A version of this post originally appeared on the Mohr Davidow blog on April 21st, 2014.
Mohr Davidow Ventures (www.mdv.com) led a $30M round of funding for BuildDirect in January 2014 and is excited about the company’s disruptive and data-enabled approach to the $500B heavy weight home improvement products industry. Katherine Barr (KB), who joined BuildDirect’s board as a result of the investment, had the opportunity to interview Jeff Booth (JB), the CEO of BuildDirect at a recent C100 (www.thec100.org) event in Montreal called AccelerateMTL.
KB: What advice do you have for entrepreneurs raising money?
JB: Recognize the importance of a spark of connection with a potential investor and always remember that one of the jobs of a CEO is to provide optionality. I once made the mistake of not having optionality by getting too close to one investor. That mistake almost lost the business when the investor decided to wait. When you have multiple options, you can choose the right partner for the right reasons; choose a partner who you really want to work with. It allows you to choose not because you have to or because of stress. One of our company jokes is that one offer is no offer. I recognize that this is sometimes difficult, but I believe there are always options. It takes that belief to look deeper and find them. For eight years we raised $8 million from friends and family and people in the building industry before receiving an institutional round of investment.
In partnership meetings, you want to find a match not only in business interests but in core values – ideally, in both the partner, as well as the investment firm. If the values of the individual differ from the firm, and the partner leaves the firm, it can change things. In Katherine Barr and Mohr Davidow’s case, I felt like I had both all along.
KB: What are the critical components that make it really work between entrepreneur and investor?
JB: Everything humans ever do, we fail first. We fail when we learn to walk and when we learn to talk. Why would business be any different? We fail our way there. At BuildDirect, we embrace it, and we try to challenge the team to create breakthrough thinking. We ask questions like: What would you do if you couldn’t fail? What is the most important thing you could do in the next number of months?
A bad leader cuts somebody’s legs out from under them when they fail and that either erodes trust or limits possibilities. When that happens, you never see failure again. It is still there, but you just don’t see it anymore. Part of the organization dies under that leader, and value is lost.
The same thing applies all the way up to the board. If a board member cuts out the legs of management when something is not working, the board just doesn’t see that information anymore, and the board becomes dysfunctional as trust is lost. Trust is a two way street and is earned over time. Both the entrepreneur and the investor need to be able to have the real conversations and to do that trust is critical. Boards should encourage talk about failure or the biggest problems in the business because that is where the greatest opportunity often lies.
KB: Can you describe BuildDirect’s approach to scaling?
JB: For most things in life, we don’t do the things we need to do because we do the easy things first. We end up being very busy, but on things that don’t add the most value. BuildDirect takes the opposite approach, and we try to do the five most important things every quarter. It has changed our business. When we started the process, a quarterly time period was great. Then the business started accelerating, and we have since reduced the time period to a two month cycle. Every person in the company has an objective, and we review it at the end of the two months. Did it get done? What was the learning? Everyone gets smarter through this process.
We set our objectives by looking for root causes. As an example, measuring sales to determine growth doesn’t work because sales are a lagging indicator and not a root cause. Sales are the result of a number of different factors. When you just look at sales to measure growth and success there is no action that you can take to actually fix any underlying issues. We try to break down what the sales drivers are and create goals and objectives against those. It’s important to create really tangible, action-oriented goals that are measurable.
KB: What are best practices for being a leader/manager?
JB: Never stop learning! And the only thing that stops learning is thinking that you know it all. I failed at it all at one point or another. My co-founder and I didn’t have the skills to create BuildDirect initially. What we had was a passion in an idea that was bigger than ourselves, but I believe that is only half of the equation. The other half of the equation is to be authentic and to just be yourself.
Empathy is one of our core values because we believe it’s key to creating real win/win value for our customers, partners and co-workers. When you truly understand a person’s viewpoint and how they got to it – you see things “from their perspective” – it gives an advantage in creating real dialogue and better solutions for all parties.
Do the hard things first!
If your humility doesn’t grow at least as fast as your power or leadership grows, it might as well be over. I think as human beings, we have a bias against leaders or power because it is often misused. Great leaders pave the way to trust by showing humility.
KB: How has your business changed after accepting funding?
JB: It’s easier, post transaction. 1+1 =3. Having the right person at the table makes it so much easier. The board looks after me, and there is great alignment on a long term vision to build something remarkable. We all care about the same thing.
KB: Any additional words of advice for young entrepreneurs?
JB: You are going to get knocked down, and you need to stand back up. You are then going to get knocked down again and again, and you have to keep on standing up. Learn from people who have done it before you. Learn from every experience. The only thing that defines you at the end of the day is whether or not you stand back up.