Giuseppe Grammatico: Welcome to the Franchise Freedom Podcast. I’m your host, Giuseppe Grammatico, your franchise guide, and today we have a very special guest. Today we are speaking with Rand Fishkin. Rand is the co-founder and CEO of SparkToro, former founder of Moz, and author of Lost and Founder, a painfully honest field guide to the startup world. Rand, welcome to the show.
Rand Fishkin: Giuseppe, great to be here. Thank you for having me.
Giuseppe: Thank you, and I apologize for the technology. I know we’ve been trying to get the show started. So and, you know, technology’s always fun, especially when you’re fighting with bandwidth with potentially children on Netflix, and whoever else is in the household. So always appreciate everyone’s patience. So, Rand, I, you know, wanted to kick off the show and talk a little bit, if you can talk a little bit about your background, just to give the audience, you know, who you are, you know, background, how did you get into your current business and what does that journey look like?
Rand’s Entrepreneurial Journey
Rand: Sure, yeah, absolutely. Giuseppe, I started a company called Moz back in 2003, with my mom, Julian. I had dropped out of college and started designing websites and working with her. She was running a marketing consultancy here in the Seattle area. And when we stopped being able to pay our subcontractors who were doing SEO, which is search engine optimization, basically getting, you know, organic traffic from Google and other search engines, I had to learn it myself. And we, you know, we were building an agency at the time, a consulting agency.
The two of us occasionally with a third person, struggling mightily. So, you know, the book Lost and Founder kind of details that process of trying to build that up, nearly going bankrupt, finding a, you know, competitive advantage and a unique niche in SEO and then transitioning that business to a software company in 2007, of which I then became the CEO.
We raised several rounds of venture funding, about $30 million over, I guess it was three rounds. And as, you know, CEO, I sort of led the company from a couple hundred thousand dollars in revenue to about 40 million in revenue and then stepped down as CEO in 2014, stayed with the business another four mostly frustrating years and finally left in 2018 and started this new company SparkToro.
I published Lost and Founder with Penguin Random House in 2018, as well. And then I started this new company, SparkToro, which is in audience intelligence and market research. So yeah, helping lots of other entrepreneurs, I hope, figure out where and how they can best reach the audiences that hopefully will become their customers. And that’s sort of my, yeah, that’s my journey in brief.
Giuseppe: Yeah, no, that’s, accomplished quite a bit. And those are some impressive numbers. I actually had a chance, we were just talking a little while ago, I was on SparkToro, if you could talk a little bit more about that because that seemed to be, you know, the industry I’m in and what I do. I found it very interesting. Can you talk a little bit more about, you know, what, you know, the offerings and how exactly it works? Because I found that to be extremely interesting when I was on the site.
How SparkToro Works
Rand: Yeah, so SparkToro is, so it’s free for anyone to try. So, you know, if it sounds interesting, there’s no sales process or salespeople. But the product is essentially designed to try and help marketers, entrepreneurs, product people, founders, understand where and how they can reach their audiences. So if you, you know, if you are frustrated throwing money at Google and Facebook and feeling like Gosh, is there another way to do marketing?
Is there some other way I can reach my customers in places they already pay attention? You know, you can go to SparkToro and type in my audience frequently talks about franchising and see, you know, people who talk about franchising on the internet, here are the websites they visit and the social accounts that they follow, and the podcasts that they listen to. I’m sure the Giuseppe Grammatico podcast is coming up very high right out there.
I should do that search and find out to be sure before I start spouting off, but you can see the YouTube channels they subscribe to and the words and phrases they use and the hashtags that they follow and all those kinds of things, right? Essentially what we do is we go to your customer’s houses, break into their homes, steal their phones and hack them to see everything. Look, I’m kidding. We’re, that would be totally unethical and illegal. You know what we do,
Giuseppe: The legal version of it, right? I mean, you’re getting the intel basically, right?
Rand: Exactly. Yeah. Yeah. So we
Giuseppe: That works for me. Hey, as long as you get the info, right?
Rand: No, no, no, the complete opposite of that. We essentially grab that data from publicly available profiles, just like Google crawls the web, we crawl the web in sort of a unique way, essentially, from a website about pages, and 10 or 11 different social networks. So, you know, Instagram and Facebook and LinkedIn, and Reddit and YouTube and Pinterest and Twitter, etc, etc. And then essentially, build these profiles of the people and accounts that we find on those, try and connect them up.
And then, you know, munge all that data together and make it searchable so that you can say, Tell me what electrical engineers in California are listening to, or tell me what people who have the word veterinarian in their bio, tell me what Instagram accounts they follow, or I want to know what people who are interested in lobster catching in Maine are watching on YouTube.
And we can essentially give you that data. And I just had this frustration when I was at Moz, that helping people find their audience, if they weren’t going to Google and searching for exactly what that organization was offering, right? If you were trying to, essentially build a business in a niche where there was not a lot of search volume for your product or service, it’s insanely frustrating to figure out where that audience is and how to get them to pay attention to you. And so that’s what we want to try and solve with SparkToro.
Giuseppe: I like that. You know, it’s funny you mention that because we spend, I joined a podcast agency who’s helping with the podcasts and the outreach and the marketing and, you know, we spent a lot of time on, you know, finding your, you know, there’s, we’re helping individuals figure out if business ownership is right for them.
And, you know, through a lot of research and time spent together working together digging deep, you know, we, if that is the right fit, we look at two or three potential franchises. So we, essentially, that can be anyone, right? I mean, anyone can, potentially, so we figured out who are kind of market is and who we want to market to, without, you know, worrying about missing out. Well, I should market to this group and that group and this person. So we finally figured it out. So now the question is now where is everybody? So we actually have the, you know, if it’s corporate executives, where are the corporate executives looking?
So it’s kind of taking it that next step. And I, that definitely grabbed my interest when I was, you know, was taking a look at the site and found that extremely interesting because we didn’t have that answer, quite frankly. You know, we were doing outreach, but we didn’t have a tool or website we can utilize. And I definitely wanted to maybe talk to you a little bit more off the show about that as I was definitely interested in the site. So yeah, so, and the website is SparkToro, TORO.com correct?
Rand: That is exactly right.
Giuseppe: Great. And we will put that in the show notes. So you guys could just click on the website. It’s great. Talk to us a little bit about, and I have a few other questions I wanted to ask you. But while we’re on the topic of SparkToro and what you’ve done, talk to us a little bit about the book you wrote, Lost and Founder.
Lost and Founder
Rand: Yeah, yeah. So I, as I mentioned, right, my previous company, Moz was very much in the world of venture capital startups. And I think that the VC world has, for better or worse, in my opinion, generally worse, dominated a lot of the conversation around entrepreneurship the last 20 years.
And I think that’s not a great thing because what, the right way to build a business for you, for your employees and team, for your customers, for the world and community around you, for sort of the betterment of society for, you know, greater market competition, which is good from a macroeconomic perspective and a GDP growth perspective, is not to build the sorts of, you know, monopolies and duopolies that venture capital is generally seeking. And Lost and Founder is really a tale of what that startup process is like, and a bunch of lessons taken from that experience.
Everything from, you know, dealing with the decision to go from agency and consulting to product, which I think you know, in a lot of classical entrepreneurship senses is viewed as a really good thing. And I give a bunch of examples of why it may not have actually been the greatest thing for us and how many of my peers who remained agency owners ended up not only financially benefiting, but also structurally benefiting with their organizations. And so in talking a little, talking a lot about a bunch of the things that people don’t talk about an entrepreneurship.
There’s a chapter on depression, there’s a chapter on layoffs, there’s a chapter about, you know, stepping away from a business after having built it. There’s, you know, I share my exact salary numbers over time in a chart, showing you how much I made and didn’t make from the company that I started and why, you know, why a bunch of my friends and peers and people who Google me and search for Rand Fishkin net worth, you know, assume that I have lots of money and the opposite is true, right?
So I think there’s a lot of misperceptions that I’m trying to tear down about the world of venture-backed startups and technology startups in general. And my big hope, Giuseppe, is that when people read this book, they don’t have to make exactly the same mistakes that I did. You can go make your own mistakes. But these ones, I hope you can, you know, reflect and resonate and say, Oh, wait a minute, I saw this in Rand’s book. We don’t have to do it this way and change your mind.
Giuseppe: Yes. Yes. It’s, jokingly, we coined the term, actually, the agency I was with, when we put together some of our materials we called, we sited franchising, or called franchising an unfair advantage. So giving someone the advantage, you know, so that they’re not, you know, obviously, yeah, you’re gonna have to make your own mistakes and sometimes it’s the only way to learn. But yes, if you can save yourself some headaches, some, you know, and just kind of sidestep and just grow and spend that time growing versus making those mistakes. Absolutely. So is that, can they pick that up on Amazon? Is that the best place to pick that up?
Rand: Sure. Yeah, Amazon, Indie Books Powell’s. Most bookstores will carry it if you want to buy from your local bookstore, you can go to Indiebound and type in your zip code and they’ll tell you where it’s available.
Giuseppe: Cool. sounds good. We’ll put a link in the show notes as well. I’m trying to think of the next, you know what, let’s go this route because I, before the show, I worked investments, financial services for many years before I, you know, did the corporate career, decided wasn’t the right fit and, you know, started my own business. And owned the family business, not 100% of my own, but decided to go on my own and start my first two franchises back in 2007.
So, you know, when we talk about franchising, obviously, funding comes to play. How are you going to fund it? You know, there’s just so many different options from standard loan to utilizing retirement assets. And there’s just so many different options nowadays. And the big buzzwords you hear, you know, or you hear a VCs, venture capital all the time. How exactly does that work? How do you structure that? I get those questions quite a bit.
Can you talk to someone that does not know what venture capital is, you know, briefly explain what it is and your thoughts? Pros, cons, because I’ve heard both good and bad, both in the industries I’m in, you know, where companies have come in and made the company streamlined, made it more profitable, but kind of lost what the company was all about. So if you could talk a little bit more about that.
The Pros and Cons of Venture Capital
Rand: So, venture capital is essentially one of a number of asset classes that was created in I believe it was the late 60s, early 70s, a bunch of sort of mostly wealthy people lobbied the government to change the tax code. I think it was under the Ford administration, maybe under, maybe even under Reagan that it sort of accelerated. But the big one, the big, I don’t know if you’d call it an innovation, but the big tax dodge was getting long term capital gains tax applied to the holdings of a startup-style investment.
So if you invest in a, you know, a new business like SparkToro or something like that, and you hold the stock for a certain amount of time, I think it’s five years, might even be less now. You get long term capital gains, if and when the business sells. So, you know, if you own 20% of let’s say, I own 20% of Moz, which is about what I own. And that company sells for 100 million dollars, right, then I get 20 million out of that. And long term capital gains is applied rather than ordinary income tax.
And so that is essentially what created the asset class a venture. It is mostly funded by what are called LPs, limited partners who, it tends to be pension funds. So, you know, a lot of large state employers who have pension funds, they’ll put money into an educator pension fund, firefighters and teachers union pension funds and then wealthy individuals, right? So whatever, Bill Gates or Steve Ballmer or, you know, maybe the Bezos estate, something like that.
Giuseppe: Rand, right? So, and yourself, you said,
Rand: Yeah, sure. I have my $5 in the pension fund. No, I love it. That’s exactly the kind of stuff that’s in the book. So yeah, right, essentially, these LPs put money into venture and the way that they, the reason that they do so is because that they want that asset to beat the market returns, right? Market, meaning the public stock market returns. So, you know, whatever, if you run the pension fund for, let’s say, the, you know, Chicago trade, you know, tradesman’s union, and you put 100 million dollars into public stock markets, and then maybe you say, hey, let’s take 20 million of that and put it into a higher risk class like venture with potential for higher returns.
And that’s the hope, right? That they beat the market. Usually, with a time horizon that looks like seven to 15 years is your general goal. And those LPs, limited partners that put these, you know, millions and billions of dollars to work inside venture capital firms anticipate that the venture model will look like something like this.
So let’s say you and I, Giuseppe, we start our own venture fund, right? It’s the Grammatico venture fund, and we raise 100 million dollars and we’re going to put that money to work in 50 companies over the next five years. This would be a very small venture fund, actually. But they’re usually between 300 and 500 million, but we go put our hundred million dollars to work in these companies, these 50 companies, and we anticipate, our model shows us that what’s going to happen is 46 of those companies are going to go bankrupt and make us almost nothing.
Two or three of those companies will have decent returns between three to 10 times the amount of money we put into them. And one or two will be Google, Facebook, you know, have an IPO be worth billions of dollars, Uber, Airbnb, those kinds of companies, right? That’s what we’re hoping for in our portfolio. Basically, the one to two out of 100 making most, the vast majority of the returns and making a fund. About a third, a little less than a third of venture companies, venture capital firms beat the market end up beating the market over a 10 to 15-year time horizon.
But as you can imagine, as an entrepreneur, it’s sort of, it’s very exciting to think that you might be the one in 100 that becomes Airbnb. But for 99 of you, it’s not going to be a great experience. And that is sort of venture capital in a nutshell. I’m sure, if you were talking to a professional venture capitalist, they would give you a much slicker sales pitch, but I don’t know, right? If you boil down the truth of it, I don’t know that it would be massively different than what I just described.
Giuseppe: Right. That’s interesting and I’m glad because we get those questions all the time. And I, you know, it’s much, I said, I am not the professional in that area so I can refer them to this podcast and they can get true insight, really this show so I don’t have to say it, and I cannot describe it as well as yourself. So this was very helpful for an explanation for the many that have asked, you know, over the years, so
Rand: Yeah, and I think for, you know, it’s right for some people, right? If you’re, if you have a business where the startup capital required is fairly intense, right? It’s going to take a lot of money to get a thing off the ground, your thing off the ground, and it’s high risk but if it works out, it’s going to be extremely high return.
And generally speaking, you have a network of connections who will get you into the venture ecosystem and vouch for you. It’s a very much an old boys club. You know, it’s actually extremely, white, a little bit Asian, almost exclusively male, almost exclusively between, you know, about, almost everyone in that industry is between about 40 and 65, almost all in California, in Boston, and a little New York. So it’s very, very insular as a group, and it is all through introductions and connections.
So a lot of the, you know, access to capital is not evenly distributed. It’s not distributed with talent. It is very cliquish. And I think that’s been one of the big criticisms of it as well. And certainly, you know, I tried to detail in my fundraising process in the book, like some of the odd and awkward experiences that go along with that of sort of, you know, building that network in order to get connected and vouched for inside the venture ecosystem.
Giuseppe: Right. Interesting. Now, that’s a, definitely, I have a better understanding as well. So I thought I understood it, but this actually cleared up a few of the questions I had. So you covered quite a bit there and answered a lot of my questions. So switching gears, I know, typically, you know, many people, they go from career to business and, you know, they kind of, you know, they, but they always start with a job. In your case, not the case, right?
You went right into business. But you did have, you did have a bit of time where, I guess was it at Moz where you had stepped down as CEO. So essentially, almost back to being or being an employee of the company. So for, you know, the listeners that are in career transition, advice, any advice, it could be 1, 2, 3 pieces, whatever you can offer, for that person looking to make the transition is, would be greatly appreciated.
Rand: Yeah, I mean, I think for, you know, for me, a huge portion of the reason I stayed on at Moz, I would say was, it was actually two, it was like, almost 50/50. One, absolutely, undeniably was I felt an obligation to this company that I had, you know, created, right? And founded that I needed to see it through to some successful outcome, right?
And in venture, this is one of the things I really should have mentioned when we talked about venture capital, you know, the anticipation is that you need to have a, you know, preferably nine or 10-figure exit. And if it’s nine, it’s hopefully on the higher end of that, right? So, if mas has 100 million dollar exit tomorrow, that’s pretty mediocre, right? That is not going to make our investors very happy, it’s not going to make their LPs very happy.
If it gets to 300, 500, yeah, you know, then then they’ll be pretty happy. But, you know, selling for $50 million, even though that might be life-changing money for, you know, for me as the founder, and for the team and employees, not gonna move the needle for the investors. And so I felt this obligation, deep obligation, you know, because I’d gone around pitching all these investors who said no, and then I finally found some who said, Yes and made them a promise. Like, Hey, we’re gonna, you know, we can do this. We can get you to this great place.
And I think that sense of obligation tethered me to the company for longer than I probably should have been there. And then the second thing, I think, that tied me in very much so was a fear, like this great fear that I had, that I would not be able to build something as big and notable and well known and, you know, growth-oriented as what I had done the first time. Like, that it might not, I might not have that ability. And that is, that’s a scary thing, right? Like you just
Giuseppe: Right, you built something, you’re successful and right. I mean, can you replicate it? Can you do it all over again? Yeah, it’s,
Work on Your Self-Awareness
Rand: Yeah, what if that’s your only one, right? What if you’re not good at doing this again? So I think, you know, both of those things really held me back. And a big part of this is self-awareness, right? It’s being able to dig into yourself and saying, like, what am I afraid of? What am I excited for? What do I want my life to be like? Am I okay, being unhappy or unchallenged or unfulfilled at work if work is gonna be such a huge part of my life in exchange for, you know, the comforts of sort of a six-figure salary and nice health care package? And sometimes the answer to that is yes, right?
Because I think for a lot of people, you know, especially in the United States, we have almost no social support system and so if you, you know, if you’re not with employer-supported healthcare, and if you’re not with, you know, a six-figure income these days, like things can be pretty rough for you and your family and your kids, especially depending on where you’re living. So I have a ton of empathy for people who make that sacrifice and say, like, I am willing to trade a lot of professional and personal unhappiness for the stability that comes with it.
But, you know, I think the other thing that’s true and that I’ve seen a lot of, you know, sort of corporate refugees and people who want to start businesses do is to think creatively about how they can make that investment a little less risky. And that’s something Casey and I did. So my co-founder, and I, you know, we basically decided, hey, we want to keep this pretty low-risk. And so I essentially negotiated a departure package with Moz that gave me access to health care for a year, which was great and a nice severance.
And we use that time to kind of validate our business to raise some money in a really unique way from, you know, some independent investors, angel investors, this time instead of venture capital. And then to, you know, get a good health care package. We did it through the Washington Technology Industry Association, which has sort of a system for those. There’s, almost every region in the country has some form of, you know, startup type association you can join to get health care and help with that.
And then, yeah, we relied on that funding to get to launch. It was about an 18 months development process for us to get from, you know, conception of idea to market validation to product building. And now here we are. We’re just a few thousand dollars a month away in recurring revenue from being profitable, which is pretty exciting considering we launched in April of 2020, I think might go down in as the worst time to launch a company in 100 years.
Giuseppe: Yeah, I, and full disclosure, I started in February of 07. So with between, which was, I feel like, timing is one of my weaknesses. And other investments as well, but I feel like I like to buy at the peak and I like to start a business at the worst time. But actually, it was one of those deals where, you know, we stuck it out and, you know, we had to grind it out that first year and we stuck it out and our growth was just tremendous because we stuck it out.
Because some of our competitors were, did not have, you know, money set aside, they, you know, it was all spent then. No reserves and things like that. So it was, you know, one thing that we stuck it out and we, you know, we kind of forced forward and did okay But, yeah, some great advice. It’s, you know, brings me back to my days of making that transition. it wasn’t easy, but, you know, what I tell everyone is there’s a lot of fear.
But, you know, what is the fear all about? And it’s fear of the unknown. It’s like, you know, I’m taking a risk, I can lose it all. I mean, we, it’s a risk just about anything we do. And obviously, you need to have a financial backing to invest in the business to cover your expenses, maybe it’s a spouse or partner working, you know, to back you up. But, you know, with what we try to do is, I don’t know about you, but, you know, you go online, most of the information is free out there. And I tell everyone, my info is all free. I have a book. We give it for free. Our website, you know, everything is free, but it’s how do you actually apply all that information?
And that’s kind of the key. So, okay, there is a fear of losing money. What, you know, if it’s a b2c type of business, how many customers you need to break even realistically? In a franchise system, they can obviously give you a little bit more intel because they can go back and as far as all their franchisees, but and say it’s 50, and I’m not saying, by the way, a franchise is better. I always have to be very clear not to be biased. It’s if it fits what you’re looking for, but they can tell you
Rand: It does give you a lot of risk absolvement by sharing that data with you for sure.
Giuseppe: Yes, absolutely. You know, this is the data. It’s 50 customers. If you follow the marketing spend and guidance from the franchisor, it’s 50 customers. The aim is to get those 50 customers before you even open the doors while you’re in training. I know you break it down. And obviously Yes, there’s a risk. Will you not get 50 customers? And but so many people get paralyzed by that fear and like I can lose my hundred thousand dollar investment.
And I said well, as an employee, yes. Maybe you’re not investing money per se but you are investing time and when you are laid off, what do you do after that layoff? You know, you’ve invested your time in the company, you’ve gotten laid off. You’ve invested in a 401k, which is truly not actively managed, right? I mean, it’s you’re throwing it in some mutual funds or some equity or whatever’s in there. So you really have no control of just about anything.
You have money manager managing the money run by, you know, CEOs of various other companies. So, you know, it’s a way of truly taking control. And sure there’s always going to be a risk but we definitely want to calculate that risk and kind of figure out okay, you know, what is the true risk here? Can I keep my job and start the business? So that’s a whole nother conversation, but we assist in that area.
So really good stuff. Really good advice. One other part, just, I know you’ve had experience here. If you can give, you know, people are figuring out if, and I’m not asking you what you think is better, franchising or non, but just as far as any advice for startups, you know, getting a business off the ground, if you can supply any advice, obviously, we could probably have a whole show on this, but just, you know, some, you know, top maybe two, three pieces of advice you’d give to someone that is looking to do their own startup.
Rand: Yeah, sure. So I think it’s incredibly valuable before you build a company to build your skills, and to use those skills to build a network. I found that immensely valuable. I know that thousands if not, hundreds of thousands of other entrepreneurs have as well. Essentially as you build your skills, you use that skillsets to offer information and advice and help and, you know, hands-on work to other people in kind and thoughtful and giving ways and through that work that you do that shows value, that shows off your skillset, you earn the attention and awareness but also engender trust and familiarity and hopefully a real relationship with those people.
And that is, those are the people who can help you get your business off the ground, who can help you get your first customers, who can help you find your first customers, who can help fund your business, right? Help back you to your investors, network you into investors. I found that to be huge. The 36 people who invested in SparkToro, almost every one of them was someone I built through personal and professional network over the last, you know, 15 years previously at Moz. And that, a lot of that came through helping those folks with, you know, at the time, what I was doing at Moz. SEO stuff.
And so I think that’s a big potential win. I also would say on the startup front that if you can, before you sort of leave the comfort of, the financial comfort of whatever, you know, situation you’re going to be leaving, if you can start to get your feet wet with whatever it is, a side project, the building of an online community, the start of a franchise, the, you know, kicking off that process so that you have some sense of what your day to day work will be like and what the difficult parts of the work will be in building that company and what the easy parts will be and where you’re missing skills and might need help, that’s an awesome thing, right?
One of the I think one of the big reasons that I was able to make the jump from Moz finally, is that over the last sort of year that I was at the company, I had been already dipping my toe into, okay, what does it look like to build another audience and to sort of, you know, validate an idea and all those sorts of things. So that’s absolutely something I’d encourage folks to do.
Giuseppe: Right. Awesome. Great advice. Well, listen, Rand, I really appreciate it. I know we’ve been going a little bit longer than anticipated and I appreciate your time and your knowledge and feedback. So for everyone listening in Yeah, absolutely. We will update the show notes. So we’ll have the SparkToro website, the link to the book. And, Rand, I wanted to thank you once again for being on the show and hope to talk to you very soon.
Rand: Thank you, Giuseppe. It was great chatting. Hope everyone gets a lot of value from this and wish you all success.
Giuseppe: Absolutely. Thank you very much again.