00:29 Hey, welcome back to the show. And I'm so excited to have with us Andy because he's got all sorts of cool stuff and at least I think we'll get through at least 1% of it and you'll understand why in a second. Andy, will you please tell us who you are and what you do?

00:43 Thanks Todd. Hi, I'm Andy Ellis. I'm an operating partner at YL Ventures and I recently published the book 1% Leadership. I'd spent 21 years at Akamai, growing the security organization there from one person to 94 before I left.

01:00 Nice, nice, nice. So you have a lot of experience growing and scaling, you've exited, and now you're in the boat of investing in other companies and training people how to make themselves better leaders and ultimately get their companies more exitable. Does that sound right?

01:16 Exactly, that's exactly what we're doing. So we're a seed stage cybersecurity fund. So we exclusively are the first money people have seen. So we wanna take them from seed and we're all about home runs. There's a lot of funds out there that are like, oh, if we can get like a 2X exit within a year and a half, we're happy. That's not what our goal is. We're looking to see how many home runs can we get. So for us, when we're taking a founding team, it's really important to make sure that you have people who will know how to grow and scale a business from a small team of those 10 people up front to hundreds of people down the road.

01:55 And is that pretty typical the size you're working with? Someone of that 10, 15, 20 employees and they're just kind of trying to figure out, all right, time to raise money. What do we need to do next?

02:05 Yeah. Oh, when I first start working with them, it's often two people. Like it'll just be two people with a clever idea. You know, maybe they've got some industry experience and they're ideating. They don't even have a company yet. And we're going to engage at that point to figure out, like, do they have the potential that you really want to write them that check and then how do you help them grow and scale? So we function sort of like a sim somewhere between an incubator. And I like to say reverse private equity. I think the stereotype of private equity is they buy into your business and fire your executives and bring in their own. And we do the opposite, which is we give you money and now we provide you a bunch of executives to fill out your team until you can replace us. So we have a whole marketing organization that does early stage marketing and we get fired by our portfolio all the time because at some point they want their own marketing team.

02:55 I love it, I love it, I like that model a lot. So you have a good, no, that's actually a really smart way to do it and I would consider raising a fund like that because I think, you know, really the smartest money you can get, especially at SeedRound, is one that can help you really tell your story and get your product out there so that you can make it a little further down the road, stretch that seed money far enough so that they're not giving up as much equity later. Is that kind of the drill?

03:27 Yep. It really is because the challenge of scaling anything, right? Is, you know, a one person business and a 10,000 person business have to do all of the same thing. So there's more coordination costs at 10,000, but you need to have people doing marketing and sales and product and everything, but when you're one person company, you're doing all of it. And the problem is when you want to add a second person or ad specialist, like if you wanted to add a marketing person as your second person, well, what you needed was 10% of a great marketer for six months. But now you're paying a full-time person who you don't need them. Once you do your launch, you have for a little bit. And so by providing that capability early, it's like you get that, that skill, but you don't just have to go outside on the market and go find somebody and hope that they work, you get to work with somebody whose money is really your money.

04:12 I love it. You know, I've done a lot of fractional CMO work in my life and I think that what you're doing is such a smart play because, you know, they can't really afford a full-time CMO who knows what they're doing right at the start. And so when you bring in those resources and those people and really set the path and the tone for their marketing, boy, it just helps all of the sales. It helps the whole company kind of get unified behind that mission and vision that the marketers typically set forth.04:44 It gives you that before you would normally have access to it.

04:47 I love it. And for people that are listening to this, honestly, this is a really fascinating concept. I always recommend if you're looking for money, you're looking for seed money, make sure it's strategic in some way, shape or form. But Andy, this is really, really awesome. What does your portfolio look like and how many, what types of companies you said cybersecurity, like where are you at and what do you focus on?

05:09 Yeah, so it's exclusively cybersecurity companies. Every one of them started in Israel. Many of them have relocated to the United States. Companies that have exited from us include Exonius and Twistlock, companies still in our portfolio, Orca Security, Vulkan Cyber Hunters. So companies that are very focused in the cybersecurity space. And then we have a lot of new ones always coming in because we make somewhere between one and five investments a year.

05:39 Nice, that's awesome. Well, that sounds like a really fun find. And now that you, I would imagine being experienced as you are in not only growing your own business, but also kind of riding the exit, getting to these investments and seeing other companies grow, that set the premise for the book, which is sitting behind you, you're launching right now. Tell us about the book and where did this all come from?

06:05 So the book actually started as an antidote to leadership trainings, because I would go to corporate leadership trainings and it'd sit there and I'm like, first of all, it's three hours of like this power play of this, you know, person who's coming in who has to establish credibility in front of a bunch of executives and convince them that they've got something to teach you. And even the best ones, like they still kind of only have one or two things they're gonna teach you. And then what would sometimes happen inside a big corporation, you're like, oh, this is great. Let's take it out to the whole company. And then you get really junior people trying to teach something that they're not the same skilled speaker that the executives got. And so I found myself writing essays and I would write them and send them to my organization. I'd be like, here's what you need to take away. Here's the lesson. And at some point I'm like, this is what leadership is, is just taking all of those lessons and saying, no lesson is going to make you an amazing leader. Like you can't pick one thing, do it all the time and be great. What you have to do is in every situation, find the one skill you're gonna work on and get 1% better at it. Like just push, cause it's like a rope or a cable, right? Cables are strong by how many pieces there are not the strength of any individual wire. And that's what you're trying to do is strengthen all of your wires to make your cable stronger.

07:30 Interesting. And in your perspective and in the book, how do you define like how many different types of leadership principles do you have in there to go over?

07:45 Yeah, so I went over 54. So you could read them like one a week and it'll take you about a year to get through. And each one, like, you know, there's nothing hidden. So you can read the table of contents and every chapter title is a summary of the lesson. So it's quick reference for you or you can go hunt and look. I separate them by what I call personal leadership, the ways that you have to lead yourself because if you don't take care of yourself, it does not matter how well you're taking care of the people around you. Then how, how do you take care of the team? Like what's team leadership look like? And then what does organizational leadership look like? Because when you think about scaling, like that's where organizational leadership really matters is when you no longer have a team of people that report directly to you.

08:29 100%. No, there's so much to say about that. And I really appreciate you bringing that up because there is no one size fits all solution and everyone's got different personality types and everyone needs to focus on different parts of leadership. And so this is awesome. And I would dare say that there's probably nobody out there who is 100% awesome at any one thing, but rather.

08:51 Absolutely not. I find myself like learning, relearning some of my lessons and I'm like, oh God, I really suck at that. And I wrote the book on it.

08:59 Right, right, right. Right, well, there you go. That's perfect. You know, and I like the cadence of once a week, you pull into a new leadership theme. I think that's just about the right cadence to really put into practice the things that you're taught in the book. That's really awesome. I love it.

19:17 Yeah, because it's like an exercise regimen. Like you don't try to do a brand new exercise every single day. Like you do something new, you work it until you develop the muscle memory. And so I have a newsletter that I send out once a week as well, so people can subscribe to that. It's on Substack. It's the Do How One, you know, leadership guide. And it's like, and here's a chapter cameo. Here's a lesson that's sort of tied to it. And here's a one minute pro tip really for within the workplace, a thing you could do that. I can tell you in one minute what to do, and it's an easy practice to go try.

09:49 I love it. And what's the feedback from your investment portfolio? I'm assuming you've given this book to their leadership teams.

09:57 Yep. Oh yeah. Every, everyone leadership teams has it. You know, I will say some of them read it right away and we're like, oh my God, this is amazing. And I'm like, tell the ones who just shoved it on their bookshelf, because of course there are folks who do that. But I, you know, whenever, 

10:11 I've never done that.

10:12 Yeah, I have a stack of things. Fortunately, it's not this shelf, it's the one right above it. I keep it out of my video camera of all the books I haven't yet read. But what's really helpful is that reinforcement of they're all getting the newsletter. And so they're seeing like these are all CEOs who are seeing this newsletter and being, oh, I can see how that lesson applies. And when I touch base with them, you know, I meet with most of them every week or every other week. They're like, oh, yeah, this one really applied for me.

12:15 That's awesome, awesome. I love it. You know, there's so much to be said about this and it is so important. You know, I was listening to someone online the other day that was saying, you know, I've read so many books and didn't put into practice the things that I read. And so I finally got a little more serious about my reading and determined that I would only read a few books several times so that I could actually implement the lessons. And I like how you've chopped this thing up because it does become a resource. It's more of a resource than a read. You know what I mean?

12:49 Yes. Right. You should, you should keep it not on your bookshelf, but on the desk right next to you so that when you know, somebody brings a challenge to you, you can be like, Hey, what's the lesson I could use here until you get to a point that you're having a conversation like, Oh, I know what lesson I need to reinforce with them so they can go deal with whatever their challenges.

13:06 Alright, so now let's jump back in a little bit. I love the book and I love the concept. Honestly, for those listening, go check it out. Can they buy it on Amazon?

13:16 You can buy it on Amazon, Barnes & Noble, your favorite local independent bookstore, you name it.

13:21 Love it. Awesome, awesome. So as they listen to this book, I want them to think about, I want everyone listening to think about these things because what I'm gonna ask you next is very relevant to everybody listening. And that is, you are an early seed stage investor. And I know you're niche, I know you're cybersecurity and all that kind of stuff, but the principle is likely very transferable to almost any industry. When you're looking at an early stage company with one or two partners or just a very small leadership team and they're just kind of rolling, wearing all the hats, doing everything themselves, what are the red flags that you see? What are the things that you see that you're like, oh my gosh, if you could just tweak this, this and this, we're investing. You know what I mean? Are those things that are very obvious that you're seeing that you're like, not a chance yet until you fix these problems?

14:16 Right. So there definitely are some, and in fact, this was a lesson I had to learn early on in my career, which is that whenever you're doing a hiring or filtering process, you should be looking for nos more than you look for yeses, right? Most of the time you're getting to a no, so you have to figure out what makes a no is easier than what makes a yes. And so the nos that I'm looking for, the first one is do they know how to listen? Right? They have this clever idea. And if I drop a fact that is contrary to their understanding of the world, do they stop? Do they hear it? Do they process it? Or do they tell me that can't possibly be true? Biggest red flag right there. I'm gonna walk away. It doesn't matter if I was right or wrong, but if you do that to a customer, like you're not gonna get customers. So that's sort of the first one, which is, really can you hear evidence and adapt to it and adjust? And some of the best companies in our portfolio, the idea they brought to us is not the company they launched. They heard from enough people like different facts, they're like, wait, we have a better idea. We'll go to market with that better idea. And so that's the first thing we look for. We look for technical excellence. If you're gonna build a company, you have to have on your founding team, people who truly understand the problem, who understand what that solution is going to be that it can't be somebody who's like, oh, I read an article about AI yesterday and so I'm gonna build an AI company. Like if you wanna build a company about AI, then you need to have somebody who really understands that problem space because, but at the same time, they have to not be so deep into that problem space that they don't understand the business problem. Right. So, so really those are, those are sort of my top three big red flags of, can you hear, do you understand the technology and do you understand the business? And then of course, obviously like, do I think there's a market right now? Cause I've had companies that they have all three of them, but I don't think there's a market. 

16:17 Wrong time. Yeah, wrong timing.

16:19 Yep. And I've been wrong. Like I'm, it's not necessarily that I'm perfect, but we're sort of paid by our investors to make those decisions.

16:29 Well, and we all know this statistically, most businesses are gonna fail and most rockets do explode and there's a lot of things that don't happen all the time. But what you're saying is really relevant to a successful launch. And that is really understanding that if you are willing to listen and if you are willing to adapt and if you are willing to admit that maybe the timing's wrong for this product type, there is a chance to bend and tweak and to reshift what you're doing into something that will fit. Is that right?

17:03 Yes, absolutely. Now at the same time, you want somebody who's got that conviction. So that once they say, hey, we're going to go do this. You want them to be focused on it, not continuously trying to bend and shift because in some cases you have to define and build a market, but they need to know when to be declarative and when to be shifting.

17:22 That's really smart. That's a really smart thing. And how do you advise people to do that? Because I think a lot of people hear that new buzzword of pivot and shift and tweak when really they should just be focusing in and lasering on that solution that they've got.17:39  Yeah, so the biggest thing I tell people is I say, write down your runway. Like if you're a startup, like literally the day that you're founded, you know the day you run out of money. You have a budget, you obviously have no money coming in. So at some point you run out of money and you're gonna shutter the business. Okay, great. Now back up on that and write like, what are the points where you need additional capital? Like when do you expect it to come in? So you know you're working that. And put in, when do you need to pivot? So if you say, okay, we're trying this.

18:07 I like that.

18:08 But if I get 12 months out and from when I launch my product and I have zero customers, I need to seriously consider a pivot. Don't wait until 12 months after to be like, should I think about it now? No, no, you wrote it down. That gave you the 12 month window to drive. You can be thinking about maybe, maybe I should be pivoting a little, collect that data, but sort of commit in advance for when you're going to pull the rip cord rather than holding onto it and thinking, do I need to pull it right now? Do I need to pull it right now? Because you don't want to be wasting your energy while you're trying to execute.

18:44 I love that. That is really, really great advice. And honestly, I think that a lot of people are fairly immature at knowing that those foundational decision-making times in running a business, and they don't know that runway means everything. Do you have at least, I know that for me personally, I love to have at least three months, sometimes four months of runway at all times in the bank, just in case something has a hiccup, a snafu because it always is. And if you can't weather those four months, right?

19:19 Right, COVID, like think about what happened with COVID, right, we don't have to predict the next thing, but any disruption that causes all of your customers to say, hey, wait a second, I can't afford to pay you for a couple months. Okay, what are you gonna do about that?

19:37 Yeah, yeah, you're speaking to the guy that just went through that. That was a horrible time. Yeah, it was awful for some people. Some people absolutely loved it, but there were certain business types that needed to pivot or you will die. And my particular business could not pivot because it was just too personal and in-person. It couldn't work the way that it needed to, so I had to put it to rest, put it down, and start something different.And those are detailed by your runway. How much cash flow do you have? Where can you run this business into until you know you've got to either stop, change, or go raise some money and do something different.

20:20 Yeah, and if you want to be like an ethical business owner, you need to figure out how much it will cost you to shutter your business. Because if it's gonna cost you like one month of runway to pay your employees a severance and to deal with walking out of everything, then you have one month less runway than you thought you had. You don't get to run to zero because the last thing you want to do is be the guy who one day people showed up and you said, Oh, by the way, I'm not sending you your last paycheck. And you don't have a job as of a week ago.

20:50 I love it. Now, as you take this book, I would imagine that for you, this now becomes your quick resource. As you're advising these companies that you're working with and helping them, and by the way, I just can't stop thinking about how much I love your model of actually embedding certain key leadership roles on fractional levels to get them where they need to. Just smart, really smart. As you pull your little white book out and you start going through these 1% rules of thumb and leadership things, what are some common themes that you find yourself constantly sharing with new members of your portfolio, people that have been in for two years? Are there different traits that you feel like you really gotta nail this up front and then you're gonna have to learn this one a little bit later?

21:35  Yeah, so the upfront one is delegation. And it's gonna, you're gonna have to keep going and you're gonna have to learn to practice this one. And here's the most important skill in delegation is it will not be done the way you would do it. And you have to practice the, I'm delegating work to someone and what I get back is not what I would have done and that is okay. Because if you don't make that okay, you won't get the work done because people will be too afraid. And they'll feel like they're being micromanaged. Don't micromanage people with the work you delegate. Because as a business owner, especially if you started from one, like everything got landed on you. Your job description is literally, I do the stuff that no one else does, and there is no one else. You hire the first person, you're gonna give them a bunch of work you've been doing, and you have to just accept that they're gonna do it in a way you wouldn't do. But as a result, you get to do a bunch of different work instead. And maybe they're not as good as you are, and you only get, they only took 30% of your job away, but it's a full-time job for them. Well, guess what? You just increased your productivity by about 40%. Great, go take that productivity and go run with it.

22:50 And ideally, not only are you stealing that time back, but ideally you hire someone that's better than you at that thing, that is the best hire, right? It's like, it's okay to admit that you're not the best at that particular thing, and if you are the best at one particular thing, don't give that part away until you've given away all the stuff you're not that good at.

23:08 In fact, find the work that you don't like doing and takes a lot of time for you and hire somebody who loves doing it. 

23:17 100%.

23:18 And it is easy because they're going to be like, wait, I got a job doing this. I get to keep your books. You're like, yeah, I hate keeping books. Like find specialists and hire them.

23:27 Amen. I love that. Yeah, and you know, as companies start to grow and they start to develop and they start to build their team, it really does become a function of you no longer can operate with the guys that wear multiple hats. You gotta have the specialists. Generalists are great at the beginning because they can run with you, they can think with you, they can brainstorm. But when it comes down to, I gotta get this crap done and it's gotta be done really good, you really need to pull back a little bit and say, okay, I can't hire that generalist now, I need that specialist. How do you help him do that?

24:00 So I think some of it is you actually just help them hire the specialists. And sometimes you do it without, right. You're like, so we have an HR department, our HR department will go and resource people for you. Sometimes you go the fractional route with them. You say, hey, let's bring in somebody part-time or on a consulting thing to do this so they can see the value that they get. And sometimes that's the biggest challenge. You'll find somebody who's like, they won't give it up. I've had a CEO who's sitting editing their website and I'm thinking, This is not the work you should be doing. Like anybody in your marketing department can edit the website. Like you can decide the tagline if that's important to you, but you should not be the one in Webflow who's doing that work. Like I do that for my side consulting business because that's me and my wife. Like it's two people, I'm the web monkey. I totally get that. But if you've got like 20, 30 people, like website management, not your problem anymore.

24:56  I love it. Andy, this has been such a fun conversation because I think that we're really kind of peeling back the bandaid on where a lot of our listeners are at. And that is, you know, we've launched, we're making some money, I don't really know what to do next. And what you're describing is so relevant to them because these pains are hard, especially on your first business launch. As you get a little more evolved and you've had multiple launches, this becomes a natural ebb and flow of that transition from launch to scale up. You know, as you start to, you know, after your seed money has kind of run its course and that company is hopefully generating some cash and getting some client acquisition, at what point do you encourage or advise them to start looking for that next round and how does that evolution kind of take place with your portfolio?

25:51 So we're often having them think about their next round very early, right? Because you just don't wanna be desperate. So you're building out the relationships, you wanna be on the radar, so you have an investor who's like, oh, I want to be part of your series A, let me know when that's going to happen, right? So that now they're almost budgeting for you. And so when you're ready, because raising around is a big challenge. I think people don't really understand how much of a coordination issue it is. You know, when you raise your seed round, your seed round really usually is like one lead investor, and then a bunch of your friends and angels who are gonna be on as advisors, and those are easy to find. But a series A and a series B round, you're often juggling like three to five institutional investors. And if you're trying to line them all up the last minute, like that's not gonna work for you. You wanna line somebody up first, have them notionally be like, yeah, I'm interested and then collect something at some point you're like, okay, let's sign a term sheet. But generally we don't want people to have like less than six months of runway at the levels we're doing. Cause we're usually sign, write a check for, you know, between six and $10 million is our first check. So we're gonna give them some good runway, but we wanna make sure that like, yes, you should have. You know, some customers, you should have market fit before you go for your series A.

27:14  Love it. Oh, wonderful advice. Honestly, Andy, this has been such a fun conversation. And for those listening, I highly, highly recommend we're putting links to his book down below. Check it out in the show notes and please go buy this thing. I can't wait to get my hands on it. I think it's gonna be a fun read because it is not a start to finish read. It is a resource that's gonna help all of us become better leaders in our business. And I don't think there's anyone out there who can't use a little bit of touch up principles that you may not be so awesome at. So Andy, thank you so much for being with us. Is there anyone you'd like to give a shout out to before we let you go?

27:53 Well, Todd, thanks for having me. I wanna give actually a shout out to all of the leaders who used to work for me, because many of the lessons that I have written in here are ones I learned from the people who worked for me, rather than learning from the people I worked for. And so for all the listeners, pay attention to the folks who are working for you, because sometimes you've got lessons to learn from them.

28:22 I love it. Not sometimes, all the time.  

28:18 Okay, all the time, let's be honest.

28:20 I love it. Hey Andy, thank you so much for your time and for those listening, honestly, go check this book out, go look at what Andy's up to and I thank you so much for being here.

28:30 Thanks for having me.