This week’s Misfit Entrepreneur is Mike Smerklo. Mike is a serial entrepreneur, investor, and founder of Next Coast Ventures, a unique venture capital firm that focuses on emerging companies heling them in the critical stage to hyper growth. After working in investment banking at Morgan Stanley, Mike was then recruited by Marc Andreessen and Ben Horowitz to one of their new startups. In 2003, Mike purchased ServiceSource, a 30-person tech services startup and over the next 12 years grew it to a 3000 person publicly traded company with over $300 million in revenue and a market value of $1 billion.
After exiting the company, he founded Next Coast, investing in over 40 startups to date and recently wrote the best-seller, Mr. Monkey and Me.
Needless to say, Mike has a wealth of experience as an owner/operator and investor, and I am excited for him to share it with you.
Mike grew in a rough part of Toledo, Ohio. He was raised by a single mom and had a simple goal which was to just get out. His mom focused him on education as no one had to gone to college in the family. He listened and ended up going to Miami of Ohio. After college, he went to E&Y as an auditor and found quickly he hated it. He then went to Lehman Brothers in investment banking. It sucked the life out of him, but he learned a lot before going to business school and then eventually out to Silicon Valley. He worked for Andreessen Horowitz, bought and ran ServiceSource until he sold it and the “retired” to Austin, Texas. Retirement didn’t last long before he started Next Coast.
What makes a great business?
- The short answer is “Do you do something for your customer that is a differentiating approach?”
- Do you bring a different and unique experience to the customer that they are willing to pay for once or multiple times?
- We overcomplicate things in our lives, especially business.
You wrote Mr. Monkey and Me as a story of your journey with ServiceSource and lessons learned. Take us through the different lessons you learned.
- The goal was to write a book that got to the mental aspect of entrepreneurship.
- He not only drew on his experience, but also interviewed top entrepreneurs.
- The “monkey” is the voice in entrepreneur’s heads that holds them back,
- The core of the book is the SHAPE formula.
Take us through each element of the shape formula and define them.
- Self-Awareness: The ability to understand strengths and weaknesses and what the entrepreneur should focus energy on to improve.
- Help: Seeking mentors and coaching to help improve, but also finding those that are better in areas to help in the business.
- Authenticity: Finding your inner voice. How do you show up as the leader that you want to be and is natural?
- Persistence: Playing the long game and having the will to continue.
- Expectations: Thinking about the beginning, middle, and end of the journey and the different expectations needed at each stage.
At the 14 min mark, we talk more about SHAPE and persistence more in depth.
Lessons from working with Andreessen Horowitz that have really helped in your success?
- Each of them taught him different things. It was also early in their days in 1999.
- It felt a little like chaos.
- From Mark, Mike learned the power of thinking big and not taking half-measures.
- Ben taught Mike a lot about management.
- The best “how to be a manager book” is Management by Objectives by Andy Grove.
- Ben also shared that the first 25 employees hired in a company is all that matters. If you get those right, the culture, ethos, etc. will be set by those first 25.
40+ investments at Next Coast. Talk to us about your model and what you look for when investing a company.
- Market size is a factor.
- Does the solution differentiate and are customers willing to pay for it? Will they see real value?
- What do the economics look like and do they make sense?
- But 90% of it comes down to the entrepreneur.
- They use a term called “glass-eater.” Which is asking “Is the entrepreneur willing to do anything and everything, legally and ethically, to make the business a success building a real business – and do they know what it takes to do it?”
- Next Coast looks at over 1000 companies a year to find just a few.
- Things that get overlooked are that entrepreneurs have to be able to sell and have to be good at telling the story.
- “Great entrepreneurs can’t imagine the world without their solution.”
- At the same time, entrepreneurs have to be willing to take feedback and advice.
- Entrepreneurs also overlook substitutes and inertia as competition.Things that are not direct competitors but are taking customers attention.
What are market trends and things that are upcoming that entrepreneurs should be focused on?
- Each year, Next Coast does a lot of work to understand where the world is going.
- Future of work is still a strong theme. Work continues to be redefined.
- There is a still a lot of opportunity in the changing game of retail.
- Software is another good place.
- Healthcare hacking is big. Consumers taking more control over their health.
- Education is another place that is at the start of a big shift.
Where do you see the future of work and the changes that will happen?
- Figuring out what a physical presence looks like.
- Great talent is everywhere and not having to have a complete physical presence makes it easier to get it.
- Challenges are managing in a hybrid work environment.
- Creating a cohesive culture in this new environment.
- Things are being reshaped.
Another big trend is monetizing data.
What is software 3.0 and how it is changing growth models…
- It is still very early for software.
- It has gotten much easier to write software.
- Software 3.0 is no code, APIs, businesses that have software becoming a much bigger part of it.
- Enterprise is more saturated but using software in all aspects of life is just beginning.
- Next Coast invested in Everlywell which is healthcare hacking software which allows you to take a test a home on over 30 different things and then get results through software online.
What do you think is most important for entrepreneurs to focus on in their business?
- The customer – they are everything.
- The entrepreneur must focus on their health – mental and physical.
Best advice for entrepreneurs just starting out?
- Self-awareness is the cornerstone. Understand what you are good and not good at.
- It is better to play to your strengths than correct your weaknesses.
Best Quote: Great entrepreneurs can’t imagine the world without their solution.
Mike's Misfit 3:
- Be nice. The world needs it now more than ever.
- Comparison is the thief of joy. Envy wastes emotion and drains you.
- It is easy to live a hard life. It is hard to live an easy life.
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