Betty Liu | Founder of Radiate: We’re live! Oh my god! How exciting is this? Hello everyone, who is watching us, on our first ever Radiate Facebook live Q and A, and who is our guinea pig for this?
Scott Galloway | Clinical Professor of Marketing, NYU Stern & Founder, L2: That’s me.
Betty: Who is an entrepreneur and professor and also a branding and marketing expert. And Scott, we have been teasing the crap out of you these last few weeks. So, there better be some good questions coming in from our audience.
Scott: Yeah, like my dozens and dozens of fans out there.
Betty: Alright, so we did get some questions from the audience already, but I just wanna let everybody know that as you are watching this, you know, be sure, your questions, if anything kind of, you know, triggers something for you, just submit your questions in a comment section, and we’ve got a whole team behind us, who are monitoring this, and they’ll let me know when those questions are coming in. In the meantime, Scott, thank you so much for joining us.
Scott: Thank you.
Betty: Thank you, thank you so much. And you know, I was saying before, in some of our promos, people who know you, they know you are a professor, they know that you have created several successful companies, like Red Envelope for one, you’ve sold many of them. You’re also the founder of L2, it’s also, should I, probably like a branding, or a digital branding company.
Scott: It’s effectively a research company, benchmarking and education.
Betty: Okay, benchmarking, basically, you evaluate company’s digital footprints. Right?
Scott: That’s exactly right.
Betty: Okay, so. And at the same time, you’re also, I love monitoring your Twitter feed, because you have all these great zingers about companies all around the world and what they are doing and not doing right. These are some of my favorite lines, as of late. So one, death of advertising, you’ve talked about that a lot. Athleisure is about people sexually disappointing someone half their age.
Scott: Midlife Crisis.
Betty: Yeah, midlife crisis. And Yahoo should be euthanized. That was another one. I think you did that one for TV, by the way.
Scott: Yeah, the one that’s getting a lot of, pimping out, I think advertising is becoming acts of the poor and technologically illiterate, I think the wealthy and technologically sophisticated demographic are figuring out ways to pay and avoid advertising. I think advertising industrial complex is about to collapse. Anyway.
Betty: Wow, that’s a big statement right off the bat, what made you think of that? Did you get that from when you were at Cannes?
Scott: Yeah, also, the Cannes festival, which really should be what advertising says least comfortable, but yeah, I think advertising, as supported media, is about to drop off a clip. I don’t think it’s sustainable.
Betty: Okay. It’s a good thing we’re a subscription model then.
Scott: There you go.
Betty: Okay, there you go. Where do you get the gumption, where do you get the gumption, Scott, to say the things that you do, and still be able to partner with businesses?
Scott: Well, fundamentally, it suits my personality. The wonderful thing about academia, is that academia is based on the notion that Galileo said these really controversial things, that society got angry about, so they created something called tenure, which said, that as long as you are pursuing the truth, as long as your heart is in the right place, as long as there is some data behind your statement, that you have freedom to pursue the truth. Now let’s be real, I don’t have tenure, I can get fired at any moment in NYU, and they constantly remind me of that. But I think that there is enough organizations out there that are constantly pimping something or angling to sell to sell more bleach, or more advertising, or build your websites.
Scott: I think that the opportunity to say stuff, as long as your heart is in the right place, is really welcome, and NYU and teaching is a great platform for that. So, people are really, and I also find, one of the wonderful things about America is that we kind of romanticize entrepreneurs and we revere academics. And academics are given a lot of license to be provocative, and people are very generous with me. Because I get it wrong all the time, and people tend to ere the evaluation of my statements on a positive because.
Betty: Even when you make a mistake.
Scott: Yeah, I think people want, I think people respect academics trying to say something. And, I think the key around this kind of stuff is making sure there is some data behind it, when you make statements. And I am wrong all the time. And the key is, it’s like Eisenhower said, plans are useless, but planning is invaluable. I think predictions are useless, but predicting is invaluable. Because the whole idea behind a statement of making a prediction is it catalyzes thought and why did he say that, why is he wrong, or right. And I think that’s productive. So academia is a fantastic place to take advantage of you know, maybe going against the conventional wisdom. I believe when wisdom is conventional it’s no longer wisdom. You know, think about the time everybody accepts an idea, it probably means—
Betty: It’s clichéd.
Scott: It probably means it’s wrong.
Scott: Or watch out. But the time you appoint someone, you know, in the ’90’s the person that knew everything in my world was John Dore, he was the guy who could not get it wrong, and of course he spent the next 10 years losing 100’s of millions of dollars in alternative energy. So, by the time someone gets anointed the smartest guy or gal in the world, that’s when you totally ignore their advice. But, yeah, gumption, I just, academia too, it fits my personality well, and people are very supportive and forgiving when I get it wrong.
Betty: What do you think is the biggest piece of conventional wisdom out there that is wrong right now?
Scott: So, I think there is a few things. One, the pope talks about the idolatry of money, how our society has become just so overwhelmed with objects and stuff and getting more and more shit everyday that we have bastardized our souls. I think in our society, and in Europe and US, we suffer from an idolatry of innovators. And that is, we give way too much license, and way too, and afford way too much credibility and romanticize quote unquote innovators. So, Apple. I think Apple and Google and Amazon get away with stuff that no other company deserves less admired to get away with.
Betty: Like, what, like?
Scott: Well, they’re effectively stealing from the US, they’ve decided to opt out of our tax system, they incorporate in Ireland, they transfer profits from high tax domains to low tax domains so they can basically avoid taxes, they use their own municipal infrastructure, you can freeze your eggs there, they have better healthcare, they’re basically trying to legislatively to the US what the south couldn’t do militarily. I think they’re effectively seceding from the US. Took advantage of the system, and then they don’t wanna pay their fair share.
Scott: We act as if they’re very good for society, and they are great products, there is a lot of economic growth there, but when there is a shooter in northern California and we wanna get into his phone, they say, no don’t get into his phone. You can have a judge, and the FBI issue a search warrant to come into your home, and look through everything you own, but don’t go into the phone, because it’s Apple and we fetishize Apple.
Betty: But you’re saying that basically we admire these corporate, these corporate corporations and they’re given special privilege. Okay.
Scott: We romanticize entrepreneurs, entrepreneurs get tax credits that are ridiculous, I believe that we have totally lost focus on, I think we put these people and these companies on a pedestal that’s not healthy for society.
Betty: Okay, alright, but I wanna get away from that.
Betty: Because what I wanna talk about though is how you built your brand how do people build their brands, Scott. So, I know you can talk a lot about CEOs and sort of the messaging of when CEOs are taking the messaging wrong, and when they’re getting it right. What are some of the key, I guess, what are some of the key elements of messaging that, especially in this digital age, that you need to get right.
Scott: So, in terms of an individual, corporations spend a lot of time, and it’s a very mature industry around messaging, to invest in relations departments, PR firms, so I would argue that firms as a whole are pretty good about it, and where messaging really counts is during a crisis, and there’s only three things you have to remember and but people, companies, consistently forget about them, and that is, if there’s a problem acknowledging the problem, have the top guy or gal be the spokesperson, so you’re seen as taking this seriously, and three, over correct. So General Motors is an example of how absolutely not to do it with their ignition problem. Ignoring the problem, trying to delay an obvious instigation, never coming clean. Martha Stewart went to jail, not for insider trading, she went to jail for obstruction of justice, if she’d said, I made a mistake, here, I had no idea I was trading on insider information, but I did, and I’m sorry, Americans and the justice system, love to forgive, who we get pissed off at, are people who refuse to acknowledge the problem. So, I think, one, if you’re a corporation, it’s acknowledging, acknowledging when you’re wrong really fast and trying to address the issue. Where corporations get in trouble is they play slow ball. In terms of an individual, people spend a lot less time thinking about their own brand, corporations. I bet the majority of your viewers, and executives, spend a lot of time, thinking a lot of time about their company’s brand, but don’t spend a lot of time thinking about theirs. And I think at a very young age, if you can develop sort of almost a value proposition to yourself, professionally, personally. Think of it as the feature benefit, I am very detail oriented, which means anything that leaves my desk, is perfect. I am good with people, which means I create a welcoming atmosphere and culture to our company. That’s important. “I have a hard asset” is not emotional and does not have a lot of empathy for people. There’s a role for that person, in bio companies and companies that go in and cut costs like crazy. Being able early on to identify this is a feature I have, and this is the benefit results in a company and then really focusing on developing that skill, at a young age, is a gift. Because if you ask most people, if I said, to you, or I said to most professionals, summarize you and your point of differentiation, and your brand professionally and how it gives you an edge and why I should pick the Betty Lu bots off the shelf. Most people can’t do that.
Scott: They can say, oh, Sysco is the premier company. I’m going to say, “Microsoft is liberating people with tech. They can quote you their company’s brand, but they can’t say, this is the value I bring and how I’m differentiated. So I think it’s trial and error.
Betty: So, how do you figure, I know, it takes a long time to figure that out, so how did you figure yours out, or how do you figure that out?
Scott: So, it’s trial and error, and I think you gotta dig deep and say, okay, what are the things I’m good at? And first off, it’s just to discuss events. People will tell you, the general, what you hear a lot is, do what you love, alright, which is total bullshit, when you hear someone telling you to do what you love with all your passion it means they are already rich. The key is, to find something you’re good at.
Scott: I, I would like to be quarterback of the Jets, I have a pretty good arm, I have a good plane of vision, I was a decent athlete. That’s my passion.
Scott: Problem is I’m not that good at it. So I found something that, through, trial and error, and of course 10 or 15 years, something I was relatively good at. So, first off, find something that you are good at. Then identify specifically in that organization what is the one thing you can do better in the world. What is the one piece of real estate you own, and create that feature benefit that reverses to an attribute you have early on. Then you wanna do a market check, you wanna go to two or three people that you trust, they don’t necessarily have to be good friends or people who know you. And say, when you think about my value add here, and what’s different about my value add, try and summarize it for me. And they’ll say, well you’re strategic and you’re smart and you’re good with people.
Betty: You check yourself with other people.
Scott: And then also ask them to say where you can improve. Cause a lot of times a lot about personal branding is dialing down the negatives. Right away, after figuring out the positive, what is it that is getting in the way of you going from a 6 to a 7 to a 9 or a 10. And we spend very little time honestly objectively evaluating that. And you need other people to tell you that. And this is, Betty, how you know when it is true, when someone says something to you, and it’s like you got punched in the gut, that means it’s true. Right? My teacher feedback. You know, I get a lot of people calling me bad names, and that rolls off, but then someone will say, you talk about your personal life too much and it undermines your credibility. And it just–
Betty: Hits you.
Scott: Hits you. That’s when you know it’s true. So.
Betty: Is that true by the way?
Scott: Yeah, I think it is, I think I, I’m a fairly self-absorbed person and I spend too much time in class talking about my own personal stories and unless it’s related to class, I shouldn’t waste time because they’re spending a lot of money on it. My point is, when someone gives you good feedback, I think it’s a gift. And a lot of young people, haven’t identified the one thing that is getting in their way. Are they drinking too much? Right, do they have a reputation as? Do they hold grudges? Are they too emotional at work? Are they scared to speak up? What is the one thing that you can dial down? And I’m not saying you’re ever gonna get rid of it, but just acknowledging it, just knowing it, what is the one thing that gets in the way of your progress? So A: Feature benefits, to the outside, my point of differentiation, what do I own, what do I do the best in the world, it can be a very small thing. And then what is the one thing getting in the way, and I’m gonna consciously dial it down.
Betty: Right, cause we all have that. So, Amy is sitting behind the camera and she is looking at questions that are coming in, and so, what’s are first question, Amy?
Amy: Okay, so we have, David Cote on Twitter, and he asks, who would you have chosen as Yahoo’s CEO instead of Marissa Mayer and why?
Scott: Yes, so I’ve gotten a lot of heat, and your current employer, Bloomberg, I’m sort of very critical of Marissa Meyer. I think she’s gonna go down as the most overpaid CEO in–
Betty: Why are you picking on her?
Scott: It’s not picking on her, I don’t know her–
Scott: I think she’s probably a lovely person–
Betty: Right, okay.
Scott: An impressive person, but as a CEO–
Betty: So, worst CEO in history.
Scott: But as a fiduciary, well that’s probably a little bit much, there’s been some CEO’s who are in jail, and I don’t think she’s done anything illegal.
Scott: But a company reduced revenue by 20%, cut even down to half, hire people who are fired 18 months or 12 months later, end up with a 110 million dollar severance packages. The worst acquisition in the history of technology, Tumblr, 1.1 billion, I mean whether it’s bad management, whether it’s bad capital allocation, whether it’s bad strategy, sort of a trifecta, it’s like where bad, the hard rock hall of fame of bad management, that has just destroyed a ton of shareholder value.
Betty: But how did you see that early though, because you know, she had a big shining star around–I mean, she had a big halo around her for quite some time. I mean, now some of what you’re saying is actually coming to light, right? Because Yahoo is under the gun right now, people are talking about some of her poor decisions, you know what people are saying about her poor decisions, with the company, so what did you see early on? I’m curious, have you seen that pattern with other CEOs?
Scott: I thought the stakes were pretty ugly pretty early. I mean Tumblr, 1.1 billion dollars for a company where I think 40% of the pages were porn. And they kept saying that the revenue was non material, i.e. there is none. And you go on the site, and basically, and then there were all sorts of rumors–
Betty: But I don’t know if that was obvious in the beginning. When Tumblr was first announced, I mean, people thought, you know, this is a smart acquisition right?
Scott: I disagree. The rumor and around New York was that their backers had stopped funding them, they were totally fed up with the company, and that the company could potentially go out of business. So, and it was acquired the exact same time that Instagram was acquired for the same price or slightly more. And you look at the metrics and proposition of Tumblr, at the time of Instagram, I’m sorry, of Tumblr, and there was just no comparison. This was a stupid acquisition, from day one. It made no sense, totally shareholder destructive. The hiring decisions, the acquihires, 2 billion acquisitions, none, as far as I can tell, very few of them have worked out, this has just been, it’s just been a disaster, it’s gone on way too long, and this is a company that seems to be you know, just kind of captive of bad governance. And I don’t blame her as much as I blame the board. And if you look what really happened here, this was a classic hedge fund pump and dump. Third Point took a big position in the company, and then wanted to bring in someone that would potentially be good, and hype the stock. And the brought in Marissa Mayer. And who doesn’t want, like, a Google engineer who’s a likable woman, this is like, you really wanted her to win, had a ton of press, Obama posters, stock runs up, she’s a very compelling person a very articulate. And what do they do? they put two or three people on the board, the get a chance to observe her up close, her management, what do they do? They sell every share, and they get the hell out of dodge. That was probably the first sign that this was not gonna go well. When the people on the board when the largest shareholders who brought her in–
Betty: Sell out.
Scott: Have a chance to observe her in action and they get the hell out of dodge once the stock is up. And then boom, the stock has crashed ever since then.
Betty: Right, so, to you it’s less about management and more about, just more about the actual deal itself, and how you’ve seen patterns like this before. But, Scott, the question was though–
Scott: So, I’ll give you a couple of examples. I think both the internal candidates, they have Ross Levinson, I think his name was Scott Thompson, struck me as fairly competent people that understood the company. The woman running biz dev there seemed like a really solid candidate. Here’s part of the problem. Tech companies refuse to age gracefully. They refuse to acknowledge when they are mature companies. Yahoo is spending a ton of cash, and everyone refuses to believe that they’re getting older and they should just age gracefully. So they decide, oh we’re gonna be young and hip and we’re gonna reinvent ourselves, and they spend a ton of shareholder money. Yahoo probably could have gone to 2 or 3,000 employees and been one of the most profitable tech companies in history. But no, we need a vision. Right? And we need to start buying stuff. I also have to mention my colleague at NYU calls it tech companies age in dog years, and they refuse to acknowledge when they’re mature companies and should start managing their expenses, acknowledge that they are a mature company, and return cash to shareholders.
Scott: And so I think that was the fundamental mistake, I think they should have brought in an operator, they should have brought in someone who understood the sales value proposition. Instead, they brought in a product visionary, who went on to just destroy tons of shareholder value, this will go down as an unmitigated disaster for shareholders. Now, to her credit, she only controls about ten percent of the value, she’s CEO of a company, that’s responsible for about 10% of the value–
Scott: And the rest is, the rest is their stake in other companies. So, it’s not, it’s a very weird situation, but I think there are probably a lot of people that would have done, I think almost anybody would have done a better job here. The most underrated former Google CEO, Tim Armstrong at AOL, AOL was left for dead, made some very smart acquisitions, knew when to sell.
Betty: And now look where they are.
Scott: And it’s done really well for the shareholders.
Betty: There are some wild statements here, this is, let me get into some other topics here, besides–
Scott: So just one last thing, just a symptom of all this–
Scott: One thing we do at L2 is we track migration patterns off of LinkedIn, we scrape LinkedIn data to see what companies are leaving etc. Do you know what company is effectively serving as a recruiting company for the entire tech industry? Yahoo. People go to Yahoo for three to five years.
Betty: Oh no.
Scott: And then they leave and they go to Apple, Amazon, Facebook, and Google. So here’s the thing, Marissa Meyer isn’t the most overpaid CEO in history, in fact she’s the most underpaid recruiter–
Betty: Oh no.
Scott: In the history. If you want to recruit people, you go strait to Yahoo, because they’re smart, they’re good at what they do traditionally, and they want out. This place has been a–
Betty: So you’re–It’s still a badge to be at Yahoo.
Scott: A lot of good people.
Betty: I hope Marissa Meyers is not watching. Okay, alright. So another question, right? Okay.
Amy: So Carl Boutet on Facebook, asks, if Scott were to get into the retail space, which concepts would inspire him most? What other innovative business models does he like?
Scott: I recognize Carl, I know Carl on Twitter, hi Carl.
Betty: Hi Carl.
Scott: Retail right now, is just end of days. Some of the smartest people in the world are having a really tough time in retail. If Mickey Drexler can’t figure out retail right now, it means something is wrong.
Betty: Right, he’s a genius.
Scott: So retail is just a very strange place right now. The places that inspire me, I think Sephora does an incredible job.
Betty: Oh, I love Sephora.
Scott: Yeah. You’re going into–
Betty: As a woman who loves makeup.
Scott: Anybody who is into retail, or into technology should sign up with their customer loyalty program going in.
Betty: But why do you like them?
Scott: I think they, I think they’re probably the best multi channel retailer in the world. I think it’s an experience, I think they have an outstanding culture. And they’ve taken a category and just become the, you know, they’ve taken a category and just owned it. I think they blend brand and technology better than anybody. It’s a nice company because it, great discovery, they bring up a lot of cool little brands, and they’re fantastic operators. Sephora is now the growth engine of LVMH.It used to be Vuitton. Vuitton is now flat. Sephora is the growth engine. What other retailers do a great job? So I’m biased, I’m on the board of directors of Urban Outfitters, but I went on the board, because I think they’re fantastic at what they do. And I think they’re great operators, and I love the brands, Free People is one of the hottest brands in the world., I’ve always liked Urban Outfitters. Um, who else is doing a great job? Victoria’s Secret does an amazing job.
Betty: Victoria Secret?
Scott: Yeah, great with data.
Betty: I mean, but I constantly hear, because there are a lot of new companies that are being developed and created that are in retail, but I always hear, Scott, that retail is so, if you wanna be an entrepreneur, why do you wanna go into retail, because it is so unforgiving, right?
Scott: Yeah. Warby Parker, they do a fantastic job. Second highest sales per square foot. Right behind Apple.
Betty: I’m wearing mine too.
Scott: Are you?
Scott: Yeah. Somehow that didn’t translate for me. Mine look like they cost 99 bucks. So, why would you go into retail, right?
Betty: Right, like, if you’re thinking about, if you’re in retail, it’s hard, but if you’re thinking about starting a company, I hear a lot of young people do, or a lot of people in general go into retail.
Betty: Because it’s glamorous, it’s fun, but I hear it’s just so unforgiving, so unforgiving.
Scott: So I was stupid enough to start a retail company back in the ’90’s, a couple of them actually. Well I started a company called Aardvark, which was online pet supplies, which continues to be on our basis, the best company I’ve been involved in. 18 months later we sold it to Petopia, and then started Red Envelope. So, there’s a million ways to screw up in retail. You get the merchandise wrong, operations, real estate, human capital, there’s so many things you have to get right. However, if you get them right, it’s an unbelievable scale of business. You look at the wealthiest people in the world. Who are the wealthiest people in Europe?
Scott: Bernard Arnault and LVMH. And then the founders of H&M and Zara are the second and third. So, typically, and any wealth list in most modern countries, the founder of UNIQLO is the richest guy in Japan I think now. So, when retail works, the wealthiest people in Northern Europe, the people who founded IKEA. When retail works, the Walton Family, Walton heirs, have more wealth than the bottom 50% of America. So, when retail works, there’s–It’s unbelievable, you can scale it, it is unbelievably successful. It is a tough, tough business. Another thing you said earlier. I think you said, a decent axiom for young people. I have a graph in my office, and on the x axis is return on human capital, so how hard you work, return on your effort, and then on the y axis is sex appeal. The sexier an industry, the lower the line on your effort. You wanna go to Vogue, knock yourself out, but you’re probably not gonna make a very good living, and it’s probably gonna be a lot of BS and a lot of heartache. Someone comes into my office, and says, I’m going to go work for software and service of Health Care Maintenance Program. I think, oh my God, if I hear something where I want to put a gun in my mouth it’s that boring, I smell money. You wanna open a restaurant? You wanna open a fashion brand, you wanna start a jewelry line, you wanna produce movies? You better have a steady income, because you’re not gonna make a lot of money, and you’re gonna work your ass off, and have to put up with a lot of BS. Because they’re over invested. Careers are like asset classes, when everybody wants real estate, they get inflated, and the return goes down. The industries everybody wants to be in, have the lowest return on your efforts, because everybody wants to be in them. Which means you have to be amazing just to make a good living. So, sex appeal, return on your human capital, inversely correlated.
Betty: So, if you take anything away from this conversation, it’s go into, what did you say? Software Service for healthcare–
Scott: Something that sounds awful.
Betty: Something that–
Scott: That no kid dreams of.
Betty: But that actually makes a lot of sense, because, I mean, you’re not competing with, instead of competing with ten million people, you’re competing with maybe 10,000 people.
Scott: No nine year old says, I wanna be the premier… carry interest tax specialist. Right? And whoever is that guy or gal is killing it right now. Whereas everybody goes up and thinks, you know I really wanna be a Formula race car driver, I’d love to own my own restaurant–
Betty: Right, right, of course.
Scott: So, more sexy, is fine, just better get a lot of emotional reward, because you’re not gonna get financial reward, on a risk-adjusted basis. There will be, there will be the Tory Burch’s of the world, there will be the Francis Ford Coppola’s of the world.
Betty: Yes, but that’s what we focus on.
Scott: But most likely, you and or your son, are not that person. They’re going to be on your couch, waiting tables for a long time. And then finally wise up and go sell software.
Betty: That’s, I think–
Scott: Crushing people’s dreams. Everyday. That’s what we’re doing here.
Betty: Scott, this is a fantastic point, too, I love how we’re doing that, okay. Another question, Amy.
Amy: Sure, so Jokoon Ha on Facebook asks how do you build successful winning startup type business line when you work in a fully regulated matrix, financial services mature business?
Scott: Fully regulated matrix, wow that was a mouth full.
Betty: Okay. I’m trying to understand that question.
Scott: So fintech is super, so fintech, I’ll just go with what business would we start right now. Fintech is super hot right now.
Betty: But doesn’t that mean that’s when you shouldn’t be doing anything in it, right?
Scott: Well, fair enough, it’s hot, so you think, okay, it’s over-invested, there’s way too many, there’s way too many companies, it’s gonna be the hunger games, there’s gonna be a lot of fallout. I think about this a lot. If I were starting a company in purely an economic way, and saying, okay, I wanna build value. I wanna build economic value for me and my stakeholders. There’s some components of the businesses I would look after. I’d want recurring revenue. Hand to hand combat and a services company or a media company, we are constantly starting and stopping and trying to get more business and more revenue every month, constantly selling over and over. Like, I ran a consulting firm for a long time. Get the engagement, got to sell a new one. Wake up January 1, year before we did 10 million, how are we gonna do 12 mil this year? Recurring revenue, stocks are recurring revenue. Subscription is recurring revenue.
Scott: You wanna be, you don’t wanna be, quite frankly, you don’t wanna be Gillette, trying to convince people to buy another package of Gillette razors, you wanna be Harry’s that signs people up for a year. You don’t wanna be selling technology services, you wanna be selling software where they upgrade. Recurring revenue companies trade on multiple revenues, services companies trade on multiple EBITDA. So, recurring revenue I think is good. Technology, at the center of it. The companies that get outsize valuations, typically have some sort of point of technology where someone looks at it and says it would take us awhile to build that. So, partner, either you or you partner with someone else who has that technology, own a niche, it’s impossible to almost go too narrow, because than you can own it. And you can grow out from there, so own a niche. I think, trying to tap into a global marketplace, something where you can sooner rather than later, when you sell stuff into Europe. There’s four or five components of companies that I think create outsize valuation, and I wanna be drawn to those.
Betty: Well, I love the own a niche part, because that’s actually what we’re trying to learn, we’re focused on that with Radiate, obviously, we’re just starting, but the more I talk to people, and the more experience that I’m getting, it’s really like, owning, like owning a channel almost, right? It’s like, you have to be, you come in here, and I’m you know, I’m part of that, I was in that thinking before, which is like you go with this big broad idea and you wanna cater everyone, and you wanna like, because it sounds big and it sounds awesome, and it sounds great. But the more I learn, the more I’m realizing, you really just wanna drill down to as narrow a market as possible, and own it, like you say. I mean that’s so key. Versus like I wanna be everything to everyone, which isn’t gonna work.
Scott: The specific crowds out the general. Find a niche.
Betty: Exactly. Okay, so, in the time that we have Scott, let’s talk a little bit about you being an entrepreneur, because you have run, you’ve created, you’ve built and then you’ve sold several companies, Red Envelope is the one that I know the most. What would you say was your biggest mistake as an entrepreneur. What have you learned from that?
Scott: So, I–
Betty: Tell me where you’ve failed?
Scott: A ton of mistakes, but most of them are a function of my own personal flaws. I’ve struggled my entire career with the difference between being right and being effective. Often times, especially Red Envelope, with the board, and created a lot of controversy, and agita, where, I should have just handled it more elegantly, and more generously, I’m a fairly combative, confrontational person.
Betty: You mean, pick your battles, you mean?
Scott: Yeah, just, when you’re young, you think, as long as there’s right, things will work out. And there’s a difference between being right and being effective. And, you know, if you’re seeking justice, the private sector is not a good place for that to happen, so you wanna say okay, maybe I am right, maybe my venture capitalists are not behaving the right way, or maybe we shouldn’t be taking a finance or whatever it is right now, but how can you be effective? And if you can’t, and it’s not worth it, like you said, pick your battles.
Scott: The other thing I would say is that people romanticize entrepreneurs, the primary reason that I am an entrepreneur is not because I have special skills, but because I don’t have the skill set to survive in a big company. For me, being an entrepreneur is a defense mechanism. Your ability to navigate Bloomberg, to get along with people, to be secure enough, I only had one job, I worked at Morgan Stanley, and I’m embarrassed to admit this, but whenever people went into a conference room I thought, oh they’re talking about me, and they’re planning on firing me. Or do they, I–
Betty: You would think that?
Scott: I had all this unproductive anxiety. Do they know how hard I’m working? Am I gonna get a good bonus? Is my boss gonna get fired, and then I’ll be fired the next day? I had all this BS running around in my mind. As an entrepreneur, you have a ton of anxiety, but it’s productive anxiety. Where am I getting my next dollar? How do I financing stuff?
Betty: Right, but you’d rather be worried about that, than worried about how am I gonna get fired?
Scott: I don’t have the skill set, people look at me as an entrepreneur and think, wow, he’s special. Here’s how I’m special, I can’t survive in a big company, so to make a living, I start my own companies. The majority of entrepreneurs, they have a couple talents, that is they are too stupid to know they are gonna fail. I’ve started companies, whenever you start a company it never makes sense. This does not make sense right now, otherwise it wouldn’t exist. And then you find out, well there is a market for it, and then you work hard, you try to get good people around you. You’re too stupid you know you’re going to fail, and the bottom line is, the key to being an entrepreneur is you are more risk aggressive than anybody else. You are willing to sign the front of a check to go to work, not the back. 99% of America, Betty, would never consider going to work for a month, this is what I did too, I went to work for a month, and you know what I did after working there? I wrote a check for 100,000 dollars to fund the company. And I did that every month for a year. And you know what? That sucks. It sucks, working your ass off, and then going home, and talking to your wife, or borrowing money from your parents or friends. And for the pleasure of working your ass off, putting your own money into a company. And people understand it theoretically, but very few people are willing to actually do it. That’s what an entrepreneur is, they’re willing to take their own money, that they’ve already paid taxes on, that’s taken them a long time to aggregate, and put it into their own company. 99% of people are not willing to do that.
Betty: They won’t do that. Is that a sign of an entrepreneur, someone who is willing to do that? Is that a test?
Scott: It’s a requisite, I think it’s a requisite.
Scott: But, by the way, if you have a choice, between being an entrepreneur and going to work for a great company, and you have a skill set, ask yourself, do you have the skill set to be part of a big company? You have to have skills to survive in a big company, and you have to understand how to make alliances, you have to be patient. If you have those skills, on a risk adjusted basis, you’re better off at a big company. They are incredible platforms. My stall mate at Morgan Stanley stayed there for 25 years, and on a lot of levels, in the terms of press and media, I have been quote unquote at least optically more successful, he’s had much less, much fewer ups and downs. And economically, we’re at about the same place. So, this note, we romanticize entrepreneurs, and entrepreneurship, it’s not nearly as cool and as rewarding as people would like to think. There’s a small number of successful entrepreneurs that we romanticize in the media. But, you don’t hear as nearly as much about the, how the–
Betty: Right, you hear all the glory, and you don’t hear a lot of the guts. Okay, I usually like to end these things on a high note.
Scotty: Right, I apologize.
Betty: No, no.
Scott: I gave my life lesson once every day.
Betty: I wanna be like you.
Scott: Trust me, you don’t. Here come the meds.
Betty: Okay, so, but I was going to say I usually like to end these interviews on a high note, but I actually want to ask you, Scott, because I think a lot of people learn from this, is what was your lowest moment? Because you just mentioned all the ups and downs.
Betty: So, I think actually what I take away the most from these kinds of stories and I think our viewers do too, and Radiate members, which is like we always wanna hear like what was your lowest moment though, and then what did you learn from it?
Scott: I’ve had a few of them. The first was, everyone will know failure, personally professionally, doesn’t matter how cool, interesting, good-looking, smart, everybody knows professional and personal failure, it’s just gonna happen. I basically got into a war with my venture capitalists at Red Envelope, I started what’s called a proxy fight, and basically all the shareholders kicked me out of the company. I was living in a seniors community taking care of my mom who had a terminal illness. And I thought basically my career was over. And I was living in a seniors community. I mean it just wasn’t–
Betty: When was this, how old were you?
Scott: I was 39, and the crisis hit at one point I had a lot of money, but at that point I had almost none, and basically I lost this thing, and I’m gonna get kicked out of this company that I started, and I thought wow, this is really bad. Now, the headline news is three years, two years later, a bunch of hedge fund people called me, and said, you seem a little bit crazy, and understand sure, regardless, that’s a good thing in the hedge fund world, we wanna back you to try and take over some companies. And that ended up being a very lucrative career, act of investing. So the thing I always tell people, and that is the only thing that has held true in terms of axioms and , cliches for me professionally, nothing is ever as good or as bad as it seems. When you come off a big success, that is the time to pull in your horns and be more risk conservative. Because there is a regression in the universe that is very powerful. And when something great happens to you, you tend to credit your genius with it, but the reality is, the moons lined up and you got lucky, and chances are you are gonna get unlucky, so pull in your horns. And when something really bad happens, you’re not nearly as stupid as you think, and the key is getting up everyday and one foot in front of the other, and every motion, every failure, will pass. Nothing is ever as good or as bad as it seems.
Betty: Did you ever cry at all?
Scott: I don’t cry a lot. I don’t cry a lot. I probably need to. But no I don’t cry a lot. I don’t think I’ve cried in like 15 or 17 years. On planes and movies.
Betty: I cry all the time.
Scott: Something about the altitude and alcohol, I like to get shitty drunk on planes, because I’m pissed off that I’m in a plane. At my age, I’m like flying around, dealing with luggage and everything, anyway, so when I watch sad movies on a plane, I cry. Other than that, I just get angry all the time.
Betty: Okay, Scott, thank you so much–
Scott: Thank you, Betty.
Betty: For joining us with this–
Scott: Good luck with this.
Betty: Thank you guys for watching, and we’re gonna be doing a lot more of these, with Scott and also with others. So stay tuned to our page, my page, also like this video, and also subscribe to our Radiate Facebook page. RadiateInc is the handle. So, thank you guys.
Scott: Thank you!
Betty: Thank you, Scott! Bye!