Unwrapping Episode 2: Is Podcasting the Future or the Past?

Unwrapping Episode 2: Is Podcasting the Future or the Past? Introduction This episode takes us beyond the disastrous meeting with Chris Sacca, a top venture investor and an early investor in Twitter, Kickstarter, Poll Everywhere, Quirky, Uber and many others. From Chris’ bio on his website for Lowercase Capital: In The Wall Street Journal, Chris was once cited as “possibly the most influential businessman in America.” In 2011, Chris was the youngest member of the coveted Forbes “Midas List” recognizing the country’s top technology investors and has been climbing up the list each year since. Chris is a fixture in the Silicon Valley startup community, in part for the kind of fruitful and fun collaborations with early stage companies for which he was named of the top 10 angel investors in the country by BusinessWeek, and in part for his unforgettable cowboy shirts which earned him a spot on GQ’s ”Worst Dressed List”. Clearly, it was too soon to pitch to someone of this level of investing! Nonetheless, Chris was impressed enough with Alex (and perhaps intrigued to be included in the podcast series?) to promise a follow up meeting with his partner at Lowercase, Matt Mazzeo.  

Listen

Assignment 2: Listen to Episode 2: Is Podcasting the Future or the Past?

Ponder

While listening to this episode, ponder the following questions:
  1. Is he pitching to the right investor this time?
  2. What are the unexpected objections?
  3. What are the factors that matter to the investor?

Does Alex Want to Dream Big?

The subtitle for this episode is subtle but important: “Dreaming big is harder than you think.” Before listening to the episode, one could imagine this refers to the difficulty of scaling a business idea, but there is a more important, more subtle question underneath: Do I want to have a huge, scaled-up business? Alex doesn’t know the answer to that question, because he had never thought about it in such an expanded scale:

“I’m going to have a huge sales force? A big marketing budget?   Really? It’s not that I’m opposed. It just hadn’t occurred to me and it’s hard to believe that it could happen.”

Part of the incredulity comes from the fact that Alex is an experienced writer, editor and storyteller and he knows the sweat and blood it takes to produce high quality, consistent content from his gigs with This American Life and Planet Money. Alex remarks on how ludicrous some of his estimates of market size might be and how intimidating it would be to build a business in the fast and furious way suggested by Matt.

“I’m doing so well I’ve almost entirely blocked out the part of my brain that’s skeptical of almost every single claim I’m making in my pitch.

For example, I’m claiming my company is going to launch three new shows in the first shows in the first year and then three more in the year after that. And I’m saying that these shows are going to come out of the gate with hundreds of thousands of listeners per episode, which is a lot. Very few podcasts have that size audience. But I’m also claiming those audiences are going to get even bigger, as big as the biggest podcasts out there right now, with over a million listeners per episode.”

However, it is more than just the operational aspects that seem to be bothering Alex. A more fundamental question is at play: how did he go from thinking about a podcast platform to discussing how to be the “Instagram of audio?” Q: What got him there? A: His investor.

“I had no idea that investors would counter offer their own visions and try to convince me to sign on with them. “

 

Is Alex Pitching the Right Investor?

Investors like Chris Sacca and Matthew Mazzeo only invest in what they evaluate to have the potential for big, big ideas. They pride themselves on thinking about transformational technologies. From their website:

“We don’t think of ourselves as money managers. That isn’t to say we aren’t tireless and competitive. Nor does it mean that we don’t have a really big fund. In fact, we are ruthless negotiators, aggressive businesspeople, and have no allergy to disproportionately large returns.”  -Lowercase Capital Website

So Chris and Matt choose investments with the potential for a huge payout because for every Twitter (Chris’ fund held more at IPO than any outside investor) they know other parts of their portfolio will underperform or even fail.   They also have the philosophy of helping to iterate ideas:

“Along with relatively small amounts of money, we give them the time, attention, and the empathy that catalyze winning outcomes for all involved. Rolling up our sleeves, we help design front pages, invent new services, prioritize product features, negotiate partnerships, and deal with the everyday professional and personal challenges of startup life”. – Lowercase Capital Website

It’s no wonder that both investors immediately jumped into discussions with Alex about how to transform his business idea to suit the growth trajectory they prefer, especially through use of technology. For example, Matt commented that he feels Alex has “made an assumption that podcasting is the best platform for these incredible shows that you’re creating and I’m not convinced that if you went out and did it through an app-based ecosystem that it might not be more successful.” Is this advice bad? Not really. IF you want to dream big. If you are “feeling shitty” after a discussion with a major investor who says he wants to keep talking, it is because you are lining up their vision with your gut, and it may not be a match. Alex, the master storyteller, is suddenly feeling his whole vision is somehow being accelerated past his comfort level, primarily because he is pitching to the wrong concentric circle. (More on this in a future episode).

The Unexpected Objection: Format

Alex mind is reeling from the operational realities that go along with the promises he is making to the investor, but meanwhile, Matt is focused on something else, what I’ll call the “unexpected objection” – and here is where the title of the podcast comes into play. He doesn’t think that podcasts are a modern idea. They can’t be shared, showed, connected to and, perhaps most importantly; it takes too long to consume them. That is where Alex’s idea does not track with the big ideas of Instagram and Twitter, which feed the instant gratification happy button. Fundamentally, Matt is worried that there has not been enough technological innovation in the format of the product.   He has a point – even the word “podcast” does not feel like part of the mobile, sharing-obsessed, ADD-oriented world we live in. Further, he thinks the name American Podcast Corporation (APC) is an unsuccessful reference to the past, a world with only three major networks.

It’s All About the People

Why is Matt interested at all?  Both he and Chris are impressed with Alex.

“..This one is interesting enough to me because I don’t think there’s many people with your pedigree willing to take a leap into entrepreneurship and who have the opportunity and the access to build brands as quickly and as effectively as you.”

Translation: I don’t fully believe in the idea, but I believe in you. Investors believe that getting the right person leading a team can be as important: WATCH Brian Magerski, a Cornell/Harvard grad and serial entrepreneur (Moxie Software, iMark, Kalivo), comments on this:  The management team is huge. It’s absolutely critical when pitching investors and even when starting your company. There are a whole bunch of different phrases and terms that we will use for this, but they’ll back an A team with a B plan but not an A plan with a B team. And I think that’s important because, it’s because of that execution issue we talked about earlier. The biggest challenge is in making sure that you can execute through the peaks and the valleys and the issues you’re going to run into. And starting with that core nugget and building it into a business and that comes down to the people and it comes down to the management team being able to process the feedback from the market, incorporate that and adjust and make course directions all the way through. And the investors when they want to back something, they look at management risk, market risk, technology risk and the management risk is a huge one and if that’s very high the chances of getting an investment are slim to none from anybody that’s worth their weight in salt in investing. So, we think that that gets looked at all the time and it’s the basis of a lot of our introductions. We get introduced to investors and it’s because I know Brian or I know this team and they’ve done great work at Trilogy, at iMark, whatever. They are a top notch team and it’s a good blend of team. So, that’s why I want you to look at them, they are working on an interesting project that I think has a great chance to succeeding but this team is one that you want to back. And we are raising money for Kalivo, so we just had one of those discussions where we have one person that committed to investing. He invested in iMark. And he’s introducing us to another seed investor in town. And he sat at the table and at the end of the meeting, he said, This is a great concept. I think it’s going to be a great big company, but the primary reason I wanted to make this introduction and why I’m excited is because these guys have done it before and I’ve worked with them before. And that was management team

Have They Missed a Key Value Proposition?

As an avid Startup listener, I feel a key factor that could be critical to the success of Alex’s story is the potential for an addictive element of suspense. As an example of how addictive a sequential podcast can be, consider the Serial podcast series. A spinoff from This American Life, Serial launched during the same fall and spring as Startup and became a global phenomenon. CNN reported these numbers:
  • 5 million –“Serial” is the fastest podcast ever to reach 5 million downloads, in November 2014, according to Apple.
  • 40 million –Estimated number of downloads, as of December 23, 2014.
  • 3.4 million –The average number of times each episode of “Serial” has been downloaded, as of December 22, 2014.
Serial was addictive because it revealed, episode by episode, the attempt to unravel the true story behind the murder of a high school student named Hae Min Lee. Serial is not just a podcast, but more like an audio mini-series, disclosing the ups and downs of an investigative journey by journalist Sarah Koenig, who strongly taps into the human dimensions of the story. Podcasts about Serial were created and listener polls and other interactive elements popped up. In my opinion, Serial’s success has implications for the potential for the Startup series. Serial proved that listeners of all ages (importantly, including the millenials), can get hooked on podcasts and that shows can “go viral” just like YouTube videos. With more than a billion podcast subscriptions just in the iTunes Store, Alex faces considerable competition. Strong storytelling won’t be enough of an unfair advantage to win in the marketplace. Why not aim for the differentiation by creating addictive listening, with easier sharing and interactivity for his listeners?

Takeaways

  1. There is no good or bad growth pattern. They key when raising money is to match the desired vision, business model and growth stage to the right concentric circle, considering the appropriate source, “patient capital” (family and friends, small angels) or “hungry capital” (larger angels, VCs).
  2. To inspire rapid adoption (if desired), business ideas have to resonate with other comparables in the space.
  3. People matter. Never underestimate how much investors look at the person