at every company, 60, 70, 80% of their expenses are salaries. That’s the end of the day what you spend.

Very few companies have huge infrastructure costs or things like this. Most of your expenses are salaries.

So the size of your team is the big, heavy weight on your budget.

One thing to do is you measure sales per employee. If your cost per employee is about $150,000, you know exactly how much money you need in order to be profitable.

Okay, take 150,000 multiplied by the number of employees, 20 employees. You need $3 million, as simple as that.

So remember, money is the language of business. Back-of-the-envelope calculations can save you a lot of agony.

Continuous incremental improvement, or what I call later on: i-Square.

You never invent. I mean, look at this course. I said, ‘Okay, we’ll do it. We’ll start with something. We’ll give a course, and we’ll see what happens, and we will improve from one lecture to the other, from one company to the other.’

That’s the way things work.

But it’s important to think about it all the time and say, ‘How can I do it better today than I did yesterday? How can I do it better now than I did last month?’

If you keep thinking about incremental improvements, you’ll be surprised, looking backward at how far you have come.

It’s never done in a disruptive way—‘Wow. I solved all the problems in the world’—you never solve all the problems in the world. It’s all about incremental improvements.

And, I will also give you there, intro to business models, which is a whole big subject.

Market Size

Another thing you’re going to hear from all VCs: you need a huge market in order to be successful.

Is that true?

So, it depends if you need an Exit or profitability, and that will be discussed later on.

Second is, when you talk about a big market, usually markets are not uniform. And I have my usual story. Those of you who heard it, please excuse me.

I call it the Chinese Dilemma. So, we all know China is huge, right? 1.4 billion people. And I can assure you, all of them eat rice. So I have an idea. I would like to sell one kilo of rice once a year to every Chinese. ‘Boy, am I going to be rich, right? What can be simpler than that?’

But I see already people smiling because you understand the problem is not the need and the product. The problem is the distribution channels, how you do all of that stuff.

It’s the details.

With every big market, there are a lot of details, and the market very quickly disintegrates into a lot of little islands.

Pick an island. Okay.

When entrepreneurs come to me, I always ask them, ‘Can you name your customers?’

And they look at me and they say, ‘Anybody who has…’ Right?

‘Anybody who does this will be a customer. Anybody who has that will be a customer.’

And I said, ‘Okay, can you give me a list of anybody who…’

And they look at me like, ‘What?’

I say, ‘You can’t sell to nobody. Give me a name of people you want to sell to.’

And only then they start to understand that if you don’t really—if you can’t really name your potential customers, you don’t really know them. You have no clue who’s going to buy your product.

Because the moment you start looking for their names, you start understanding, ‘Wait a minute, where do I find their names? How do I understand if they are big or small, where they are located?’ and all of that good stuff.

Then you start thinking, ‘Okay, how am I going to connect with them? And how are they going to listen to me?’

Okay, big problems.

So my suggestion, and I’ll talk about it at that course, is finding a beachhead.

Pick one island that fits your needs and focus on that one. And once you are successful, you can start growing from one island to the other.

Basically, same concept as terra incognita.

market size. Another thing you’re going to hear from all VC’s, you need a huge market in order to be successful. Is that true? So it depends if you need an exit or profitability, and that will be discussed later on. Second is when you talk about a big market, usually markets are not uniform. And I have my usual story. Those of you who heard it, please excuse me.

I call it the chinese dilemma. So we all know China is huge, right? 1.4 billion people. And I can assure you, all of them eat rice. So I have an idea. I would like to sell one kilo of rice once a year to every chinese. Boy, am I going to be rich, right? What can be simpler than that? But I see already people smiling because you understand the problem is not the need and the product. The problem is the distribution channels, how you do all of that stuff. It’s the details. With every big market, there are a lot of details. And the market very quickly disintegrates into a lot of little islands. Pick an island. Okay. When entrepreneurs come to me, I always ask them, can you name your customers? And they look at me and they say, anybody who has.

Right, anybody who does this will be a customer. Anybody who has that will be a customer. And I said, okay, can you give me a list of anybody who. And they look at me like, what? Say, you can’t sell to nobody. Give me a name of people you want to sell to. And only then they start to understand that if you don’t really, if you can’t really name your potential customers, you don’t really know them. You have no clue who’s going to buy your product. Because the moment you start looking for their names, you start understanding, wait a minute, where do I find their names? How do I understand if they are big or small, where they are located and all of that good stuff? Then you start thinking, okay, how am I going to connect with them?

And how are they going to listen to, okay, big problems. So my suggestion, and I’ll talk about it at that course, is finding a beachhead. Pick one island that fits your needs and focus on that one. And once you are successful, you can start growing from one island to the other. Basically, same c

Branding First

So, what do I mean by branding as opposed to marketing?

So, these are two very different activities. Okay?

If I think about the Kardashians—anybody here who doesn’t know who the Kardashians are? You don’t know? Oh, you know. Okay, good. I’m so relieved.

Why do I say that? Because honestly, what do they do? They’re celebrities, right? They created a brand. They don’t do marketing. They created a brand. What are they going to do with the brand? Oh, tons of things.

They use their brand to sell perfumes, to sell cosmetics, to sell clothing. I don’t know what else they sell, okay? But the whole idea is that because they have a brand, they can get your attention, they can reach to you.

That’s a brand.

Now, if you think it’s only beautiful women who have brands, so let me ask you a question: who is the CEO of Mercedes? Do you know? No. CEO of General Motors? No.

CEO of Tesla?

[From Audience]: Elon Musk

How did you know that? Brand, right?

He doesn’t have dealers—you go on a website and you buy the car because he has a brand.

So, the first thing you want to think about is, ‘How do I create a brand?’ Not marketing. Marketing is lead generation. Marketing is all the work we do with press releases and all the other crap.

A brand is something different. A brand is you want your company to be the Elon Musk, the Kardashians.

Now, that’s a big task. You have to be creative. And I don’t have a solution for being creative, but I have a few suggestions when we get to it.

So, I gave you branding, some examples, so you know it.

What do you do first? I answered.

The cost of building a brand; that’s really important.

Because brands are creative, in most cases, the cost of creating a brand is a fraction of the cost of creating your product.

Listen again. Remember, money is the language of business.

The cost of building a brand, in many cases, is a fraction of the cost of building your product.

And a brand has high value.

So when you create a brand, it has a value independent of the product you were planning to build. So this investment that you do in the brand already has a payback without you building the product.

I know it sounds crazy, but the Kardashians are worth a lot of money because they have a brand. Tesla saves a lot of money because they have a brand. So it has tremendous value, okay?

People think about brand being viral. Well, you can also win the lottery, but that’s not a business model. I don’t know how to do anything viral.

Now, how to create a brand without having a product. So I have a few ideas; I’ll talk about them at length later on: long tail SEO, become an industry analyst, free tools, there are many, many things that you can do. Each company needs to find what works for them.

Business Model

So, for you to build a business, then you need a business model.

There is a Business Model Canvas; that’s what I’m showing in here.

It’s kind of a structure to how you think about a business model.

I put it in here because everybody’s talking about it—I don’t really like it, so I’m not going to teach that one, but I’m going to show you other things.

But it’s just a simple model.

The main questions I’m asking myself is, ‘Where is the value that your business brings? Is it technology, patents, product, customers?’

Whatever it is, where is the value that you bring to the market?

And the other thing is the notion of a complete product.

The complete product is a really simple concept: people don’t want your product; they want a solution to something that bothers them. That’s what they want, not your product.

What’s the difference?

The difference is, for example, my favorite one is watches.

Their purpose, in the books, is to show the time, right? Used to be that because it was mechanical, some of them were accurate, some of them were not accurate. Nowadays, every watch is the same. They all are accurate.

So why do some of them cost $20, some of them cost $200, and some of them cost $20,000? Because they are not built to show the time. They are built to show something else.

If you spend $20,000 on a watch—stop laughing there—then you really want it to go like this all the time so that everybody can see it. Because it’s a statement: ‘I can spend $20,000 or $50,000 on a watch.’

Swatch, for example. They build their business on fashion, right? The watch is a fashion accessory.

So if you want to look pretty, you have a red one. If you want to look sad, you have a blue one. Whatever it is, right? It was a fashion accessory, not a time shower.

So that’s what I mean, the complete product. You really need to think about what the customer wants to solve.

Another thing. You have a technology, you have a product, but they don’t know how to use it. Happens a lot in high tech.

So, you don’t really want to sell them a product—you need to sell them the value of the product. You need to sit with them, work with them, make them successful. God knows what you need to do in order for the customer to say, ‘Yes! I’m delighted I got what I wanted.’

And in most cases, it’s not just the product.

Customer first means never think about what you do; think about what they want. Always.

When I started being in business, one day, a very smart consultant sat with me and I was talking about our measurements of customer satisfaction.

So I was talking about, ‘We measured this, we measured that’ and he looked at me and he said, ‘You already failed.’

I said, ‘What? You know, I’m doing everything that is written in the book. You know, I measure all of this satisfaction.’

He says, ‘Because you measure the wrong thing. You have to ask yourself, are your customers delighted in working with you? Not satisfied, delighted.’

When Apple comes up with a new phone model, people stand from midnight in long lines in front of the store. But they’re not going to get it tomorrow—they can get it tomorrow or next week or next month, but they are delighted.

That’s the difference.

So when you think about your business, think about ‘How do I get customers to swear by what they do with me?’

Another question that a lot of companies ask themselves: ‘Do we want to sell directly through salesforce, do we want to go through distributors, or do we want to sell on our website?’

Each one of these business models have tremendous ramifications about the product, the packaging, the pricing, so we will talk about that.

There’s consultative sales—just giving lots of things we’re going to talk about in this lecture.

Okay, what is this, Yonatan’s model?

I decided to name something after me, just, you know, something.

So, the idea here, it said, that the language of business is money. So, I’m building a model that will allow you to calculate your business.

And the calculation goes along two dimensions.

One dimension is time. Every activity you do falls in a certain time and it has money involved, either sales, income or expenses.

So, you have a matrix, right? Time: every column is a week, a month, a year, whatever it is, and lines.

And you want to convert any idea and every element in your business model to money on this timeline, okay?

And I want you to use parameters—we grow every month by 5% in sales, by 2% in sales, by 10% in sales—so you have parameters that you can decide to play with. And you want to compute—and that’s the key in here—you want to compute three outcomes.

Number one is the total investment: all the money you lose every single month. So, you want to calculate it every month, and you want to sum it up until you become positive cash flow.

That’s the investment you need because somebody needs to pay all of this.

You can calculate the investment you need, and obviously, as you play with all kinds of options, you will get very different numbers, and I will show that later on.

Second parameters I want you to calculate is, how long it took you to reach profitability. Profitability is when your chart moves from negative numbers—that expenses are higher than income—to sustainable, profitable. Which means, ‘I generate cash month after month after month.’

Okay, how long? Ten months, ten years, 30 months, whatever it is the number.

And the third, which is unheard of, how long it takes you to pay back the investment.

Most startups don’t even think about paying back the investment—‘Why would I pay back the investment? I have an Exit, I’m going to be a billionaire. Everything is great, right?’

Well, no, it’s not right.

So, if you try to become a real estate developer, everybody will ask you, ‘When do I get my investment bank? When do I see my money back?’

And I think it is a really good philosophy to think about startups in the same exact manner—‘When am I going to see my investment bank?’

And if you start thinking like that, you will think about your business very, very differently.

Okay, I said that. And sales per employee.

What is stress test?

Remember, I said that there are parameters in this model.

So, what you want to do is start playing with the parameters and see what happens.

What if we don’t grow 10% month after month? We only grow by 1% month after month. What does that mean?

What if I can’t sell the product for $10,000 a year? I have to sell it for $2,000 a year. What does that mean?

The moment you start playing with these numbers—and they are related to one another, obviously—you will start seeing very different pictures, and you will have three numbers that will be calculated automatically for you: how much money you need, when are you going to be profitable, and when are you going to pay back the investment.

Very, very important.

We mentioned pricing, right? Pricing and packaging.

So, people believe that the market is sensitive to price. Well, price is really something very elusive.

As I said before, what is the cost of a watch?

Well, it depends. There’s no cost for a watch. Many people today don’t even have a watch—they use the iPhone or the phone, and they look at it, right? 15:52, eight minutes to a break.

Okay, so what is the price of the product?

So sometimes there’s competition. They dictate you can’t be ten times more expensive than the competition unless you really do something different.

Expectations of customers.

If it’s a new product, you might be able to set a new price. But again, people compare it to other things.

The differentiation you have with different products, and so forth.

So pricing is a very, very complicated thing.

Second, are you selling to consumers or to businesses?

Well, there is a whole different psychology about pricing for consumers and pricing for businesses.

Why? Because the person on the other side—negotiating with you, making a decision—if it is a consumer, they judge it from their pocket, so they are very emotional about it.

If they represent a business, they buy on behalf of a business, the set of criteria or risks they evaluate is very, very different. They don’t care about the price in business. They care about the risk and the benefits.

Because if they buy a certain product and it brings mayhem to the company, everybody’s going to remember it. If they buy a product and could have got it for $10,000 less, nobody even remembers. Nobody knows. It’s stupid, okay?

So when you price a product for business to business, think very, very different than consumers—and you have to take into account the business decision-making process because nobody in a company buys it on its own. They have committees, they have discussions, they have budgets, they have all kinds of things that you need to be aware of before you even start.

Again, you have to think about if you want to sell in e-commerce—essentially, people buying on the web—you can’t really sell for $100,000. Nobody’s going to put a credit card for $100,000.

If you want to price your product at $100, you can’t really have salespeople because no salesman will be able to get any commission from this kind of price. So this decision of whether you sell with salespeople or e-commerce dictates the kind of price range you can go.

[From audience]: Tesla and Elon

Because it’s a very well-known product and he’s a genius. I know, I wish you to be as smart as him, I’m not. So. With geniuses, it’s different. I don’t know. It’s successful, I agree, but I don’t know how he does it.

Price is also a signal of quality, and don’t underestimate it.

You go, and you buy perfume, and it costs, I don’t know, $50 for a small bottle. Why? This doesn’t cost them $50, but it sends a message: this is a really good one.

When I say price, well, price is even not well-defined. So, how do you create a price?

So, think about CRM. How do you charge for a CRM? By seat? User? By the amount of data? By the number of records they keep? By transactions? By—you name it—you can create a pricing model that will be as complicated or as simple as you wish.

And it’s really an art, and a lot of thinking on how you build the pricing model.

And the last question, of course, is, how do you make money on free products? The example I like a lot is Zoom Communication, the Zoom we all use for meetings.

So, they made a really smart distinction between their free product and the business product. They didn’t want to irritate the users, the consumers, the free product. Yet, they wanted to force businesses to pay. And they do something really stupid and simple: after 40 minutes of the free product, it turns off.

So, if you talk to your wife or to your great uncle—you know, you say, ‘Okay, I’ll call you back in a minute.’ Nothing happened, right?

But if you’re in the middle of a business meeting and you try to negotiate a $10,000 deal and suddenly the 40 minutes are off, people will say, ‘Well, he can’t even afford to buy a Zoom license? What’s wrong with this guy?’

So, even that little irritation caused the distinction and differentiation between the two products. And that’s a great example.

Tov [good], the team.

And then we will finish this and take a break.

What is a co-founder? People come to me, and they have two co-founders, three co-founders.

Who are they, and how do you find co-founders?

I’ll talk about it when we get there because I don’t want to say anything that might irritate people here, so.

Remember that a team that VCs expect is probably different than the team you are going to build if you want to build a profitable company.

So, the direction you want to take your company dictates what kind of a team you’re going to build, and you need to think about it.

When do you hire a new person? You say, ‘What? When I need!’

So, I’ll bring you a few laws that we will talk about them later. They’re very funny.

Parkinson’s Law: work will expand to fill the time allotted for its completion. Or the opposite: if you want anything done, give it to the busiest person, right? That’s the mirror image of the same rule.

So you bring a person, if they’re not—if you don’t give them enough work, they will be very, very busy disturbing other people, generating work for other people to show that they are really, really busy. They will create all kinds of stuff.

So, before you bring a person, make sure that everybody else in your company is, you know, don’t have a minute to say ‘Hi,’ even.

[Price’s Law] That’s a new law that I’ve learned just a few weeks ago: 50% of the work is done by the square root of the total number of people who participate in the work. It’s like the 20:80 rule.

That’s a very interesting law because it was experimentally tested. The person who wrote it—Mr. Price—he was a historian of science, and one day, he decided to check on every subject, how many articles were written, and how many writers there were.

Okay, so let’s say that there were a thousand articles and 100 writers that wrote these thousand articles. He found that the square root of the writers, ten, wrote 50% of the articles, 500, and 90 wrote the other 500. So, in every company, you will find that there is a small group of people that do most of the work and most of the value. So before you go in to hire a new person, think twice.

Who to hire?

I have three rules when I hire—very hard to figure them out. I mean, when you interview people. But that’s a different story.

– First and foremost, no ego. Which means the person doesn’t sit there and tell you all the time, ‘I did. I did. I’m this, I’m that.’ That’s a disaster. A person that thinks about himself in every meeting shouldn’t be in your company.

– Second, results-oriented. Which means they don’t tell you, ‘Oh, I worked so hard. I worked the whole weekend.’ Honestly, I don’t want you to work the weekend.

I like when you come, and you say, ‘Here’s what I did last week. I checked this. This is working. This is not working. I don’t this, this, this, this. And I was on two days vacation last week. So I’m sorry I didn’t accomplish more.’

This is the kind of person I like. They need to measure themselves. Not you, them. So you only want people who measure themselves. That’s the way they think about themselves. Not something you try to enforce them to do.

And last but not least, smart as hell. Try to find them.

Peter’s Principle. And this is really, really important about who to hire.

In every organization, every employee tends to rise up the ladder, right?

When do they get stuck?

If you think about it for two minutes, you say, ‘They get stuck when they can’t get promoted anymore because they fail. That’s where they get stuck.’ Right?

But think about you as a startup wanting to hire people. ‘Wow. I have this guy, he was VP of Marketing in three different companies. Wow, what a hire I get, you know? Really experienced person.’

So, the first company he got, he was fired because he was at the level of incompetence. Then, he kind of found his way to two more companies, didn’t have any growth within the companies.

Never hire them. Remember this rule. It is really, really dangerous.