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Dave Lukas, The Misfit Entrepreneur_Breakthrough Entrepreneurship

The weekly podcast with serial entrepreneur, Dave M. Lukas, devoted to giving you incredibly useful and unique insight from the world's top entrepreneurs with a focus on their non-traditional methods for achieving success, their Misfit side. Misfit was created to give YOU the breakthrough entrepreneurship strategies and actionable advice to accelerate your success! The show's open format and Misfit 3 concept, combined with Dave's intuitive and engaging interview style quickly uncover each guest's key tools, tactics, and tricks that listeners can start using in their lives right now. Learn more about the show at www.misfitentrepreneur.com and become a member of Misfit Nation by signing up for the Misfit Minute, the FREE weekly email with specific resources from the week's "Misfit 3," and actionable tips and items from the world of Misfit Entrepreneurs. It is delivered every Friday to your inbox!
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The weekly podcast with serial entrepreneur, Dave M. Lukas, devoted to giving you incredibly useful and unique insight from the world's top entrepreneurs with a focus on their non-traditional methods for achieving success, their Misfit side. Misfit was created to give YOU the best, actionable advice to accelerate your success!

The show's open format and Misfit 3 concept, combined with Dave's intuitive and engaging interview style quickly uncovers each guest's key tools, tactics, and tricks that listeners can start using in their lives right now.

Learn more about the show at www.misfitentrepreneur.com and become a member of Misfit Nation by signing up for the Misfit Minute, the FREE weekly email with specific resources from the week's "Misfit 3," and actionable tips and items from the world of Misfit Entrepreneurs. It is delivered every Friday to your inbox!

Dec 18, 2019

​This week’s Misfit Entrepreneur is Scott Lynn. I always love Misfit Entrepreneurs who figure out ways to bring markets or solutions that were previously only available to a select group or reserved for the ultra-rich, to the masses. Scott has done just that. He is the founder and CEO of Masterworks. Masterworks makes it possible for everyone to invest in blue-chip artwork. Access to these types of art investments, like Andy Warhol or Monet paintings that go for millions, have been limited to those with the means to purchase these masterpieces—often historical treasures—and remove them from public display when they enter their private collections. Masterworks is opening the doors to top-tier, blue-chip art investments to everyone. It’s the first company to allow investors to by shares of ownership in these great works of art, for as little as $20.

This isn’t Scott’s first venture – in fact, for years he’s built businesses in the internet and online advertising space, but he has always been an art aficionado and an internationally -recognized collector. I’m excited to discuss his experience as well as how to create new, blue ocean markets.

www.Masterworks.io

Scott started his first company in high school and as he says, “with a little skill and a lot of luck,” they built the most popular game on the internet in the late 90’s. They created the “punch the monkey” advertisements which drove people to the game. The game was called Tree Loot and was one of the first examples of interactive websites where people had a chance to win money. They figured out for every $1 they spent in advertising, they made $2, so they just poured it on and by the time Scott graduated high school, they had almost 70 employees and ultimately built the company to a few hundred employees within a year after.

It was trial by fire for a kid starting a business and Scott had to grow up fast. It went great until March of 2000. Then the dot com bubble happened and even then, Scott thought it would not affect them, but the crash exposed an issue with internet advertisers. The issue was that all of the advertisers we buying ads with each other and spending the money from the dot com companies. When that dried up, it was like a domino effect in that these companies couldn’t afford to buy ads and one by one the internet advertisers funds dried up and since they were buying from each other, it basically collapsed. In a 2 weeks period, 60% of Scott advertisers cancelled. They didn’t sell the business, but pivoted to a new business that was direct marketing focused and not so much gaming. It was horrible to go through, but it taught Scott some very hard lessons in a fast way.

From there, Scott went into online advertising and Fintech building companies and now has started Masterworks. What were some of the lessons you learned from going through the Dot Com crash?

  • You must be ahead of change and move faster. Most companies don’t move fast enough because they don’t see the problem for as bad as it is.
  • Concentration risk. Be careful to make sure you are diversified in that you don’t rely on one sole source for your business to survive.

What do you feel is the most important ingredient for an entrepreneur to succeed in today’s world?

  • Execution – People, Structure, Process is important, but Strategy is much more important.
  • Focus on the right thing, a good, sizeable market with a need.
  • Make sure your business or product is well-differentiated and has a good competitive advantage.
  • Find ways to make your business or product “lock in” with customers. It has to be sticky.

Is there a framework that you use when you build a company or a set of principles that you use when you go into an endeavor?

  • A core process is Michael Porter’s 5 Forces process. It helps you to understand how to differentiate a business to increase the likelihood of success in any given market.
  • You want to be in markets with products that are well differentiated that make your life as easy as possible to gain market share and take margin. It’s hard to do this without a serious strategy process to think through these things.
  • So, strategy is key to success.

Can you share the 5 Forces and give us a quick overview?

  • The idea is to reduce the threats in 5 different categories
    • Suppliers
    • Customers
    • Substitute products
    • New Entrants
    • Competition/Existing Rivalry
  • The key is to figure how to differentiate to reduce your risk in each of those categories.

Talk to us about finding a Blue Ocean or White Space. What is the secret to finding them?

  • It’s iterating and testing to find the right market/product combinations that has really great market fit.
  • The initial product/market fit is not usually the winning combination. It take multiple iterations and changes to find it.
  • When you find that great combination and do it in the context of Porter’s 5 categories, you can create white space.

Tell us about Masterworks and how you applied the 5 forces to make it a great market fit…

  • Scott has been involved in collecting art for some time.
  • It’s 1.7 trillion asset value market. It is a large and meaningful asset classes.
  • It’s also one of the oldest asset classes and has existed for centuries.
  • But, it has a huge barrier to entry because of cost.
  • Until Masterworks, there was not way to really invest in art unless you got a group together to buy a piece or were independently wealthy enough.
  • Masterworks was created to give investors the ability to invest in and own a piece of an artwork for as little as $20/share.
  • Masterworks treats a painting like a company going public and puts it into a corporation and sell shares in it. They make a management fee similar to a fund for doing it.
  • The 5 Forces applied to Masterworks:
    • Currently not Competition/Existing Rivalry right now
    • There are threats of new entrants from the art industry or finance world
    • The power of customer is really limited because Masterworks is the only one that can do it today. The investments are 3-7 years, so there is a lot of stickiness.
    • There really are no substitute products. In fact, Masterworks paintings are more of a substitute for traditional investments.
    • Power of suppliers is low. Art galleries and auctions sell the paintings and the prices are pretty set.

At the 30 min mark, Scott talks about the current state of online advertising and where entrepreneur should focus…

  • In the year 2000, the conversation was different. It was about the internet with all these places where ads could be placed and used. It was very dispersed.
  • Now in 2019, we are in place where a couple of companies control the internet so most advertising is done through platforms.
  • The problem is simpler, but more expensive since there are only a few players.
  • Facebook, Google, and Direct Media buying with sites that are focused on your vertical of product or service is where to be.
  • The jury is out on influencers.
  • There is a lot of hype, but not a lot of results.
  • Most of the value is coming in Google Search, then Facebook and some of the display networks.
  • Google and Facebook are different. If you have a product that has pre-existing intent – people searching for it, then Google makes the most sense. If you don’t have pre-existing intent, then social media to create awareness and drive curiosity makes more sense.

Are there any trends that you see that people should be watching for the future?

  • Focus on the platforms.
  • What are they doing?
  • What are they changing?
  • The details are important and keeping up with the details on the platforms are very important.
  • You need to be very hands on with your marketing.

What would you tell a new entrepreneur starting today?

  • The skillset of marketing with platforms is important (Facebook and Google)
  • Hiring, coaching, and firing
  • Product – CEO’s should not be hands off – they need to be learning from customers and involved in product.
  • Great entrepreneurs have deep domain knowledge in their market and are hands on.

Tell us more about creating and building your business as a high-schooler…

  • Scott was working as a web-designer to pay for the person he hired to engineer the game.
  • They iterated the game to a point where they knew they had something.
  • But they didn’t have any money to go out and buy advertising.
  • Scott found our he could apply for advertising credits with some of the new networks that were starting up. He did and got $500k worth of credits!
  • He made almost $1 million dollars from spending it and used to profits to keep funding it.

 

Best Quote: Execution – People, Structure, Process is important, but Strategy is much more important.

 

Scott's Misfit 3:

  1. Do what you love. There is high correlation to being successful and happy if you do what you love.
  2. Make sure you are spending time on the right things. Put as much focus on strategy as you do execution.
  3. We’re not good at predicting the future. And so knowing you really can’t predict the future, how would you run your life differently today? Answer that as best as you can and live it.
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