Predicting the Turn

Anita Brick: Hi, this is Anita Brick and welcome to CareerCast at Chicago Booth. To help you advance in your career. Today, I'm delighted to be speaking to Dave Knox, who's the author of Predicting the Turn: The High Stakes Game of Business Between Startups and Blue Chips. He is the former chief marketing officer for Rockfish and a seven year veteran of Procter & Gamble.

He is the co-founder of The Brandery, one of the top ten startup accelerators in the country. Dave is also a managing partner in the seed fund, Vine St. Ventures and IT advisor for Bullpen Capital, Glasswing Ventures and Hyde Park Venture Partners. In his latest entrepreneurial journey, Dave is the CEO of Nature's Willow, a leading natural pain relief brand he acquired in 2019.

You're a busy guy.

Dave Knox: Hey, thank you. Better busy than bored, that's for sure.

Anita Brick: I'm there with you. One of the students asked this question, and I thought it was an interesting one. And it follows right from that very wonderful bio. He said: “Hi Dave. You clearly have a lot of energy. How did you work a full time job, start Brandery, and be a managing partner of your micro VC Vine Street Ventures? How did you have the energy and not create conflict of interest?”

Dave Knox: There's a few layers to unpeel there. The first I'll take, you know, how do you do the multiple hats and the juggling? I take a belief of finding things that are complementary. That's the way you do it and you accomplish the balancing. Let's take, you know, the agency side versus an accelerator versus the investor side. End of the day, Rockfish was a digital innovation partner. We were about helping our brands and our clients think about changing industries and changing mindsets. By being involved in an accelerator and being involved as a VC, that actually made me better at, you know, the quote unquote day job. Because I was seeing the stuff first hand, sitting at the table as an investor, seeing what was taking place, looking at these entrepreneurs and seeing where things were going. I always thought of those things as, yes, they were distinct, but they were complementary. If you can find ways that the things you're involved with actually play off of each other and make you better at each thing, that's the way you can do more in life and accomplish more things. That's how I think about that first one.

And the second one in terms of the conflict of interest. Conflicts of interests are all about disclosure. When people try to hide and they're not open, that's when you run into trouble. Instead, when, you know, we might find a really interesting company that, you know, maybe we accept into the accelerator. And I was bringing that to a brand. I would say, look, full disclosure, these guys went through our accelerator and people were fine with it. All you have is your ethics. And if they think you're doing something to benefit yourself, that's when you get in trouble.

Anita Brick: Oh no question. One of the alums was asking a question: “Hi, Dave, I'm in the process of launching a company that overlaps personal care products and medical. While we are not alone in that space, I'm curious to see how do you advise modern brands to carve out their own niche?”

Dave Knox: It really goes down to what do you want to do and what do you want to stand for? And back in my early days of Procter & Gamble, P&G has this great mindset that they call the who what how. It's what they call the brand building framework. The what is the middle part, and that is the what do you want to stand for? In their world, they kind of define it as points of parities and points of differences. And then what is your brand character? I was learning that in 2003, 2004, 15, 16 years later, that still holds true today. It goes down to really saying, you know, what is the competition that's out there? What are the spaces? What do we want to stand for? Where do we want to be? If you do that, that's going to be the key. Those fundamentals haven't changed even in the modern brand building world we're in today.

Anita Brick: So what if you are in a space that is pretty competitive? And as you think about that, you really need to carve out something that goes beyond what you just were talking about. And of course, we need to know what we stand for. But what if there are other brands that stand for something very similar? How do we rise above that and get above the noise to actually create a profitable company?

Dave Knox: Yeah. So I think it starts with, you know, what's your differentiation? The first thing I would probe somebody on, is what I look at as an early stage investor. A lot of times people want to launch new businesses, but it's actually not something they probably should be launching because it lacks the differentiation. Or what they're trying to say the differentiation is it's a feature, not a product differentiation. And so that's I think the first thing is take a hard look upon yourself of is it truly something differentiated? And if you're looking at that list of points of parity and there's not enough points of differentiation or the differentiation is not one a consumer would necessarily care about. You probably need to be asking the question, are you doing the right business to begin with? A step we unfortunately, I think, skip way too often.

Anita Brick: It's a really good point. It goes along with a question that an alum asked. He said: “I am in discussions with an early stage company that has completed their round A funding. In your book, you talk about the level of due diligence a VC does before investing. What advice would you have for me to do a similar level of due diligence without having the resources a VC has?”

Dave Knox: It's a few different things. So one is the resources a VC has. If you keep in mind, a typical venture capital firm is actually a very small business. Most VC firms maybe have a couple of partners and they have a couple of analysts. Most firms don't have 40, 50, 75 people. They're actually pretty small organizations. The resources at your disposal aren't that different.

And if anything, actually being at a university gives you access to some really interesting tools. So I think it's more about just the elbow grease of really diving into it, looking at the space, analyzing, you know, looking at all the companies out there. That information is out there and it's public. You can go log in to Crunchbase and PitchBook, and you can look at all of these different things to find out this information.

So I think it's really just going through and diving through and analyzing and looking up. And you'd be surprised at how much you can find without having to spend, you know, a ton of money and hours.

Anita Brick: So on top of that, when you think about advocates or mentors that each of us has, what component of the due diligence should be actually having conversations with people who are familiar with the space, familiar with the competitors, vendors, etc., etc. compared to looking at things even like PitchBook. The proprietary databases are one thing, how important is tapping into your network?

Dave Knox: Your network is always going to be one of your most valuable tools. Being able to reach out to people and find connections and look into different companies. Look in different startups. Look into the venture firms that invested in that startup. There's probably a good chance that somewhere in the Booth network, you might have somebody that works at that firm or reaching out to similar funds, like, let's say that startup you're looking at joining is a series A fund or a series A back company. Very rarely does a startup get backed by pitching a single VC firm. You know, they've ended up probably pitching ten, 15, 25 different firms. Reach out to your network and find out. Did anybody that, you know happen to see that pitch? Did they look at the business? Why did they pass? Do they regret passing? You can really find out a ton by just looking out and reaching out to your network. But intelligently thinking about connecting those dots and doing things like that. Okay, this is this stage. Who do I know that might have come across this company because of that?

Anita Brick: That's a really good point. And I know the listeners here are primarily Booth, you know, students and alums and others. Your point is very well taken, because sometimes people think, well, it's the data and not the network so much, which especially in the accelerator world and the VC world, it's super, super important.

Dave Knox: Yeah, it really is. It's one of the most valuable things. It's something that we don't invest in enough. Your network is an investment and it's something you need to think about. Not doing it for an immediate gain. Really think about that value over time. You know, some of my most valuable relationships are ones that started in the beginning part of my career, and it wasn't because I had a short term need or want out of them, but because I valued them and valued those relationships. And it's paid massive dividends ten, 15 years later.

Anita Brick: It's a really interesting dilemma because there seems to be a conflict between I got to get this now, I really have to get you to help me today. And losing sight of that longer term. How do you balance that “I really need to know this today. I really need your help today” with not making it transactional?

Dave Knox: I think if you make it transactional and you make it “I need your help today,” you will probably get one bullet and you'll get to use that one time. You'll probably burn that relationship for the long term. It's about truly investing and not being in a short term mindset. That's tough for people to hear, I think at times. People had it right that getting to greatness requires 10,000 hours of practice. And the relationship is the same thing and your network is the same thing.

Anita Brick: That's a really nice parallel. I see the people who are getting what they need and getting what they want for their businesses, for their careers. Even having a pipeline of investments comes very largely on whether they do exactly what you're saying. Do they care about the person beyond what that person represents?

Dave Knox: That's exactly it. And once you've done that right investment in the long term, you'll be amazed at what short term things come your way. You know, when I look at my own network, there's a question investors ask themselves, and it's why am I the lucky one that gets to see this deal? It's something we all should ask in any investment that comes across our desk.

It's why am I, of all of the people out there, that I'm getting a chance to see this? If you can't answer that of why you're the lucky one, it's probably that deal is too good to be true. There's probably a reason you're the one seeing it. And so if you flip that on its head, you know, I just had something come across my desk today. That of all the people that should be looking at this deal and having a chance to invest into it. I'm not in the top 100, but I get to see it because the person who's behind it, I've invested with him a few different times. We've done some great work. I've leaned forward and helped many of his companies, you know, over the last decade. And so I get a chance to see this deal because of that. I paid it forward, and I've done deposits and back karma bank. And this is just a chance of it kind of coming back as a result.

Anita Brick: Very good point. Okay, so here's an alum who maybe didn't do the level of due diligence that was required. And you know that when a blue chip, a large company, acquires an earlier stage company, the cultures don't always mesh. And that's what happened with her: “I find myself in the midst of a culture clash. My company was acquired by a global giant. They wanted us because we are disruptors and they needed our technology and entrepreneurial ways. Now you're trying to squash all of that. Help.”

Dave Knox: The question that's impossible to know on that is what is that person's role at the company that was acquired? If she's the founder or CEO, that's a very different answer than if, you know, it's kind of a mid-level employee. So do you know that, by any chance?

Anita Brick: The way she described herself is a co-founder but not the primary founder?

Dave Knox: Gotcha. Okay. End of the day, you're bought by somebody. They're going to make the decisions that they're going to make. And I go back to the thing you might find as what they're fighting against. There's actually a reason for them. And it's the advice I was given very early on when I joined P&G. You know, one of my bosses kind of gave me the advice of, you know, we want you to run fast because we've got safety belts. If you hit the wall at 60mph because something went wrong, the airbags and the safety belts are going to save your career, but they're also going to save the company. We're not going to let you do anything that destroys the company. The joy but there's also the danger on an entrepreneurial side is those safety bags don't exist. Those, you know, seat belts don't exist. You have to recognize that some of the things you see as being constrained, there's actually a reason for it that you just might not be privy to, of why they're doing it or why they're approaching. You know, you can't fight against it. Once you've chosen to sell your company, you've given up your company. You know it's somebody else's company now.

And so if it's not feeling right, it might not be the place for you anymore. But that was a choice you made in the financial transaction. If they're a Fortune 500, don't underestimate the intelligence of those people. There's a rationale behind why they're doing what they're doing.

Anita Brick: And it's a really good point. And it's hard to give up control, even if you know that you've already done it.

Dave Knox: Yes, that's exactly it. It's never easy.

Anita Brick: Never easy.

Let's switch gears a little bit. A couple of questions about accelerators. These are from two different students. First one is: “There seem to be a lot of accelerators today that provide generic values, such as mentorship and help with overall business strategies. How can an entrepreneur decide whether an accelerator is worth the time and commitment and the equity?”

Dave Knox: There's a lot of factors that go into it. Accelerators themselves have evolved in a pretty dramatic way. I mean, when we started The Brandery, there was 30 accelerators out there. Today, you know, I've lost count, but there's probably well over 1000. And I'll say the first thing which no one wants to say, which is there's a lot of accelerators that actually shouldn't be out there. An accelerator is supposed to give you the startup an unfair advantage. And that is the value equation. They are not just giving you money, but they're giving you advice and they're giving you resources, etc. The first thing you need to ask is this company going to give me an unfair advantage? Because once you add somebody to your cap table, you've become married to them. And that's a long term relationship.

So you have to ask that first and foremost, is this going to be a value. Because honestly, the money's not enough. The size of the check that's being written, that is not going to be enough for that unfair advantage. So it has to be more. It has to be that subject matter expertise. It's got to be the people they can connect you with. The best way to find that out is with due diligence. Most of these accelerators, it's not the first class that they have reach out to the founders that came before you. Reach out to people that graduated from the last class, from a few years ago, you know, find out how much short term help it was, how much long term help it was, and really figure that out.

I think the biggest thing is finding out is this a program that's going to give you advice or is it going to give you opinions? There are plenty of opinions in this world. You as a founder don't need more opinions, but what you do need is advice. You need people that have been in the shoes that you're in, that understand your industry, understand what you're trying to go off and do, and can they give you true advice that is based on their experience, not just the opinion of somebody that might be adjacent to it?

Anita Brick: Very interesting point. How do you differentiate between advice and opinion?

Dave Knox: Yeah, I think it comes down to the background of somebody. It was something we dealt with all the time, you know, in the early days of The Brandery. You would look at consumer packaged goods, and we had some amazing experts in town that truly understood CPG. But what they didn't understand was the difficulty if you were an emerging super early brand, you were lucky to even get the Walmart buyer to read your email, much less set up a meeting with you and do all of that. Has somebody walked in your shoes and truly understands the space that you're in? And that's why being able to talk to other founders is super valuable. You know, finding those folks that have really been in the space. And that's what it comes down to.

Anita Brick: That's a really good point. You know, you mentioned Walmart. When you have this kind of advice, some people are like, wow, I got a P.O. from Walmart and my product is flyin high. And it could actually do the opposite. It could actually derail the product if they're not ready to scale. When you think about that kind of advice, where would you go for that kind of advice? Do you think it would be with an accelerator? Having mentors and an advisory board? Because sometimes early stage companies and founders get super excited about that, which could ultimately destroy their company.

Dave Knox: Yeah, surrounding yourself with great advisors is super valuable. You can never underestimate that. You can find that a lot of different ways that's going to come from the people you bring on your team. That's going to come from your advisors, that's going to be coming from your investor cap table, whether it's a venture firm or angel investors. And so surrounding yourself with those people that can give you that advice is the number one, two and three most important thing you can do in the early days of your business. Because you can solve all these things with enough hours to the point earlier of the urgency. Hours are not something you usually have in these early days. And so being able to call somebody up and say, here's what I'm dealing with. What have you experienced? What do you think? That 30 minute phone call can probably save you weeks of effort if you do it right. So invest in that network that's around your company early on too, because it's going to pay dividends before it's too late.

Anita Brick: All roads take us back to our advocates and the people in our network. Really does.

Dave Knox: Yeah for sure.

Anita Brick: So there was another question about accelerators, and this MBA student said, she said: “Startups are typically encouraged to join accelerators if they're early on, but have raised her friends and family round, but not much funding. However, some accelerators such as YC and Techstars are starting to accept startups that are later in their transaction lifecycle. What would be the benefit of a startup joining an accelerator after they've shown some traction when they go directly to VCs at that point?”

Dave Knox: I can speak loosely to it. Obviously, I'm not involved with Techstars or with Y Combinator. You know, I think it goes back to that the money is the least valuable thing that you're going to be given. It's the access and the networks that those two groups give you. Any accelerator that should be the value. And it's a point I made a lot of times to companies that were applying for The Brandery, because we would have folks who would say, well, you know, I've already raised X dollars at Y. Why would I want to give up the equity to you guys? I would outline, well, look at this connection, this connection. Here's what we're giving you. Here's what you get from, you know, the agency partners that are involved. None of which we're putting a value on as we think about the cash equation, if you will. That same thing holds for a company that may have raised money and wants to go into an accelerator.

I actually think it's a great trend and a trend that actually needs to play out even more, because over the years I would have multiple companies that would reach out to me and say, I get more value out of The Brandery network one year after the accelerator than I did during the program. And what they would go on to say is, it wasn't that they didn't get value when they were in the program.

But if you're very early on in one of your first steps as going into an accelerator. You as a founder are probably spending your time figuring out product market fit or probably even building the product. With that in mind, you're not focusing on scaling and growth and all of that, but a lot of the connections that we would make would be around the world of business development. It would be around the world of marketing and go to market. Once that company was in that scaling phase and going out, that's when it became super, super valuable. That would come up again and again with people that I get more out of it now that I'm outside than when I was inside.

Anita Brick: Well, that makes sense. It really does. And I think about what you're saying and you take this very basic but also really deeply important approach. It doesn't seem like you get swayed by things that other investors and startups get swayed by it. The emotionalism of this is so exciting, I'm going to fall in love, and then they fall in love with the wrong thing or the wrong investment or the wrong investor. How do you maintain that perspective that you seem to clearly have?

Dave Knox: It's always difficult. I mean, obviously when you're living it and breathing it day to day, it's tough. But that's why it goes back to really having those right people around you. One of the most valuable parts of a mentor, whether it's for your business, your startup or anything else, is they provide that objective view to you. Because as human beings, emotions are tough and we run into these things in our personal life, our business life, and everything else.

In having that person that can be that objective third party that understands where you're coming from, understands what you're dealing, but can look at it without the emotion. That's what makes an advisor valuable. It's the advice, the experience that they can bring, but it's also the objectivity.

Anita Brick: That makes sense when you are advising people who are contemplating another round of funding. What advice do you give them around handling equity and dilution?

Dave Knox: The biggest problems that we've run into is creating businesses that only survive if they keep getting funding after funding, after funding. And that sounds weird to say this as an investor, but I think it's something that all entrepreneurs need to be reminded of. You should take on funding because funding is taking you to a next milestone. You shouldn't be asking, how much do I need to raise because of my burn rate, because of this, because of that. But it's if I take on this funding, which milestone is that going to get me to, and is that going to make me better as a business and move me forward and everything else that comes into it? I would start there and answer that question before anything else. If getting to that milestone requires $1 million, 2 million, 3 million, well then the market's going to dictate what your valuation is out of that. Dilution is part of the game. But it's also why personally, for me, I struggle when somebody does a headline about how much money they raised. I didn't write a press release about taking on a mortgage for my house. But you've essentially taken on debt for your business, so I'm not sure if that's something you should be out there celebrating all the time.

Anita Brick: It's very interesting, Dave. That is very interesting because you see it all the time.

Dave Knox: Yeah, it's a false headline. It is what it is.

Anita Brick: It is what it is. So there was another MBA student and she asked what was your investment philosophy for starting Vine St. Ventures, and what were some of your biggest takeaways being a first time GP?

Dave Knox: Yeah. So for us, I'll go back to what the founding principle for Vine St. was, which Vine St. was inspired by actually some of the VCs that were mentors for the brands that came to us and said, we believe two things to be true with what you're seeing with Brandery. The first is you were getting a long interview with these founders. You're getting to spend 4 to 5 months with them. You get to see the good and the bad and the ugly. We think there's a real value in that, and a value that can be useful for later stage investors at the series A founding or anything else. First off, that was one of the things that we were looking at was we could be the long interview and help inform later on.

Then the second was actually one that changed and evolved as we went into Vine St two, which was–Vine Street one, we really thought our unfair advantage was the companies that went through The Brandery itself. What we realized was our unfair advantage was actually the network around the brands, the mentors that we had involved, the VCs that we had. We could actually get involved with some really interesting deals that came through that network. We were seeing it because those folks knew what our expertise was in the spaces we could provide value to them. And if I look at, you know, our best performing companies out of fund two what's interesting with it is that at least three of those companies were actually founded by mentors of ours. So they were mentors for The Brandery. They were not founders at the brand, but they ended up going on and finding companies that we got a chance to invest in. They were competitive rounds that we probably would have never gone in if it hadn't been for our relationship and our connection to them. So we've seen that play out quite a bit, and then we've also seen deals play out where it was investors that were leading rounds into really interesting companies. And they said, look, we want you guys around the table because we know you can provide really good advice on XYZ. We got a chance to write a small check. Probably won't ever want to write otherwise. Those were some of the insights that we saw.

Anita Brick: Interesting. Thank you. Do you have time for one more question?

Dave Knox: I do.

Anita Brick: Wonderful. You shared a lot. It sounds like there's some basic buckets, of course. Due diligence is one. Understanding who you are. And as we said, having a group of people around you as a founder or a senior member of an early stage company, they're all super important.

Dave Knox: Yeah.

Anita Brick: So if you think about people who have started a company, hopefully a disruptive one, a one that is a disruptor, what are three things that you would advise MBA students or alumni or friends of Booth who are listening to apply to their startup, so that they can accelerate the viability and growth of that venture?

Dave Knox: So the first one shouldn't be any surprise, which is the people around you, whether that is your co-founder or your investors or anything else, you need to give yourself as many unfair advantages as you can and figure out where those might come from, from the people. Because at the end of the day, the best companies, it might actually not be the best idea that starts, but it's going to be the company and the people around you that stay constant.

You know, one of my best investments from The Brandery, the company that is scaling today, is nowhere anywhere even close to the business that they came into the program with. And even that they graduated from the program with. But the people are all the same and they stayed the same, etc. That's number one.

Number two, and it's related to this is the tenacity of those people. Them being in it for the long run. You know, the thing is, especially right now, startups are a sexy thing. You know, they have been for probably a decade now. I think there's a lot of people getting involved for the wrong reasons. And the thing is that a startup journey is going to be the best experience and worst experience of your life. It's going to be amazing highs and amazing lows that go into it. Frankly, the best people all have a better alternative that they could be doing than what they're doing right now in the entrepreneurial world. But are they crazy enough and have the right amount of tenacity to keep with you in those highs and those lows? So surround yourself with those type of people to be able to go do that.

Finally, for me, and not every investor is going to agree with this one. I personally love finding people that have an unfair advantage on what they're tackling. I love when a founder and a company, they're the uniquely right ones to go solve that. They have some background, some experience that gives them an insight that is just really, really unique. So I think you have to ask yourself those hard questions. You know, sometimes it's not just analyzing something whether or not it's a good business, but is it a great business that you're the right person to go do. For some reason, that's how I kind of think about it.

Anita Brick: I love that that's great.

You know, one final question. Final, final question. Is there anything that I should have asked you that I didn't, that you really want to tell our audience?

Dave Knox: You know, the only thing and it only came up very briefly in the intro was this trend of acquisition entrepreneurship. I know it's something that’s Booth’s big focus. I actually went to one of your conferences on the ETA space two years ago. There's a myth, I think, around entrepreneurship in the founder in that, you know, we need to come up with this great idea. And it's all the stuff we just talked. But some of the best businesses are actually grown not by the company that the person that started it, but the person that was uniquely positioned to grow it. You look at Country Archer is a really good example of that. There in Chicago, McDonald's is a good example of it. There are certain people meant to be founders, and there are certain people that are meant to be growers.

You know, I would not underestimate the opportunities that exist in the space of ETA. It's one I'm personally fascinated by. You know, it's what Nature's Willow is. I would have never come up with the product that our founder, Michelle Mills, came up with ten years ago. But I've also been able take it to a, you know, a new path and a new direction that has been really good for the business and really good for the brand. Don't be afraid when you're looking at entrepreneurship to also think about that. And I think sometimes we're at the fallacy that ETA is meant for a certain person, and I think some of the best entrepreneurs should actually be looking at that, not just maybe the consultant mindset.

Anita Brick: I think that is brilliant. And I think that is a big trend. I talk to a lot of people where their dream is ETA. It isn't to come up with the next best whatever product, but really to be able to take it and find something that they can grow and scale and create something wonderful.

Dave Knox: Yeah. That's exactly it.

Anita Brick: I thank you so much. I know you're a super busy guy. You told me you already had six conversations this morning and it's still pretty early, so thank you for making the time. I really appreciate it. You shared some important insights. And you are kind of a really interesting role model and exciting person to emulate. You know, of course, on each person's own terms, but you've done many different things and it sounds like what you do that is consistent is that you honor your values, you honor who you are, and you know who you are. And that's very exciting and admirable. And it's a good thing to think about.

Dave Knox: Hey, well, I really appreciate that. Thank you for spending the time. It's always a pleasure and always happy to engage and provide any perspective I can.

Anita Brick: Thanks so much. And thank you all for listening. This is Anita Brick with CareerCast at Chicago Booth. Keep advancing.