Jonathan Lowenhar: Why founder is a state, CEO is a craft

1. 0:00 – 2:56

   Jonathan’s background

   1. LRLenny Rachitsky0:00

      You basically spend all your time working with founders and through that, studying. You create frameworks and training, and you use that in your work. I think that's what many, many founders are looking for is, "How do I avoid pain?"

   2. JLJonathan Lowenhar0:11

      (instrumental music) To be a founder is a state of being. It's an attitude. To be a CEO is a craft. The more founders who can accept that those are two separate things and they're both equally important to build an ascendant startup, the better all of us will be.

   3. LRLenny Rachitsky0:26

      I'm kind of tired of talking about Founder Mode, but it feels like what you're describing is Founder Mode and Manager Mode.

   4. JLJonathan Lowenhar0:30

      Founder Mode gets me angry. That article just got me hot. It really felt like an excuse. We were giving founders a permission to not learn the job. It's not Manager Mode is bad. It's the greatest CEOs know when to calibrate which one is needed.

   5. LRLenny Rachitsky0:46

      Something you talk about are kind of these two phases to a startup journey, and most people focus on the first phase.

   6. JLJonathan Lowenhar0:51

      Phase one is build something people want to buy. Phase two, the one we don't talk about, is now you have to build a company around that thing people want to buy. Building a company is always the same. I don't care if it's medtech or fintech or hardware or consumer.

   7. LRLenny Rachitsky1:04

      You've come up with this methodology that you call the Magic Box Paradigm that helps founders think about how to lead to a successful exit long term.

   8. JLJonathan Lowenhar1:11

      This is a traditional sales process. You build a list of the companies that might want to acquire you. You ping them and you hope you get a deal. Magic Box argues that the best outcomes for early stage startups don't happen that way. You're never for sale. In fact, you have seduced a buyer. They see the fantasy, they fall in love. (instrumental music)

   9. LRLenny Rachitsky1:35

      Today my guest is Jonathan Lowenher. Jonathan runs a firm called Enjoy the Work, which I've heard amazing things about from so many people over the years. Their firm has a singular mission, to help founders become great CEOs. They do this through a blend of mentoring and advising services, which are rooted in their study of how the best startups operate. They take these lessons and fold them into frameworks and advice and training that they offer their CEOs. Their insight, which you'll hear in our conversation, is that most founders don't come into the job knowing how to be a CEO, which includes learning how to do hiring, how to manage financials, figure out growth strategy, road mapping, planning, people management, and so many other skills that nobody teaches a founder. In our conversation, Jonathan shares the most common CEO failure modes that he and his team have seen, the Magic Box Paradigm for successfully selling your startup, a bunch of advice for finding and hiring the best talent, a framework for building a repeatable go-to-market motion, why and how you should learn to trust your intuition more as a founder, and so much more. We could have gone on for so many more hours. Maybe he'll be back to share more advice. If you're a founder or hope to be a founder one day, this episode is for you. If you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. It's the best way to avoid missing future episodes and it helps the podcast tremendously. With that, I bring you Jonathan Lowenher.

2. 2:56 – 9:20

   Understanding the rhythm of well-run companies

   1. LRLenny Rachitsky2:57

      Jonathan, thank you so much for being here welcome to the podcast.

   2. JLJonathan Lowenhar3:03

      Lenny, I am damn excited.

   3. LRLenny Rachitsky3:04

      (laughs) So am I. The reason I'm excited to have you on this podcast is that you basically spend all your time working with founders and through that, studying what causes them pain, what causes them to fail, what causes them to struggle. And then you take that and you create frameworks and training and you use that in your work with founders. And I think that's what many, many founders are looking for is, "How do I avoid pain? How do I avoid these things that I'm gonna probably run into?" So to kind of build on that briefly, can you just help people understand what it is you do, what it is your organization does with founders, how you work with founders?

   4. JLJonathan Lowenhar3:38

      Yeah. I, um... Thank you. I, I'll tell a bit of origin story that I think ends up answering that question.

   5. LRLenny Rachitsky3:43

      Let's do it.

   6. JLJonathan Lowenhar3:45

      I had run a bunch of different types of companies, and they were really different ones. And so I ran a big division for a public company, then I was a private equity CEO, then I did back-to-back startups. And the first one didn't get very far but we sold it, and the second one got really far. And when I left the second one, I was, like many founders, grossly unhealthy (laughs) . 25 pounds overweight, slept, h- wasn't sleeping enough, all the things. And it took a few months to get healthy, and then reflect on those parts of my career. And one of the things that I noticed at the time was, all of those companies, when they got to a good place, when they started to be run well, they were all run well in the same way. It's like, I... How could this be? How could public company, private equity, startups, early stage, growth stage, when they were run well, they were all run well the same way? So I started to obsess about this question. And what it led me to, to, to realize is that every well-run company has a rhythm. It's unmistakable. You can't miss it. You can't not see it. You just spend a couple of days, like, through a spy cam watching a business, you'll see the pattern. So how come some startups get there and some don't? How does a founder learn the rhythm? H- How do they learn how to run a company well? So I started to ask investors, kind of obsessively. And I asked them, Lenny, I asked them all three questions. Same three, over and over and over again. First question was, "Well, describe to me your ideal founder. What's a great founder?" And the answers universally were the same. Investors would use words that meant grit and tenacity and courage and insight. And I'd say, "Great. Question number two. Describe to me a great startup CEO." And they used none of those words. How can that possibly be true? Instead, they described skills. This is a person who knows how to build stuff and sell stuff and recruit people and raise capital and organize humans and financially plan. Question number three, my final one. "Well, how does a founder learn those skills while doing the job?" And I got blank fucking stares over and over again.So it led me down this path that I'm now 10 years into with my colleagues of, well, how does, how do we help founders learn those skills so that their venture investors don't fire them? So that they can actually go build whatever company they want to build, and stay in the job for as long as they want to stay in the job. So that's origin. That's, that's what got me going.

   7. LRLenny Rachitsky6:26

      (instrumental music) This episode is brought to you by Pendo, the only all-in-one product experience platform for any type of application. Tired of bouncing around multiple tools to uncover what's really happening inside your product? With all the tools you need in one simple to use platform, Pendo makes it easy to answer critical questions about how users are engaging with your product, and then turn those insights into action. All so you can get your users to do what you actually want them to do. First, Pendo is built around product analytics, seeing what your users are actually doing in your apps so that you can optimize their experience. Next, Pendo lets you deploy in-app guides that lead users through the actions that matter most. Then Pendo integrates user feedback so that you can capture and analyze what people actually want. And the new thing in Pendo, session replays, a very cool way to visualize user sessions. I am not surprised at all that over 10,000 companies use it today. Visit pendo.io/lenny to create your free Pendo account today and start building better experiences across every corner of your product. PS, you want to take your product led know-how a step further? Check out Pendo's lineup of free certification courses led by top product experts and designed to help you grow and advance in your career. Learn more and experience the power of the Pendo platform today at pendo.io/lenny. (singing) Pendo. I'm excited to chat with Christina Gilbert, the founder of OneSchema, one of our longtime podcast sponsors. Hi, Christina.

   8. C(Christina (OneSchema)7:57

      Yes, thank you for having me on, Lenny.

   9. LRLenny Rachitsky7:59

      What is the latest with OneSchema? I know you now work with some of my favorite companies like Ramp, Vanta, Scale, and Watershed. I heard that you just launched a new product to help product teams import CSVs from especially tricky systems like ERPs.

   10. C(Christina (OneSchema)8:15

       Yes. So we just launched OneSchema File Feeds, which allows you to build an integration with any system in 15 minutes, as long as you can export a CSV to an SFTP folder. We see our customers all the time getting stuck with hacks and workarounds, and the product teams that we work with don't have to turn down prospects because their systems are too hard to integrate with. We allow our customers to offer thousands of integrations without involving their engineering team at all.

   11. LRLenny Rachitsky8:36

       I can tell you that if my team had to build integrations like this, how nice would it be to be able to take this off my roadmap and instead use something like OneSchema, and not just to build it, but also to maintain it forever?

   12. C(Christina (OneSchema)8:48

       Absolutely, Lenny. We've heard so many horror stories of multi-day outages from even just a handful of bad records. We are laser focused on integration reliability to help teams end all of those distractions that come up with integrations. We have a built-in validation layer that stops any bad data from entering your system, and OneSchema will notify your team immediately of any data that looks incorrect.

   13. LRLenny Rachitsky9:08

       I know that importing incorrect data can cause all kinds of pain for your customers and quickly lose their trust. Christina, thank you for joining us, and if you want to learn more, head on over to oneschema.co. That's oneschema.co.

3. 9:20 – 12:05

   The founder mode vs. manager mode debate

   1. LRLenny Rachitsky9:22

      There's obviously this new meme of founder mode. I'm kind of tired of talking about founder mode, but it feels like what you're describing is founder mode and manager mode. You basically have to be good at both. This latter part is almost manager mode. Is that a way to think about it?

   2. JLJonathan Lowenhar9:34

      Yes. Founder mode gets me angry.

   3. LRLenny Rachitsky9:37

      (laughs)

   4. JLJonathan Lowenhar9:37

      That article just got me hot.

   5. LRLenny Rachitsky9:39

      For sure.

   6. JLJonathan Lowenhar9:40

      It... It really felt like an excuse. We were giving founders a permission to not learn the job. If we think about an ascending startup, there's this phase of, "I have to invent something. I now have to figure out how to get my customer in front of this invention and see if it works. I then have to build a business model around that to see if there's some repeatable way to attract, win, deploy my customer and thrill them with whatever the solution is. Okay, now I have to go build an enormous amount of demand, and then I have to build up an operation that can handle all that demand. Oh, and by the way, at some point, figure out how to turn positive revenues into positive cash flows." The idea that the founder who's writing code by themselves doesn't have to advance their skills to learn how to do all those things, and that, in fact, what the article even implies is learning how to do those other things is a negative, is bananas to me. The things required to launch a company are not the same as grow a company, as scale a company, as exit a company, and the best startup CEOs learn them all along the way. There are lots of ways to learn them, I'm not suggesting there's only one path, but founder mode was almost an excuse not to. I do think what's unique about a founder that felt perhaps where that article was trying to go, is that unlike the professional mercenary CEO that gets dropped in, the founder knows everything about what built this company, and they can drop in at the most granular level and play anywhere. And they can drop into a product feature, they can drop into a customer conversation, or a partner conversation, or with a longtime employee that's still in IC and be impactful, and then rise back up if they've done the training and get back into a cockpit to run the company again. And that's, to me, the distinction. It's not manager mode is bad, it's the greatest CEOs know when to calibrate which one is needed.

   7. LRLenny Rachitsky11:56

      Hmm. I love that. I'm glad we got there. Uh, I wasn't planning to talk about (laughs) founder mode, but I think this is really helpful for folks to hear that are founders and people working for founders too.

4. 12:05 – 13:36

   Common company failure modes

   1. LRLenny Rachitsky12:06

      Along these same lines, you have, um, a really helpful and really, uh, funny also, uh, kind of mental model for how to think about...... common failure modes of founders. You kind of have these labels that I love, and this is actually the first thing I heard about Enjoy the Work, is like these labels that you guys use. Uh, and you also have this, a similar mental model for failure modes for a startup. Can you just share these, these modes that you've come up with?

   2. JLJonathan Lowenhar12:30

      Yeah, and if, we, we do take a bit of a comical approach to some of this, um, a- as I've shared with you previously, the name of our company is not an accident. If we can't be playful, we can take the work seriously and not sell, so we do fuck around quite a bit. Um, I, I think, um, if I would separate failure modes for companies versus CEOs for a minute, the company ones are not quite as comedic, but they are ones we see all the time. One is, y- you chose the wrong market. I don't think we need to belabor that one. Lots of your prior guests have talked about the importance of getting that part right, or nothing else really matters. Second, back to what we were discussing a minute ago, like build something people wanna w- wanna buy. Gotta go build the right thing. Cool. Third one, founder dysfunction. We like to joke that more companies die from suicide than homicide. And it's, uh, grim, but also if the two or three people in charge of the business can't get along, nothing else matters. It's all gonna break apart. Uh, and then fourth, execution, and execution now leads back to CEO. Okay, so now we have a bunch of playful ones

5. 13:36 – 25:25

   Common CEO failure modes

   1. JLJonathan Lowenhar13:36

      here. We have the robot CEO who believes emotions should not ever exist at a startup, at which point we train them on a very simple formula. Uh, emotions are messy. Humans have emotions. Uh, startups need humans, therefore startups are messy.

   2. LRLenny Rachitsky13:57

      I love how, uh, engineering-oriented that, uh, advice is, which makes sense for a robot CEO.

   3. JLJonathan Lowenhar14:03

      I also, a little bit more, uh, a little bit more graceful of an answer there, is also our CEOs want urgency and passion and excitement from their teams. They want them working enormously hard for below market comp more often than not with this promise of equity that might ret- return value five or 10 or 12 years later. They want them to bring all of that emotion, but they're supposed to figure out how to surgically cut off the emotions that are inconvenient. That's the robot CEO who believes that we can just have several robots working for us and you just press a button and they do a thing. Um, second one's a pleaser CEO. This is the person who is far more concerned with being liked than running a business. So they can't tell anyone hard news. They can't break ties. They want a consensus on everything, and that's not possible. If you have a group of thoughtful people working for you, they're gonna fight, they're gonna debate, and you want them to. And then at some point you have to call it and say, "No, we're going left, not right." Or the two of you need to go get in a room and deal with something. Or, "Hey, the way you just showed up is not the way I want you to show up." The pleaser CEO won't do any of that. They will simply hide and pray it goes away and it won't go away. Next one's a perfectionist CEO. I like to say that these are the CEOs with the most beautiful product to be delivered minutes before they file for bankruptcy.

   4. LRLenny Rachitsky15:26

      (laughs)

   5. JLJonathan Lowenhar15:27

      This is the person who is far more concerned with being right and believing that there's always a right answer than just moving forward. It creates two problems in a business. One is you're just slow, and the other one is you'll never take any bets because you will build a team that realizes the CEO is not allowed to be wrong, so you can't disagree, you can't use intuition, you can't use gut. Everything has to be utterly factual, and that is simply not possible. In early stage startups you have more questions than you do answers. Everything is circumstantial. It's not like watching CSI Entrepreneurship and you get to see a video to say, "Oh, look, the guy did it." No, we have a bunch of little data points, you have to come to a conclusion. The next one's the angry CEO. Um, I had a founder of mine a bunch of years ago and we were seeing a pattern across the leadership team. And he and I get on the phone one morning and I said, "I have a theory for you. Might be a story, I might be wrong, but I wanna share." He said, "Okay." I said, "I think you wake up in the morning angry and you don't know it, and then you get to the office and you beat the crap out of the first employee that crosses paths with you over something utterly unrelated because you're angry. You realize it a few hours later and you apologize and your team hasn't quit yet because they believe you're a good human who doesn't have good self-control." And then I shared with him, "And you just had your first child. So my guess is, because I'm not a psychologist and I'm not a therapist, that you were modeling something that's happened in your life. Is this so- something you wanna change?" And his answer was yes. And I said, "Great. I have good news and bad news. The good news is because you said yes, we can do something about it. And the bad news is, I don't know what the fuck to do. That's not my job."

   6. LRLenny Rachitsky17:16

      (laughs)

   7. JLJonathan Lowenhar17:19

      The point being no one wants to work for the angry person. I don't care what the equity potential is worth, no one wants to work for that person and the moment they see greener pastures elsewhere, they're leaving. The next one is the one that drives me particularly crazy, it's the laissez-faire CEO who insanely believes that I can just hire great people and utterly ignore them and let markets take care of themselves and they will do all the right things. I have never met anyone, Lenny, that didn't benefit from good management. And the laissez-faire CEO believes that management's not required. And so what they ultimately find is they have really, really good people doing utterly disconnected things and goals are not achieved. So every CEO we can reductively reduce to one of two characters. They're either comfortable with the brake or comfortable with the accelerator. The challenge with those who are comfortable with the brake, what I mean by that is they don't wanna spend any money. So they're driving this beautiful sports car and they're just leaning on the brake the whole time.So yes, they won't run out of money, and yes, they will also get lapped by everyone else and miss the opportunity. And so where their opportunity is, is where can you take bets? Where can you actually downshift that car in such a way where you give yourself a chance in the market? Separate, those who ride the accelerator. We've all met this one. They're gonna run out of money really fast, and this kind of connects to one of our other challenging CEO types, the ready-fire-aim. Most CEOs are really bad at planning, and that's because there's this little-known secret in the Bay Area, most CEOs have never run a business before. Planning doesn't have to be some heavy, bureaucratic, multi-month exercise that begins in August and ends in February, but a little bit of bottoms-up planning to say what are we trying to achieve, how do we quantify what resources are required, wh- what humans are gonna do what, how do we shorten feedback loops so we know in a week, in a month, in two months whether we're on the right trajectory. The ready-fire-aim CEO says, "I don't want to do any of that," 'cause they're improvisational and they just want to take bets, they want to take shots, and that's what got the company started, and that's also, well, what had the company go bankrupt. Uh, the micromanager one is the opposite of laissez-faire. They believe that no matter how many employees they have, they can do the job better. Uh, the challenge with this one is it is massively disrespectful to those who work for you, and we think that, and this is a bit insulting, that everyone that works for a founder can be fit into one of two chunks: They're either an adult or a child. I have a three-year-old. My little girl is amazing, I'm utterly in love, and if she doesn't have a lot of structure and a lot of supervision, she's gonna run into things, man. Into things, off things, through things. But adults don't need to be given utter instruction and watched all the time. In fact, it needs to be the opposite. We agree on what success is, what resources are, and you let them go, and they'll come back to you when they have questions.

   8. LRLenny Rachitsky20:25

      Mm-hmm.

   9. JLJonathan Lowenhar20:26

      The micromanager CEO doesn't see the difference between those two humans. They don't trust anybody, and that's actually the thing under the thing under the thing, so they want to do everyone's work, and that will succeed right up until the point everyone quits.

   10. LRLenny Rachitsky20:39

       This is amazing. Okay, so let me recap the, these labels that you have just for folks. Uh, I have them written down here. So there's the robot CEO, perfectionist CEO, pleaser CEO, micromanager, laissez-faire, ready-fire-aim, riding the brake and then riding the gas, and as you said, the ever-popular angry CEO.

   11. JLJonathan Lowenhar21:03

       You got them all.

   12. LRLenny Rachitsky21:04

       And as people hear this, they're not... I imagine people identi- self-identify a few of these, like, "I have some of this, I have some of that," and it's not like black or white, right? No one's like, "I'm 100% robot CEO, I need to fix that." Right? It's like a pie chart kind of, I don't know, (laughs) what's a visual of this? Everyone's got a little bit of this, basically.

   13. JLJonathan Lowenhar21:23

       That's right. I enjoy giving this talk on stage and watching different founders in the audience cringe at different moments.

   14. LRLenny Rachitsky21:30

       Mm-hmm.

   15. JLJonathan Lowenhar21:30

       But it doesn't mean that they're all one or the other. If they were all one of these and then didn't want to even accept the possibility that there's a little bit of a lot of these that they could work on, they're probably not coachable and they're not gonna be in the talk anyway.

   16. LRLenny Rachitsky21:44

       Mm-hmm. So like I imagine each of these is very particular and it's this journey you go on to, you know, work on yourself. So let me just ask, what's the most common issue that you've found across these labels of type CEOs? What's the most common one and what do you often recommend someone work on specifically to help them through that?

   17. JLJonathan Lowenhar22:02

       I think ready-fire-aim is the most common that we've seen, and that has been an affliction that's been growing in the last number of years. It wasn't long ago that CEOs could paper over poor execution with easy access to capital, and suddenly over the last number of years, we're expecting founders to be better operators. Better operators means eventually being on a path where more cash comes into the business than out of the business. That doesn't happen by accident. The ready-fire-aim CEO has probably suffered this pain, where they took lots and lots of bets, maybe they measured the outcome after the fact, and they were wrong and they were wrong and they were wrong in ways that were expensive, and they've raised their hand to say, "I see it. I want to get better at this." Basic, basic business design and business planning is not some corporate effort. It's some thoughtful exercise that starts with, what are we working backwards from? 'Cause at any given time, Lenny, companies are working backwards from one of four things, whether they like it or not. "I am working backwards from an exit, I'm working backwards for my next fundraise, I'm working backwards from profitability, or I'm working backwards from winding down." We don't talk about the fourth one that- that much. But I gotta choose one. I gotta choose the top of the mountain. More often than not, they're choosing a fundraise. So then we'll ask that founder, "You know your market, you know your investors, you know the next set of investors, we've done some intel. What has to be true to unlock the next fundraise?" And though- that's a qualitative and quantitative answer, but we write it down. "We need to get better at go to market. We need to land our first partner. We need to launch next iteration of the product and show this level of efficacy, engagement," what have you. Can we codify that? Yes. Can we talk through what actions would be required, on what cadence to unlock that quantified set of results? Yes. Do we understand what resources would be required to do those things? Recognize we might have to squint through some of it, but again, the answer is yes. We've now aimed. If we have a culture that has some accountability, that has a communication architecture so there are some rituals about how we meet and how we share information and how we talk through problems and how we, uh, work through bottlenecks...Well, now we have a plan and now we have accountability. I now no longer have to just guess all the time. And this only works for the CEO who says, "My improvisational efforts got me here, but I don't think they'll get me there." Uh, there's a guy I worked for a long time ago and he had this phrase. He had like seven or eight phrases, he would use them over and over and over again. It was hard not to commit them all to memory. And one of them was, "If you keep doing what you're doing, you'll keep getting what you're getting."

   18. LRLenny Rachitsky24:57

       (laughs)

   19. JLJonathan Lowenhar25:00

       And for the ready, fire, aim folks who realize the weakness of that at scale, the way to counteract that is to start with good planning.

   20. LRLenny Rachitsky25:12

       It's interesting that's the most common, uh, type of CEO when with founder mode it feels like it just accelerates that further, the whole meme of founder mode, which is what you're, what makes you upset (laughs) in my sense. Great.

6. 25:25 – 43:07

   The magic box paradigm for selling your startup

   1. LRLenny Rachitsky25:26

      Okay, so I love that you talked about exiting as basically one of the, one of these four working backwards paths because that's where I wanted to go next. I want to talk about some of these specific frameworks and skills and methodologies that you teach and one of them, and it's kind of like for, I want to almost go to the end of, uh, selling your company. And the reason I'm excited to talk about this is if you think about, and tell me if I'm wrong, but it feels like, uh, most startups that succeed end up selling their company. That's the most likely success, right?

   2. JLJonathan Lowenhar25:58

      Yes, by, by and large.

   3. LRLenny Rachitsky26:00

      Okay.

   4. JLJonathan Lowenhar26:00

      By, by far.

   5. LRLenny Rachitsky26:01

      Great, yeah. 'Cause the other option is IPO or just like run this privately forever or, or fail basically and, and fold. So of the successful options, the most common is selling. At the same time, founders have never done this before. They don't know what they're doing. The other side often has done it many times. And so it's a pretty treacherous and scary and high stakes, uh, thing to do and to learn on the spot. And you've come up with this methodology that you call the Magic Box Paradigm that I love that helps founders think about how to lead to a successful exit long term. Can you talk about what this is?

   6. JLJonathan Lowenhar26:35

      I can, and I want to give credit where it's due.

   7. LRLenny Rachitsky26:37

      Oh, yeah.

   8. JLJonathan Lowenhar26:37

      So there's a book by this name, it's called Magic Box Paradigm written by an independent banker named Ezra Roizen. And the book's fantastic and Ezra's fantastic. What we've done is we've operationalized it so that we could teach founders over and over and over again. If the founder wants to hire a banker for this particular process, 'cause we're not bankers, we're not BD, we don't get paid that way. We're teachers. But if they wanted to hire a banker, go hire Ezra. But the m- the methodology itself is a, uh, inversion for how venture and venture boards have thought about startups being ready for sale for a long, long time. It's utterly countered as so much advice that founders have heard. There are, um, two ways you can get acquired. This is purposely reductive. One is you put up a for sale sign. This is a traditional sales process. You build a list of the companies that might want to acquire you. You figure out the categories of buyers or the companies there, the contact lists within that. You ping them and say, "We're open to a transaction," or some euphemism, uh, the like. Uh, you contact them and say, "I'll give you some information now. Sign an NDA, give me an indication of interest by this date." And you work through a process and you pray you have more than one person at the end of the game, try and ratchet them up, sign a term sheet. They will then re-trade along the way right up until the point you die and you hope you get a deal done.

   9. LRLenny Rachitsky28:05

      (laughs) Sounds very familiar.

   10. JLJonathan Lowenhar28:08

       And, and it's one that often will just hit the nervous system of any founder that's been through it a couple of times because man, is it a fraught exercise. What Magic Box argues is that the best outcomes for early stage startups don't happen that way. You're never for sale. In fact, you have seduced a buyer. You have brought someone in. And there are three stages to Magic Box work. There is learn the fantasy, there's prove the fantasy, and there's quantify the fantasy. All right, so what the hell do I mean by a fantasy? You're an early stage startup and you meet a company that is in your space, in your vertical, what have you. And they're much more advanced than you. It's a large business. Generally speaking, another oversimplification here, um, large companies are interested in small companies because they're technology, and small companies are interested in large companies 'cause they're distribution. And there's someone at the large company who becomes fascinated with you. What's the fascination? What they see in their head is, oh, interesting. If I buy your company, this thing happens. The classic example of this is Instagram, like this is the number one example of this. Lenny, do you remember how much revenue they had when they got acquired by now Meta?

   11. LRLenny Rachitsky29:32

       Um, I think it was zero.

   12. JLJonathan Lowenhar29:34

       I think it was zero.

   13. LRLenny Rachitsky29:35

       Okay. (laughs)

   14. JLJonathan Lowenhar29:36

       Do you remember the acquisition price?

   15. LRLenny Rachitsky29:37

       A billion dollars, which was absurd at that point.

   16. JLJonathan Lowenhar29:41

       There was no math Facebook could use, historically speaking, that would justify a billion dollars. It had to be a model on the future. This is Magic Box to a T. They had a fantasy that adding Instagram would expand ad revenue. They figured out some way to prove it. I'll explain more on what I mean by proof. And then their quantification was based on the future. And that's the difference between a Magic Box approach and traditional approaches. Traditional approaches are based on the past, Magic Box is on the future. Let me tell a story. In one of our companies in construction tech, their technology was able to suck in video camera data, uh, from construction sites for project planning. No one was doing this yet.And the business was doing pretty well. I helped the founders, we helped the founders launch the company. We got first product in market, we raised a couple of rounds of capital. The product mostly worked. But we weren't sure it was venture scale as we were going along. And we had some large construction tech companies and real estate companies and development companies leaning into us. And one particular company then said, "Huh. We're really good at construction planning, and we've collected all of this video data that we don't use at all." And the champion on the other side, in the product org, he has a fantasy. "Oh, shit. We take your video analytics platform and plug it into what we do and this is what happens to my business." Now, the person on the other side is a person, and the reason I'm being specific about that is 'cause you don't sell to a company. Magic Box is about finding the person and finding the champion on the other side, the person who has, uh, motivated for their own reasons, career, money, reputation, what have you. They see the fantasy. They fall in love. And this person says, "I'm, I'm in love with this idea if I can grab security data into my product org." Now I have to prove the fantasy. What's different about a champion in this kind of process is they wanna find a way to say yes. They're not looking for a way to say no. And this brings us to the four characters you're going to meet along the path of Magic Box. There might be a fifth. You're gonna meet your champion, you're gonna meet your advocates, you're gonna meet your blockers, and you're gonna meet your buyer. You might meet corp dev along the way. Let me talk about each of those folks. The champion is the one who's fallen in love. They're the ones with the fantasy. They're the ones who are arguing on your behalf. They're the ones fighting for you when you're not in the room. They are texting you. They're telling you things about the business that they're probably not supposed to tell you. The buyer, all they care about is math. It might be a committee, it might be a group. The IC, the EC, the investment group, what have you. They're the ones who actually can sign off on a deal. They care about business case. Advocates. Lenny, do you play chess? I have played chess, yes. You have played chess. So advocates are pawns. Mm-hmm. They don't matter at all until they matter enormously. Mm-hmm. These are folks that like, you're the CEO doing a meeting with your potential buyer, and there are somehow 12 people on the Zoom call but only two do the talking. The other 10 might be advocates. They're rooting for you, but they will take no political risk. Their value is in giving you intel. Blocker. This is the person who can't say yes, but they can say no. This is OpSec. This is procurement. This is legal. You're gonna meet all these characters during the Magic Box dance. Your champion just wants you to get the deal done 'cause they're so in love. So what happens is, they've come up with a fantasy and you as a CEO need to lean into it. This isn't enterprise selling. I am not trying to sell you this thing that I have. I'm just trying to find ways to say yes. So when in my story the person says, "Could we provide you all of our video data that we've collected forever? And you now could enhance our ability to predict whether large scale construction projects are on time?" I don't want the CEO saying anything other than, "We can do that." Now, phase two. "I need to prove it." Okay. Because I have a champion who wants to say yes, proof can be really easy, and the reason the proof is so important is not to convince the champion they're in love with a fantasy. They're already convinced. It's because in almost all cases, big companies buying little company and your champion doesn't have unilateral authority. They're gonna socialize the deal. They have to get buy-in from who? The aforementioned buyer. They have to be able to survive the aforementioned blockers. So eventually when they pitch this to whatever committee is in charge, that committee is going to say, "What proof do we have that it works?" And we just wanna be able to provide the champion with enough evidence that it works. So in this case, we said to the champion, "Well, give us video data, and we will provide you the evidence that you need." But because we're dealing with a champion who's not a cynic, 'cause champions aren't, we could tell them and provide us the data in this way, in this fashion, and here's what we'll send you after. Are we in agreement? We know we're already going to win the proof, and that's critically important in these dances. Number three, quantify. At this point, we're not up for sale, but we're spending a lot of calories on somebody and they know it. So we have our CEO say the following phrase to them. "My board's asking questions. They're wondering why we're spending so many calories on this when it's not really core and we're not selling you our product. I am convinced of how exciting this could be together, but I think we need to do some math so I can explain to my board why this might matter. So let's imagine all this works because it's gonna work, and it's a year from now or five years from now. What changes about your business?" And the champion will tell you, "Retention does this," or, "Deal size goes like this," or, "Market share goes like this." And you'll say to them, "Fantastic. Look, I'm gonna build some shitty verse- version of the model. You tell me what I got right and what I got wrong, but I have a board meeting in 16 days and I need to be able to walk them through the, to justify why I'm spending so many calories on this exercise."You build the model, you hand it to them. If they in any way respond to your model, you've won, because you have now divorced history from future and you are now playing in future. You are playing the Instagram game, in this case. The ending of the story for the company that, uh, I was describing, it was a business sub-two million in revenue. Our prospects of raising series B felt low. We were not yet profitable, and that was an exit that was generational wealth for the co-founders and their families. Uh, the CEO went on and spent two-plus years with the now public company that had ven- that did this acquisition. Um, the technology did get integrated, but it took a long time and they had to do a lot of changes to it, certainly beyond what was envisioned during the diligence process. But all parties are happy and if we hadn't done it this way and we had just been up for sale, we get a dollar for that company. A couple of other side points that are really important here. For any of you founders out there that are thinking about working backwards from an exit, there are two things that I really want to stress. One is, the fantasy is beyond just what is the business change you can have. The fantasy is, your books are in order. Your fantasy is, all of your investors will sign off on the deal and you will have unanimous consent, that the key members of your team are gonna stick around, that you're a joy to work with. Please, God, founder, do not puncture the fantasy at any time. So whatever is starting to shape in your buyer's mind, get to know it. Live that. Everybody wins from that game. Second, corp dev. They will probably show up in this dance. Corp dev make deals. They are not deal sponsors. They are not a champion. They are not a buyer. They are an expert negotiator. Their job is to facilitate deals and get deals done. The most important things to understand is that they can be a leverage point to have a deal move with some process and some pace and some urgency, 'cause either deals have momentum or they die, and corp dev can help there. Second, they are way better at negotiating than you. So, any time dealing with a superior negotiator, the only thing you can do to try and even the scales is move the negotiation async. So founders, repeat after me. (laughs) I'm talking to you directly now. You will say to corp dev, "You know I am not alone in this decision. I love what you just said and I'm excited about this opportunity. Once I see it in writing, I can socialize it with advisors, lawyers, co-founders, whoever." But don't negotiate live. You will lose.

   17. LRLenny Rachitsky39:39

       Let me just say, that was extremely delightful to listen to.

   18. JLJonathan Lowenhar39:42

       Thanks.

   19. LRLenny Rachitsky39:42

       I've never heard, like, a M&A strategy be this fun, and I, it makes me want to sell a company. (laughs)

   20. JLJonathan Lowenhar39:48

       (laughs)

   21. LRLenny Rachitsky39:48

       It's like, okay, let's do this. I'm, I'm hyped. Uh, I think you got it all. I have a few questions. Interestingly, the middle part is, it feels a lot like enterprise sales, which a lot of founders are used to. Understand the stakeholders, move things forward, here's your champion, here's your blockers, here's the buyer. Is there anything there you want to say just, like, how may- what's, like, maybe most different from enterprise sales, which I think a lot of founders are maybe used to? Or is it, like, pretty similar?

   22. JLJonathan Lowenhar40:14

       Yeah, I think three things. One is, um, there are a lot of moments in enterprise sales where we're trying to push for a compelling event. That doesn't work in seduction. Um, the playful metaphor that we'll often use is, um, you've been dating for a while. This person could be the person, but they're not quite convinced yet that, like, it should be a life together and you're sitting at dinner. And in enterprise sales, you're, you're eager to get, you're eager to get it done, you're eager to, like, move the relationship forward and move in and get engaged, what have you. And so you might be inclined to say, "Hey, e- either, um, we move this relationship to the next step or there are a whole bunch of people eyeing me and I'm gonna go date someone else." That conversation never goes well. And in Magic Box, founders are eager to do the same thing, thinking that competition will improve their deal size, when in fact, I think more often than not, that is a negative signal until the very end of the dance. So instead, in enterprise selling where I'm pushing, in Magic Box, I'm always trying to entice. I'm never, ever trying to push. So instead, I might say things like, "Hey, I'm gonna raise my next round in Q1, because I've been intending to do this business independently. Now all I really want to do is win. I just want my product in as custom- many customers' hands as possible. Whether I do that on my own as I was planning, in partnership with someone, or under someone else's roof, honestly, I don't care. But I have a company to run and I'm gonna go raise my next round in Q1, and if I do that, we're probably too expensive for this deal to make sense anymore, and my board'll want me to move on anyway." I'm enticing. I'm never trying to push.

   23. LRLenny Rachitsky42:15

       This episode is brought to you by Vanta. When it comes to ensuring your company has top-notch security practices, things get complicated fast. Now you can assess risk, secure the trust of your customers, and automate compliance for SOC 2, ISO 27001, HIPAA, and more with a single platform, Vanta. Vanta's market-leading trust management platform helps you continuously monitor compliance alongside reporting and tracking risk.Plus you can save hours by completing security questionnaires with Vanta AI. Join thousands of global companies that use Vanta to automate evidence collection, unify risk management, and streamline security reviews. Get $1,000 off Vanta when you go to vanta.com/lenny. That's V-A-N-T-A.com/lenny.

7. 43:07 – 49:28

   Advice for founders on building relationships

   1. LRLenny Rachitsky43:07

      Okay. So I'm thinking about as a founder hearing this, and I feel like what they're probably wondering is that first step of finding that person, starting to build this fantasy. Any advice you could share for a founder that's like, "We probably need to sell this company"? What can they do to start creating these relationships, find this person, create this fantasy in their minds?

   2. JLJonathan Lowenhar43:28

      Ezra does this really well in the book. Again, it has to be not solicitous. So one of our companies, we had maybe 20 months of capital left, and the two co-founders a- and, and our team were convinced this isn't a venture business. We thought it might be a venture business. It's not a venture business. It takes too long to do a deal that's not that interesting with each of our enterprise customers. It was disappointing, but at least we were honest about it. Okay, so who are we gonna sell to? Let's go play this game. So we start with categories, categories of buyers. It could be... For this p- particular example that was in my head, ERP companies could be a buyer, large banks could be a buyer, the big software companies like Microsoft could be a buyer. There were a few different categories and we said, "Great, who are the companies within those categories that make sense?" They're acquisitive. They have the balance sheet for it. There's a corp dev department, so we know that they actually know what they're talking about here. Ideally, there's an existing relationship with core team or advisors or board members. Make a list. Now, how do we meet them in a way without selling them? So one of the examples in the book, which I love, is small startup wants to meet the luminaries in a space, and they have their PR agency set up a panel where they contact the CEOs of the potential buyers and say, "We're putting together a panel of the world's foremost experts in X. We're gonna put four people on the panel, and it's gonna be you, and famous person number two, and famous person number three, and this fourth person that is illuminary to us, and it's our startup CEO." And suddenly you're at the table as a peer. It's a completely different conversation. The second one, and this is gonna sound a little silly, but I am not exaggerating, it works. If you are a CEO founder and you have that title on LinkedIn, it's amazing the responses you'll get. So we made this list and we just started to send connection requests to the CEOs or CPOs or CFOs on our target list and said something as simple as this. "You're doing something really cool. So are we. You game just for a 30-minute chat? 'Cause I don't know where it'll go, but I think it'll be fun." Keep it that informal. It's peer-to-peer. I'm not selling you anything. If you can draw a line to, like, some posts that they had or some speech that they gave, even better. But we found without fail there would be math that would show up, one out of four, one out of five, or one out of six. "Yeah, that sounds fun." Because a lot of those CEOs never talk to startups and that's fascinating to them, especially when presented with the energy of, "I just want to have a fun intellectual discussion." What you're looking for in that first conversation, and this is what we ask our CEOs to do, is to ask questions like, "What do you care most about in the next year? What's the mandate? What about for your department? What are the things that keep you up at night? What's the break? What's the thing that could actually kill everything if you had a pre-mortem for the next year?" Those kind of open-ended questions, because what we're, one, our CEO listening for, is the fantasy to see if there's some intersection between what they care about and what we might be able to squint and say we do.

   3. LRLenny Rachitsky47:07

      It's interesting because it sounds a lot like, uh, there's like a jobs-to-be-done framework here or just, like, what is the job they need done? What is the pain you're gonna solve? And then create a fantasy around how amazing it'll be for them if you can solve that problem.

   4. JLJonathan Lowenhar47:19

      And ideally, they'll say it and you just reflect it back in active listening.

   5. LRLenny Rachitsky47:23

      Mm-hmm. Mm-hmm. Chris Voss-

   6. JLJonathan Lowenhar47:26

      Mm-hmm.

   7. LRLenny Rachitsky47:26

      ... Negotiation Style. Okay. So you're the kind of guest, Jonathan, where I could... Like, the whole podcast could be about each one of these topics and so the, I know there's so much more to talk about here. Let me just leave fo- Let me... I wanna move to a different topic, but to leave folks with one is if they want to, uh, explore this methodology more, there's a book you mentioned called mer- Magic Box Paradigm by Ezra Roizen, right? Uh, if companies want to, like, are in this process starting to think about it, does it make sense for them to come to you and like, "Hey, help me through this process?" I know you said, like, good investment banker. When does it make sense to like, "Hey, let's bring on Jonathan or someone from your team to help them get through this?"

   8. JLJonathan Lowenhar48:03

      We meet two types of founders.

   9. LRLenny Rachitsky48:05

      Uh-huh.

   10. JLJonathan Lowenhar48:07

       Founder one says, "Fix this part of my business." Totally transactional. "I want to raise the next round," or, "I'm hiring people badly," or, "My founders aren't getting along," or, "I want to sell my company." Lenny, to be honest, that's not interesting to us. That's not our work. Go find someone who is, and I don't mean this disparagingly, but like a screwdriver, like fixes one thing. Go fix one thing. Then we meet second type of founder and that founder says, most likely to themselves because it's the only safe audience, "There's some gap between the CEO I am and the one my company needs me to be. There are a set of skills that I'm great at, and there are these things where I know if I'm really honest with myself, if I listen to the quiet voice-"... "I'm soft at these things," or, "I'm not good enough at these things," or have some imposter syndrome about these things. And if I don't get better at them, danger. That's the one we work with, and it's when they care that much about both the hard skill development and maybe the soft skill development in their path to become a great CEO. How to sell the company? It's one of the skills. We teach this to all of our founders, as well as hiring and management and planning. I don't care what the thing is. For every one of our founders, we audit them and say, "Here's what you're great at, here's what you're shitty at, and here's what you've never done before. Now, which of these do you want to work on next, given where the company is in its cycle?"

8. 49:28 – 57:11

   Hiring and building an amazing team

   1. JLJonathan Lowenhar49:28

   2. LRLenny Rachitsky49:29

      Great segue to where I wanted to go with this, which is hiring. So, I hear all the time that a founder's core job is fundraising and hiring an amazing team, basically that's, like, their main goal. Just, like, hire amazing people, the com- the people you hire make your company, create the culture. You got to get that right. But, uh, similar to trying to sell your company, most founders have never really hired lots of people. They've never hired for all these different skillsets they're trying to hire for, and I know that you guys spend a lot of time helping founders hire and find amazing people. Can you just share some of the advice you share with founders for how to find and hire amazing people?

   3. JLJonathan Lowenhar50:06

      Yeah. So, we actually think the CEO has three jobs. We agree with two of the, the, the two that you said, but we think there's a third. One is make sure everyone knows where we're going.

   4. LRLenny Rachitsky50:16

      Mm-hmm.

   5. JLJonathan Lowenhar50:17

      The second one, pick the right people for the team. And third one, give those people the tools they need to win, and you can abstract from those what they all mean, but-

   6. LRLenny Rachitsky50:27

      Love that.

   7. JLJonathan Lowenhar50:28

      Most founders are really bad at hiring. They fall prey to all sorts of pretty common human biases. Uh, the lazy ones, back to laissez-faire, think it's just gambling. Like, "Oh, cool, they worked at Meta and Salesforce already, so hire them," r- it's just gambling. There was work done by, and then codified in a beautiful book, um, I'm gonna make sure I get the names right. Geoffrey Smart and Randy Street, uh, they had a consulting firm that dates back to the mid-'90s, and they wrote a book in, like, 2007 or 2008 called, uh, Who: The A Method for Hiring. We have operationalized that book and then expanded on it, 'cause there's some parts of it that we found a little dated, but it's really still as applicable today as it ever was. And I think there are three core mistakes that founders make all the time that can be really easily rectified. The first one is, you should hire people who have already done the thing you need to have done next. (laughs) And I know that sounds simple, but founders don't think of hiring that way. They start with a job description. We've been taught that for a long time. Start with a job description. It's a fucking mistake. Start with, it's 12 months later. You've hired the person, they started today, 12 months have gone by. You're clinking champagne because of how great it's been. What's changed about the business? What does success look like 12 months later? Document it. And then when you interview people, look for people that have already done that stuff. Second, the notion of, does the person in front of you have a history of creating raving fans? They talk in the book about this idea of, you've been pulled or pushed in your career. If you were an outstanding performer in job A, it is a high likelihood that in job B, someone associated with you in job A is gonna pull you into the next thing, and then pull you into the next thing, and pull you into the next thing, and you'll never do a job search, 'cause you were great. And if you see a history of that, ding, ding, ding, ding, ding, really attractive candidate. Third, core values matter a lot. Culture is not an accident. Culture at scale is the codification of what matters to a business and the ritualization of living those values. It starts with whoever the founders are, and then it will emanate across as long as the founders are super consistent. But that also means you need a methodology for evaluating the next human in front of you on whether they actually represent your values. We think of these interview stages in a way similar to the book. We use slightly different language, but we think that there is a culture interview, there is a functional interview, and there is a technical interview. But they're designed to get at these notions of, have they actually done this kind of work before? Have they been pulled or pushed in their career? And are they your kind of human?

   8. LRLenny Rachitsky54:00

      Funny, on that sp- last detail, actually, I imagine you know this. At Airbnb, there was actually a core values interview team that was formed around studying what the founders, Brian and Joe Nate, s- valued, uh, specifically, and then they codified them into core values of the business. And then there's this team that was, like, a very select, handpicked team, that at every interview loop, interviewed the person for your values.

   9. JLJonathan Lowenhar54:22

      That is a beautiful example of how interviewing for values is independent of title, 'cause you'll find people in the company, at every stage of a company, that are the best ambassadors, the best embodiments of those values. Please use them for interviewing. And in addition, they love it, because they're protecting their castle. Like, they love where they work. They want to keep it that way.

   10. LRLenny Rachitsky54:45

       Mm-hmm. So true. That team was very, uh, real special team, and I was really honored to be on that team. Uh, so let me summarize what you just shared, which I love. There's so much value here, it just keeps going and going. So, when you're hiring, your advice is look for people, one, that have done it before...... two, that have been pulled from job to job by someone else that loves their work and wants them to be with, them with this new company, and then three, their values match the values of the founder and the business, essentially, right?

   11. JLJonathan Lowenhar55:11

       Yes. And if, for the recruiters out there, an, uh, a really simple way to kind of get rid of a lot of the crap that ends up showing at up, at the top of the funnel is just to ask the simple question, even in the cover letter, "Of your last ex-bosses, how many would get on the phone and say you're amazing?" If there's any equivocation in the answer, great, move on.

   12. LRLenny Rachitsky55:35

       So a couple follow-up questions here. One is this point of hiring people that have done it, obviously this implies don't hire kind of junior up-and-comers as much. Thoughts on just, like, when it makes sense to hire someone more junior that's, like, really ambitious, real smart, you think they can learn the job. Thoughts there?

   13. JLJonathan Lowenhar55:52

       So one of our companies is hiring a team of reasonably junior account execs. We're looking for folks that have been out of school for two years. Now, that means they are highly unlikely to have had three years of quota achievements in a simi- you get the point. Okay, so how do you hire someone who's already done it? We know what success looks like 12 months later. For that role, they've learned how to hunt, they've been, um, able to create pipeline of X and close Y in business, et cetera. What we are looking for then in their history is they have any sales chops of any kind. They could be selling Girl Scout cookies, or tickets to some event, uh, or they worked for a nonprofit for a while. I don't care, but I want some evidence that they've sold. I want some evidence that they're comfortable getting on the phone or showing up at meetings or showing up at events. So that they've done it before should be reviewed or thought of creatively.

   14. LRLenny Rachitsky57:07

       Got it.

   15. JLJonathan Lowenhar57:07

       Now, for more senior roles, I want it explicit.

9. 57:11 – 59:45

   Types of executives: architect, optimizer, scaler

   1. JLJonathan Lowenhar57:11

      We think of, for example, for executives, Lenny, we think there are three types of executives that startups end up hiring over time. We call them the architect, the optimiz- the optimizer, and the scaler. The architect, like, s- let's use sales as an example. This is someone who has to build a playbook, so they are going to uncomfortably stay close to the founder, watch and listen and listen to recordings and pick their brain to pull the magic from the founder of like, "Oh, here's the dance that she or he goes through to actually close a deal." And they write first playbook, and the goal of the codification of that is so you can bring on a first account exec and the next account exec, 'cause account execs, back to our language earlier, in this adult/children dynamic, are children. You need to give them structure for them to win. That's the architect. The optimizer, this is someone who's now going from a few account execs to maybe 10, 15, and we now have targets we have to hit. Like, the business is now reaching a different level of professionalism and expectation, and you have to optimize that earlier playbook to try and find more efficiency and performance out of it. The scaler is saying, "Okay, now how do I find leverage? How do I have 10X more account execs," or, "How do I get other people to sell for me?" They're all going to be called VP of sales or chief revenue officer. They're completely different archetypes, and that same person exists in engineering and in product, et cetera. In those cases, I only would wanna bring on an architect if they've been an architect before. If they'd only been an optimizer, they are gonna fail 'cause they've never written playbook from scratch.

   2. LRLenny Rachitsky58:50

      It touches on a conversation I had recently, uh, at, it was a live podcast recording with Shreyas Doshi at, at my summit, where he talks about a lot of people are really frustrated at work because they're in the wrong one of those buckets, essentially. Like, you enjoy certain type of work, and your job is not doing that type of work, whether it's, in your case, scaling or optimizing. And so, it just reminds that if you're frustrated at work, you may be you're one, you're, you're doing, you're, you're in the wrong job in terms of the type of output they're trying to expect from you.

   3. JLJonathan Lowenhar59:18

      The story in my head is that talking to me and my colleagues sometimes can feel by, li- a little like death by frameworks. We have one for everything. And in this example, I, I think if you're gonna be sustainably successful in any kind of job, I don't care what it is, three things have to be true. You have to be good at it, you have to like it, and the market has to give a shit about it.

   4. LRLenny Rachitsky59:35

      Yeah.

   5. JLJonathan Lowenhar59:36

      But if one of those is off, you're not staying in that job long.

   6. LRLenny Rachitsky59:38

      Mm-hmm. Yeah, and this touches on the, the name of your firm, Enjoy the Work, you got to enjoy the work

10. 59:45 – 1:02:54

    Working backward in hiring

    1. LRLenny Rachitsky59:45

       to make it sustainable. Okay, um, one other thing, so one other follow-up question real quick on the hiring, and then I wanna talk about one other bucket of work. And again, I think each of these could be, uh, like an hour or two long podcast conversation. I love that there's this recurring theme of working backwards to inform what you do today. So you, earlier you talked about working backwards from what the outcome you want next for your business, whether it's fundraising or exit or winding down, and for hiring, you had the similar advice, work backwards from what you want this person to achieve in the first year, whether it's drive a sort of growth on, in the product or drive sales. I guess, anything else there of just, like, the power of working backwards versus the typical approach for hiring. You talked about job descriptions.

    2. JLJonathan Lowenhar1:00:26

       Hiring is never the goal, and it's often the first thing that we'll hear from a founder. "I have to hire this person," one that is so dangerous for confirmation bias. Like, the hiring manager is always the one most burdened by that particular bias, but it's also hiring's never the goal. So we will pull them back to, over and over and over again, which of the three milestones matter, right? Fundraise, exit, profitability. What is the change about the business, for example, to get to that fundraise? How do we quantify that change?... some sort of goal-setting framework. I, OKRs, EOs, I don't care. All goal-setting frameworks have the same bones. There's some description of it, there's some quantification of it, there's some work that has to be done, there's some accountability rituals with clear owners and clear agreements. So once I actually have the quantification of here's what work needs to be done, I now know what resources I need to be able to pull that work forward, and therefore now I know what kind of humans I need, whether I'm hiring or renting. And that should drive the conversation, not the, "Oh God, I need another PM." It's no. Here's the set of features that we've said matter most this year. Here's the gap in the resources we have and the resources we need. That's why we're hiring in this role. And here's what success would look like 12 months from now or six months from now. So they're tying back to what would change about the business. And, and this is this recurring theme of our work with our founders. They're so in it, Lenny, that they rarely have time to sit above what they're working on. This notion of working in the business versus on the business. And so much of our work is to separate them from the day-to-day, which is enormously important, not in any way denigrating it, and I need to know where I'm headed and why, and how I'm gonna measure progress along the way. And so, so much of what we're doing with them is to say, I want to hear from you what you think success looks like. I'm gonna push back and pressure test a bunch of things. Can we define that in a way, can we agree on what, who needs to do the work along the way and how we're gonna keep checking on it to keep feedback loops short? Now we can go back in the business and then we'll check again in a week or in a month.

11. 1:02:54 – 1:15:01

    Four key components of a go-to-market strategy

    1. LRLenny Rachitsky1:02:54

       I love that. That's actually a great segue to the final bucket I wanna spend some time on, which is growth and go-to-market, another area that, uh, many founders have never worked on before. A lot of founders are like, "Hey, I have this awesome idea. I'm gonna build this awesome product." I know how to do that. I know what market needs, but building a go-to-market motion to get it into people's hands is like a whole different skill. We spent a lot of time on this on the podcast. You have a really cool simple framework of just like how to think about go-to-market. There's all this like, oh, you need a go-to-market strategy. Um, talk about how you talk to founders about thinking about what it takes to put together a go-to-market plan and how to make it a repeatable motion, uh, versus just, I'm just gonna go to people and try to sell 'em.

    2. JLJonathan Lowenhar1:03:37

       Our founders, even the most capable of them find this topic pretty overwhelming because it branches into so many areas. So we do try and distill it to something that is in bite-sized chunks, and we think of it in four pieces. Uh, the first piece is ideal customer profile. Who do we really want to sell to? What are their qualifications? What are the discovery questions we would use to get to those qualifications? What are the kill criteria to know that this is fool's gold, this really isn't a human? Second bucket, uh, loosely called marketing, but within that marketing is also positioning. So what is our uncommon denominator from the enemies? So who are we competing against? Is it actual companies or is it status quo in some sort? What are they great at? What are we great at? What are we great at that they're not? And then how do we represent that in the world? That's branding and artifacts and identity work, et cetera. Next is demand gen, which we'll simplify to say, how do we go find the humans we want? I've long loved the book Traction, the Gabriel Weinberg. I, I'm, I'm gonna forget, unfortunately, the co-author's name right now. Jason, Jason Marr? Sorry. Where they talk about the 19 channels that all companies have availability to, and they're the same ones. Now the book has got a couple years on it so there are a couple of new channels that have popped out since, but what we then try and expand the aperture for our founders is rather than just think about meeting your next customer through however you did at your last company, availability bias, instead which of these might make most sense next? And a simple two by two matrix can work here, like some experimentation, some brainwriting. Love brainwriting, not brainstorming. I know you've talked about that on prior pods. And then high impact, low effort. Can we think of the three or four experiments we want to run by channel? Let's go play. And then fourth, sales. And this is the codification of a playbook. How are we having the conversation? How are we doing discovery? How are we handling objections? How are we doing demo? How are we moving to close? If we can get through those four, then we can start to talk about deployment and customer success and upselling and account management, et cetera, et cetera. Those are good problems to have. Oh my God, my install base is so large I need to manage it. Great, great fricking problem. But we try and break this complexity of going from individually selling to building a machine into just these four buckets. Who am I selling to? What do we want to say about ourselves? How do we reach them? How do we close them?

    3. LRLenny Rachitsky1:06:28

       Amazing, I was gonna summarize it. You did an excellent job there. Before we follow up on this, you mentioned this term brainwriting. What does that mean?

    4. JLJonathan Lowenhar1:06:34

       Oh, uh, first time I heard of this was Adam Grant. I, I don't know if he's the originator of the idea. Um, brainstorming, um, you talked about this a bit in your Annie Duke podcast as well of, um, how horribly coercive meetings can be. (laughs)

    5. LRLenny Rachitsky1:06:54

       For brainstorming especially.

    6. JLJonathan Lowenhar1:06:56

       For brainstorming especially, and so what many of our founders don't recognize because they just see like, "Hey, I'm just sitting around a table with a group of folks I respect so we can just debate things as peers." No, you can't.You're a founder. Your voice has a megaphone attached to it, even if you can't hear it, so you have to turn down the megaphone if you actually want to learn what your people have to say. So brain writing is I'm gonna expose an idea and I want everyone to now write and weigh in on there. Often... it could be in a survey, it could be in a shared doc, what have you. My preference is in through some sort of methodology, you are now sharing your opinions, comments, edits, dreams in an async way that no one else can see until it's all combined, maybe even ideally without authorship identified. Then when the founders weigh in, you don't know. They're just a part of the mass. Let everyone read the thing. I even like the Amazon, like take the first 10 minutes of a meeting, let's just go read so we're all fully present and then have a debate. What it allows for is the, uh, dampening of the founder effect in meetings.

    7. LRLenny Rachitsky1:08:18

       You're just so full of golden nuggets, that's just like a random tangent that I think could be really transformative for a lot of teams. (laughs) So the advice here is just when you're trying to ideate and brainstorm, don't go in a big room and put Post-its on a wall and talk throughout ideas and have a discussion. Instead, just everyone individually sits and thinks and shares their thoughts and the founder presents like, "Here's a prompt, here's a question we're trying to tackle."

    8. JLJonathan Lowenhar1:08:39

       What it also allows for is an evening of the pl- evening of the playing field of between fast processors and slow processors, introverts and extroverts because they're all equally potentially talented in your room, but if you do live brainstorming, uh, you have diminished all the folks that prefer to sit and chew on something first.

    9. LRLenny Rachitsky1:09:02

       That's very much me. That's exactly how I operate. I need to think and process. I'm not like on the spot quick thinker person, so 100% fan of this approach. Let me come back to your go-to-market framework. I have your note- I have the notes pulled up here. So basically, if you're a founder or even a product builder and you're trying to think about how do I ... People keep telling me I need to go-to-market plan, I need to grow this thing. How do I think about this? You're basically saying there's these four buckets to think about. Uh, who are you selling to? How are you gonna motivate them and get them excited to buy your thing? How do you reach them and then how do you close them?

    10. JLJonathan Lowenhar1:09:37

        Yes.

    11. LRLenny Rachitsky1:09:39

        Luckily, I have podcast and newsletter post on every single one of these buckets. If folks want to (laughs) pursue each one of these, uh, I have templates for ICPs, marketing advice, all these things. So that's good news. There's a lot of content for people to read, uh, if they want to explore this stuff. Let me ask you, where do you often find the biggest bang for your buck when you come to a founder or f- founder comes to you and they're like, "I need to figure out go-to-market motion." Is it just like start from the top and work your way down or is there like, here's where maybe you wanna spend a lot of time?

    12. JLJonathan Lowenhar1:10:10

        Early stage founders, and this is certainly more true for the first-timers, Lenny, than the, the veterans 'cause they learn this problem. The first-timers are like 20 something year olds in a bar and they're being social for the first time in their lives. And anyone that makes eye contact with them is enough for them to say, "I want to go on a date with you." That's it. There's no discrimination of any kind. Like, "Oh my god, they like me. I'm in." That's the mistake that hounds first-timers. The veterans, and those we get our hands on, instead we say, "Let's imagine you could build your perfect customer in a lab, like Petri dish." Ch, ch, ch, ch, ch, ch, ch. You grew them. What do they look like? And if you have any kind of install base, I'll ask the question, I just did this with the founder the other day, they are enterprise whale hunting business, they have four large customers. And I said-

    13. LRLenny Rachitsky1:11:13

        Wait, actually whale... Oh, okay. Whale hunting in terms of large, uh, wealth person or actual whales?

    14. JLJonathan Lowenhar1:11:21

        Uh, the extreme of enterprise selling. (laughs)

    15. LRLenny Rachitsky1:11:23

        Okay. Okay. Got it. (laughs) I wanna see a whale hunting startup. Okay, go on.

    16. JLJonathan Lowenhar1:11:29

        I said, "So which of your four customers is your favorite? Which one, if I got them on the phone, they would rave about you, they would be salivating openly with a chance to evangelize what you're doing for them?" And he goes, "Oh, that's clear. It's this one of the four." "Great. Tell me about them." And what you start to see and pull apart from that is the founder does have an ideal profile. They do have a dream. Now, there are all sorts of risks about is the, is the world too small, is it not a big enough market if they get too tight? And founders get so caught up in that and it's a mistake 'cause all we're looking for in the beginning is a white hot center of opportunity, a small population that is an enormous fan, is getting enormous impact. We can worry about adjacencies and expansion later. I like to remind them that Amazon just sold books. Like we can start with one thing and be great at it. So where the founders often get hung up on for us is that they've moved towards selling without contemplating ideal customer profile, without contemplating qualifications, without quali- uh, contemplating discovery questions to get to that and most importantly, kill criteria of if this is true, do not sign them, even if they want to go out on a date with you.

    17. LRLenny Rachitsky1:12:48

        I'm glad you said that 'cause that's exactly what I believe and I hear often on this podcast is how underappreciated picking your customers and early leads are. And if you think about this funnel you described, figure out who you're selling to, how do you motivate them, find them and then sell them, all this trickles down from who are you going after. Like you know who... You will know how to motivate them if you know who you're talking to versus the opposite. If you, if you're talking to everyone-

    18. JLJonathan Lowenhar1:13:11

        It's the most-

    19. LRLenny Rachitsky1:13:12

        Yeah.

    20. JLJonathan Lowenhar1:13:12

        It's the most expensive mistake of those four.

    21. LRLenny Rachitsky1:13:13

        Mm-hmm.Okay. Is there anything else on go to market or growth that you think might be helpful just to touch on before we close up our conversation?

    22. JLJonathan Lowenhar1:13:25

        The one thing I'll share, kind of this goes back to the ready, fire, aim that we talked about earlier, is that there's implicitly a funnel, a mathematical funnel to what we just described and founders often make the mistake when planning for the year ahead of, "I need to be at this revenue to justify this multiple." And then all of the funnel math is a plug and that's just, that's death. As opposed to, "Here's what's been true for the last three months, six months, nine months, 12 months and then what assumptions can I reasonably make with ways I'm going to influence that funnel going forward to go build up to where I think I'll be a year from now?" And it just lowers the bias that your planning process operates with. But when a founder starts from a place of, "I have to get to three million or we're dead," you're already dead. As opposed to, "What do I really believe I can do to get there? Changing top of the funnel, changing conversion rates along the way, changing, uh, deal size or deal length, et cetera, based on my recent history." And then have a conversation about the gap between where I think the business reasonably can get with some ambition and where I think I need to be financially 'cause that's the more mature conversation and that's the one the ready, fire, fire, aim CEO doesn't have. That's when most founders have only started to learn to have over the last few years when capital dried up.

    23. LRLenny Rachitsky1:14:56

        I love that. I love just how practical and real talk your advice always

12. 1:15:01 – 1:19:12

    Trusting founder intuition

    1. LRLenny Rachitsky1:15:01

       ends up being. Speaking of that, I emailed a founder that you work with-

    2. JLJonathan Lowenhar1:15:06

       Mm-hmm.

    3. LRLenny Rachitsky1:15:06

       ... uh, and asked him, "What should I ask? What should I ask Jonathan when he comes on the podcast?"

    4. JLJonathan Lowenhar1:15:09

       Uh-oh.

    5. LRLenny Rachitsky1:15:09

       And he said something that was really (laughs) -

    6. JLJonathan Lowenhar1:15:10

       (laughs)

    7. LRLenny Rachitsky1:15:11

       ... that's great. Uh, it was really unexpected what he said. He said that the biggest lesson he learned from you is to, as a founder, to trust his intuition more throughout the journey of his startup. Can you just talk about that as something you've learned, something you've seen that maybe founders under appreciate?

    8. JLJonathan Lowenhar1:15:31

       It's impossible not to be a startup CEO and not face many existential moments. Is my company gonna survive? Did I make a mistake? Will I ever be hired again? Should I sell the company now? Should I break up with a co-founder? Should I fire this critical employee? They happen to all of us. And fear is not a good decision maker. Our lizard brain is a really bad decision maker in those moments. And so what we'll often share with the founder who's facing one of these scenarios, and I, I know the CEO you're describing, Anees, he was facing one of these scenarios. We'll say to them, "Do you know that little voice when you get really still? The quiet one that says, 'You should marry this person. You should take this job. You should start this company?' Watch out for that human. They're a bad one." And most of the time, Lenny, when I frame it that way, the person across me says, "Yep, I know that voice." And I'll ask, "How do you hear it?" And there'll usually be some version of, "I have to get really alone, really still, really quiet. Walk on the beach, listen to music, work out, play with my pet." I said, "That voice is who you are. It's not your brain. Your brain is a tool. It's, it's our hands, it's our feet. It's just a tool. It's a pattern recognition machine. But who you are, if you can watch your brain, you, you know what you're thinking. Like, 'Oh, look what my brain's doing.' That means you're n- not your brain. It's something else. And that's the little voice. And that little voice is gonna be right." And where we get screwed up in life is when we stop listening to that voice. When the mania of our or chaos of our lives get in the way of that voice. And so whenever our founders face one of those moments, it's not a framework, it's not a playbook, it's not ... or, or even a directed piece of advice from us to say, "You should just go left. I've seen this before, go left." Nope. I trust founder intuition. If the founder says, "This business is still gonna work, or this CEO is, this co-founder is the wrong person, or yes, it's time to sell." I'm in. We're just here to support them and we try and be the only person in their life that is fully on their team 'cause we're not on the preferred side of in the caps table, we're not fiduciary, we're not board members, not a co-founder. We're none of those things. And so in those moments, we'll just say, "Can you get really quiet?" And the founder you're talking about, I have the story in my head, he was facing a breakup moment with his co-founder and I asked him, 'cause he's good at getting quiet, "What did the voice say to you way back when?" And, and the voice said to him, "This is the wrong fit. This isn't gonna work. He believes in different things than I do and that's gonna go badly." But the lizard brain didn't wanna believe that and so it took another year.

    9. LRLenny Rachitsky1:18:58

       Wow. I had tingles throughout that entire piece of advice. I love how it's also very applicable to, to just life, not even just being a founder. It's a good reminder to trust that voice more.

13. 1:19:12 – 1:20:52

    Founder vs. CEO: different roles, different skills

    1. LRLenny Rachitsky1:19:12

       It's interesting that this also connects to founder mode a little bit, and I'm curious how you think about that, where a lot of the founder mode advice is like, you know, trust, trust your, trust your judgment.... don't hire people to take, to delegate things away. Do you see kind of a, a difference in, like, the core idea founder mode and just like, oh, you sh- but you should actually trust your intuition more?

    2. JLJonathan Lowenhar1:19:35

       Intuition comes from, in my point of view, a deep understanding of self and the capacity to get quiet and be well-resourced, meaning you've slept well and you've eaten well and you have enough love in your world. And I think what founder mode can confuse is, "My intuition says I should just do this job for them and fire these three people." That's not intuition. That's reaction. That's a fear response. And when the founder says, "I sat with this, I felt it out, I can see it. I need to terminate my whole go-to-market team and start over. This isn't working. And I have data that supports it, but I know this isn't working." I'm like, "Let's go with that. I'm in. Let's do it."

    3. LRLenny Rachitsky1:20:36

       And I think you described, a lot of times people feel this, and it takes, like, a year, two years, three years, many years to actually realize that. And your advice here is try to listen to that more and trust it more. Yeah. Wow. Okay. Well, Jonathan,

14. 1:20:52 – 1:24:31

    Closing thoughts and lightning round

    1. LRLenny Rachitsky1:20:52

       to pivot our energy, is there anything else you want to leave listeners with? Last piece of advice? Anything that you think might be helpful before we get to our very exciting lightning round?

    2. JLJonathan Lowenhar1:21:04

       To be a founder is a state of being. It's an attitude, it's courage, it's instinct. (sighs) It's a capacity to push through despite all sorts of evidence suggesting you're wasting your time. To be a CEO is a craft. The more founders who can accept that those are two separate things and they're both equally important to build an ascendant startup, the better all of us will be. And so what I would encourage every founder out there that wants to go build something substantial, go work on your craft in addition to working on the business. Be honest with yourself about, here's the shit I'm bad at. I don't know how to read a financial statement. My board meetings suck. Half my meetings that I have with my leadership team, we all walk out of there saying, "What did we just accomplish right now?" Or I get to the end of my workday and I'm like, "I didn't get anything done." Those are all examples of just not taking the craft seriously enough. I'll leave with that.

    3. LRLenny Rachitsky1:22:18

       I love that. And (clears throat) I think I've made the mistake during our conversation of confusing founder and CEO and making, assuming they're the same thing, and I really appreciate you just, again, pointing out to folks that that's kind of the big distinction you got to start making is there's the founder and there's the CEO. Often they're same person, but different parts of your, of your brain and different skill sets.

    4. JLJonathan Lowenhar1:22:36

       And I'm now fully off the very awkward soapbox I've been sitting on for a long time. So we can go to lightning round whenever you're ready.

    5. LRLenny Rachitsky1:22:42

       (laughs) With that, we've reached our very exciting lightning round. Jonathan, are you ready?

    6. JLJonathan Lowenhar1:22:48

       I'm ready. I'm ready.

    7. LRLenny Rachitsky1:22:49

       First question, what are two or three books that you have recommended most to other people?

    8. JLJonathan Lowenhar1:22:54

       My number one business book that I've recommended, uh, would be Five Dysfunctions of a Team by Patrick Lencioni. I do think it always comes back to team. The right team can solve all the things. And that book is a beautiful distillation of the most common problematic archetypes that show up in a leadership group. So that's, that's the number one.

    9. LRLenny Rachitsky1:23:16

       Amazing. Anything else you'd recommend?

    10. JLJonathan Lowenhar1:23:18

        The second one, it goes more personal. It, it's a book called Untethered Soul by Michael Singer. It's this, was at least for me, the first in- introduction to this idea that I am not my brain, uh, and that my brain can be a tool that serves me well and at times doesn't. Um, so that would be number two.

    11. LRLenny Rachitsky1:23:37

        I've started to read that book and then, uh, I never finished it. So this is a good reminder to give it another shot. Second question, do you have a favorite recent movie or TV show you've really enjoyed?

    12. JLJonathan Lowenhar1:23:50

        I just watched and really enjoyed... By the way, I have a three-year-old at home, so the amount of content I now consume has reduced treme- tremendously. (laughs) But my wife and I just watched Will & Harper. This is the documentary between Will Ferrell and his very dear friend who just recently, uh, transitioned and they road trip across the country together, and it was fricking delightful. It was sweet and endearing and one of the better things I've watched in a while. Uh, TV show, Slow Horses. I, I'm utterly addicted. I'm only in midway through season two, but I've been voraciously sleeping less (laughs) and watching more.

Episode duration: 1:34:35