Last week Jenny Galluzzo of Second Shift spoke with entrepreneur and investor, Kut Akdogan, of Gaussian Holdings, about the traditional VC model of fundraising and how it is, more often than not, a challenging strategy for small startups. The typical growth approach is risking your entire business on a moonshot— going all in and going big—with the promise of major success. However, most investor-backed startups fail, and most women founders don’t even get to the first round of funding.
Hear more about the emerging model for growing disruptive businesses profitably—the "Incremental Moonshot" as we're calling it—in the webinar with Jenny and Kut below.
Transcript
Jenny:
Okay. Hello everyone in the Second Shift community. I am thrilled to be welcoming Kut Akdogan, who is the founder of Gaussian and is also a client of the Second Shift's. We really love working with you. And you are officially the first man who has done a webinar with the Second Shift. So, this is a first big day for us and I'm just really excited to have you here. So, really diversifying.
Kut:
I am so honored and excited to be here. Thank you for having me, Jenny, and the whole community. Looking forward to it.
Jenny:
So the reason why we're doing this is because you recently wrote an article that was about venture capital funding for companies and what it means to be an entrepreneur. Now, I know a lot of women in our network are thinking about starting a business, or have this idea, we call "wantentrepreneurs." Well, maybe I'll do this. And as somebody who started a business and you, your company invests and is a tech holding company for B2B and SaaS technology platforms, which I don't really even understand so we won't get into it. But you've seen founders, you've seen companies, you've seen your own personal experience, where there's a lot of counterintuitive knowledge that people should have, going into this. If this is something that you're thinking about doing and what we're seeing, sorry to ramble, but a lot of women are leaving the workforce and they're thinking, here's a good idea, I'm going to go out on my own. And they come to us. Maybe they're looking, they're in between jobs. And they're looking to, while they go start this thing, and there's a lot of mythology around fundraising that you are very clearly and smart and debunk. And we started talking about it and I realized that this was something that people could really learn a lot from. So what made you write this article? Which I will post in the comments now if I can figure out how to do that while you chat.
Kut:
It's a good question. And I think that "mythology" and "mythologizing," is a great term around this. It's such a a big endeavor, to go and sort of create your own company. It's extraordinarily difficult and challenging. It's a lot of glamor around it that kind of coaxes us towards that journey, but it's very hard. And there's also a lot of different paths that can be taken. There's a lot of uncertainty and anytime there's uncertainty, you find that it's very easy to mythologize. You need something to fill the void, right? When you don't have data or concreteness, it's very easy to create myths. And I think that we've been on a long journey, when it comes to the the business of building businesses.
And it's time to evolve the conversation to the next step, which is to start to question some of the ways that we have been going about things. The background that my company has, Gaussian, like you mentioned, is a tech holding company which is jargon—it's an umbrella for a lot of different things. There's an investment portfolio of minority investments. There's an advisory arm that works directly with innovating teams and groups, and then there's also an internally fully owned and held incubation portfolio. Across each of these different areas. And like you said, it tends to touch B2B, but there is a lot of B2C that we get involved with as well.
Across each of those different approaches there's different fundraising tactics. When you fully own something you necessarily aren't getting equity fundraising. So we have that perspective, where you have a minority investment. When you act like a venture capitalist would, you obviously are doing equity fundraising. That's the primary lever and across that entire spectrum, what became very clear to us was that there are many ways to capitalize and build your business that don't just require you to say, I have an idea, what's the first thing, I have to have a check before I can get started.
And I think what we increasingly found was that there's a more nimble, more incremental, more iterative way to be building a business that treats fundraising as a tool, as opposed to fundraising as the end that you're going for. I've raised the money. Yes. Now what?
So, I think that was over the last several years, what has driven us to start to talk about this a little bit more and really to reframe the journey of building a business from the lens of the entrepreneur. As opposed to the lens of the investor. We've been on both sides of the spectrum. And it struck us that this surprisingly little that looks out for the long-term success and wellbeing of the entrepreneur. And that's what we wanted to do.
Jenny:
There was, to tick back for one second, there is so much, like I was just thinking this morning, I was reading that the broadsheet, which comes out from Fortune, and it was all about women, Uni women led, or women unicorn businesses. So, this whole dominating topic in the headlines are these unicorn billion-dollar valuations, the Hello Sunshines, the Spanx, the Maven clinic. And that that's what dominates. So, you think well, if I'm going to start a business, my goal has to be that. Or if I don't get venture funding, I can never grow so big. And there's all different ways to think about growth, because there's a lot of businesses that wouldn't necessarily fit that profile. And there's a lot of businesses that, there's a lot of like the underbelly of that. What you're not seeing in that story, because you're only seeing the headlines. And so what are the, what's the what's the underneath that people should really know about when you're going into this, because you can get really swept up in a headline and think, well, that's validating too, if I get venture, I'm going to be like these businesses.
Kut:
Yeah. There's so much in what you just said. I want to come back to the topic of validation. Because it's a really, really critical one that drives a lot of decision making for entrepreneurs to talk about, I guess like the different strata. What lies beneath the headline? One is survivorship bias. We gravitate obviously towards the stories of survivors. We don't talk about the 99-point-whatever percent of companies that actually don't make it. Or pull out of existence or get absorbed in a suboptimal exit. This is the vast majority of the story. The majority of the story is not the Facebooks and the Googles and the Spanx. The vast majority of stories are, we tried something, we raised a bunch of money. We couldn't get money back to investors. We shed our team. We kind of made ends meet. And then eventually we say, "What am I doing in my life? I'm going to go join Google."
Jenny:
You also don't get paid.
Kut:
Exactly.
There's a really interesting stat. Something like half of entrepreneurs, including those who have raised venture funding, make less than minimum wage. And I mean New York minimum wage. I don't mean $7 an hour. I mean, $15 an hour when you include their salary and their exit. Including, "I sold my money for bonanza amounts to Comcast." Still overall, made less than minimum wage. So, what's the driver of this? The driver of this is probability, statistics.
Jenny:
The statistics and it's the excitement of it, too. It's the building something and owning something and you have an idea. You want to put it out into the world. I was going to say, why do we do this? Because I was hearing what you're saying. And I was thinking, it's a good point. You could make more money going to work for another company. And you're good founding your own because statistically, if that's the rate of success, especially for women it's even worse, I'm sure. Because there's so few women, so few businesses that are funded or get to even the stage to even get to a Series B, or to get to grow.
Kut:
It's funny, I've been quoting this stat for the last, like several years and this stat has, there's been a lot of work that's been going on in the startup community to address this stat, but the stat has actually not changed. And what is that stat? It is the percentage of investor dollars that go to teams with a woman on the, on the founding team. And that's 2%. And that number is actually, was quoted years ago and we were all up in arms. We're like, oh no, we need to do something about this. Like that's abysmal. In 2022, last time I checked, it's still 2%. So the question I think is, is less like how do we win that game? I think the question is more like, how do we reset the game? Make it not a game? How do we create…
Jenny:
A new game.
Kut:
Exactly.
Jenny:
Have a different path. There have to be multiple paths. It can't just be one. So, what do you recommend is the new way of thinking about going about doing this? Because if you know the odds are stacked against you in one specific pathway where it does work and it does work for lots of different businesses, but it doesn't work for every business. So, when you take a hard look at your needs and what, why you're doing and what you're doing, what are the other alternative options available you recommend?
Kut:
There was an approach, or sort of a term that we started using, which is the "Incremental Moonshot." The idea being that we shouldn't be suppressing our vision; we shouldn't be saying, "I want to go to the moon and therefore , the only way for me to reliably succeed is to say, I can't go to the moon, I can only go to Houston. That's as far as I can go." So there has to be some approach that combines that.
Just like you were saying that it's almost like a fundamental trait of us entrepreneurs. We like to create stuff. Yeah. It would be so much easier if we could just sit in a single job and just be very excited, day to day with maybe something that isn't as creative or sort of expansive. But unfortunately, that's as much a curse as it is blessing. Because then it means we have to be considering these innovative parts.
So, let's hold onto that. Let's not suppress the dream. Let's say, "Great, I want to go to the moon."
But there's two ways to go to the moon. One is to go to the moon in one go. To collect the money that you think is necessary to ramp up a team extremely quickly to have a perspective and not listen to other perspectives because there's no time, but just move quickly, got to make decisions. You've got to build that thing and build that product and launch that rocket to the moon. But then 10 years later you've raised 2 billion and you missed the moon. Your rocket maybe exploded halfway, en route, which just kind of like how it goes, I'm afraid, in space. (I can talk a lot about aerospace separately!)
The alternative approach, which would be the incremental Moonshot, would be to say, OK, if I'm in this for a long period, if I don't need to get out in five years, if I like innovating and I'm investing in myself, then let me instead of going to the moon in one shot, let me maybe go there a little more slowly, but a little more profitably at each step.
So instead of building my rocket on day one, maybe what I do is I go consult for a satellite operator. And so I'm working with them, I'm understanding their needs. Learning about the customer, building a relationship and then eventually I use someone, I hire someone to help me maybe, on the side, write some software to help me do my job better. And then I'm doing that and now I'm doing the job less. Software's doing more. I step back. I now work with three satellite operators. I now am making more cashflow and I take a step back. I'm now working on hardware. I'm now working across like satellites and shipping logistics. I'm now working across a dozen clients. They're all paying me. I'm cashflow positive. I'm now working on a little "cubesat." It's $50,000 to put that thing into lower orbit. I'm now in lower orbit. The whole time I'm building something within a domain, incrementally. And at every step I have a valid business. I may or may not end up at the moon at the end of the day. After 20 years, I'm always looking at the moon. I may or may not go there, but in some ways you can aim for the stars and land on the moon. So that is the Incremental Moonshot. And that is this "today" versus "tomorrow" oriented lens to innovating.
Jenny:
I think that's just a dose of reality in it. Doing things that are proving small, moving slowly towards a goal. I've been watching the, WeCrashed movie and it's literally what not to do and how the funding can go wrong when you're aiming for the moon. And along the way, you're trying to figure out how to build the rocket. And that is in some ways, the last, almost 10 years of what it's looked like to build companies. And that's the path that we've seen. So many businesses burn through massive amounts of money and not actually get to the moon and along the way, trying to figure out who they are, what they are, oh, well, I need to get the money. So if I get the money, I'll move my business to this thing. , I'll become that to get the money, because I need the money in, and it's like a, it's like a vicious cycle in some ways of people trying to stay alive. So you pivot yourself to do something that the money wants you to be, but then you're not actually doing the thing you set out to do.
Come at this from a place where you can just build a real business with fundamentals and, and there are businesses that need massive amounts of venture money, but not, not every business does and not every business needs to get there as quickly and as fast.
Kut:
Exactly. And, and I think that a lot of this comes down honestly, to the founders. To the owners of this young business. It's a choice. And, and I think what, what, what we found is that of lot of founders are making the choice without thinking it through. Some founders actually have thought it through. They do understand the odds and they're like, this is what I want to do. I do want to shoot to try and be that 1%. That is my goal. And that's amazing. I want to be very clear about this. The venture capital engine is extraordinarily important and valuable in many ways. It's one of the best wealth distributors we have in the world. But there's an abundance of that message.
And what I think needs to happen is entrepreneurs need to be able to think through the options at their feet. And then to say, I'm going to go the billion-dollar route or the 10 billion route that's where I want to go. And I'm embarking on that journey. Or I'm going the, let's say hundred-million-dollar route. Hundred million company is not attractive to the bulk of venture investors. However, if a hundred-million-dollar business, that's an, that's an enormous, that value is gigantic. You know if you have a million employees, obviously it's not very much money, but if you have 50, that's actually an enormous amount of value that you've created and accreted.
If an investor looks at what I've been saying, you probably say, "This is a private equity approach." To kind of say, can you build businesses that are increasing or creating cashflow, and creating value and proving value in, in such a way, versus always saying the revenue will come, the cashflow will come. It'll all be in the future, we're going to solve this, in the future we're going to have autonomous vehicles, we're going to be super profitable. Like if you watch Super Pumped, that TV show. A lot of the TV shows going on right now about the 2015 to 2020 high valuation stories.
Jenny:
Good number of fans.
Kut:
What's most important is that you have a choice, and that you should make that choice with intention and fit it to what you want. Maybe that's not the lifestyle that you want. And I think that there's been a big taboo, even the word lifestyle, even the word bootstrapping, there's this negative spin on this idea of building a business that is creating sort of fundamental value immediately. I don't know why. I mean, it's, it's not that we shouldn't be focusing on something that has no value except for 20 years from now. I agree. Totally. But why can't we be creating?
Jenny:
Somehow, it's like a failure if you're just building a lifestyle business is something that's a, like a hobby.
I really understand that. Like, if you're making money and helping people, there's lots of, there's all sorts of businesses in the world. But I think again, in the past 10 years been this idea of founders and we're doing the us, and we're raising this and there's like a, a very small ecosystem and echo chamber of the money and the founder and everyone. And then it becomes kind of like aspirational. Be part of a club that you people want to be part of.
Now, I know you only have a few more minutes of your time. We can keep talking, but if anybody has any questions, throw it in the Q and A and I also apologize. Of course, right in the middle of this, the repair man in my house is here. So, you hear a lot of background noise. This is just how it goes.
But I just, I do want to touch on that. You know, I remember when Gina and I were first starting, we didn't know what the Second Shift was going to be. It was an idea. We didn't know exactly how and where we would get there, but we knew that it was a good idea. And we talked to a lot of people about it, and there was somebody who said you should think of money as if it doesn't just keep going. Make as much money as you need. Spend what you make. Be thoughtful and pragmatic about it, which is something we've always done because it felt right to us and we have raised money, very small amounts of money from different types of investors that are not institutional. And because of that, we've survived. And there's a lot of people in the world that we've lived in that we're much bigger in some ways and are no longer here.
So, it's a long game strategy in some ways, versus a shooting the moon and taking a risk. You know, it depends if you are the gambler or not. And I guess we'd rather, we have a mission, and our mission is helping as many people as possible and making and doing something that's holds ourselves accountable to that mission in which case we need to be around.
Not an easy thing to scale in the way that it can be. It takes a long time to turn a Titanic.
Kut:
It's very true. And in many ways, if you accept the fact that you are "cursed" with the desire to create, to make, then it stands to reason that you're going to want to be doing that for the next many, many, many, many, many, many, many years. Not just for the next five years. So, if your only idea, or tactic is to say, I'm just going to focus on the next five years in terms of, I want to get an exit in five years, and then I'm going to be a billionaire and I'm have a yacht and that's it. Then you are not only setting yourself up for low probabilities, but also you are ignoring: what are you going do after that time?
You burn so hard and you're in the top 0.1% of people or of companies. And you're now that billionaire, you've got the yacht. Fantastic! Are you going to sit around? No, you're going to be creating something next. At which point it's, well then why did I get out of this one so quickly? Or why did I gamble everything just so I could get out of this one instead saying I'm investing in myself. One of our advisees said to me something which is, I want to build a hundred-year long business, and no one will talk to me about that. Why not?
Jenny:
Yeah. So why not? You know if you like what you're doing and you love doing it, you should want to continue doing it. Although now that you mentioned the yacht...
Thinking that, did we do this wrong? Because now we could do this from a yacht. I don't know, with the wrong choice.
Well, anyway, to wrap this up. Do you have any advice for those out there who are thinking in any way how do you take a first step? Or I have an idea. What do you do for people come to you looking for that first step advice.
Kut:
I think the first step is really to take your idea, and express it, firstly, in terms of a need. We all have great solutions and thoughts. But if you can phrase that in terms of, this is what some customer, or client, or individual out there for a nonprofit, or a member of the community this is what they want. And this is how my idea fits into that. That's the first step. And actually, it's an ongoing step. You will always have to reframe everything in terms of your customer’s needs. The second is to be starting on something immediately, which is learning. A startup is just a market research company, right? You're just learning more and more every single day.
And one way to get out of the trap, the chicken and egg of, I have this thing, but I can't get it started until I have my website domain. And then I've got to have the brand. And I have to figure out the colors, and I have to hire this branding agency for like 5 million. And I have to go do this and I need 40 people. I need 20 engineers. But how can I just flip it on its head and say, today is day zero. How can I, over the next seven days, prove my idea solves those needs better than I know today? How can I prove that? How can I spend seven days and do that? And then make every seven days of your journey into the same question. Every seven days be moving the ball forward in terms of your learning. Eventually you'll say, oh wait, yeah, I guess we need a website domain. Now we need a team of five engineers because this is what we're doing. Versus, let me get everything ready. And now let's products right now. Let's figure out what we're doing.
Jenny:
I used to cut short horizons instead of the moonshot. It's like create small, short horizons. And then once you get to that one, get the next one. And then along the way, you'll see if you a), still like it. And b) is it still a good idea?
Kut:
Yeah, exactly. Be a scientist; just prove yourself every week, if you can.
Jenny:
All right. This has been awesome. I really appreciate you doing this. I'm going to actually put this, this is all going to go up on our blog and I'm going to put the link to the article that you wrote, which has very specific steps. I think it's really well written and really good information for everyone. It's going to go on the blog. So, if anyone wants to read it, that's where to find it. Thank you so much. Thanks for being here today and talking to us and thanks for being such a enthusiastic and loyal client. So, we love working with you, and I know all the women who have worked with you at Gaussian have enjoyed it as well.
Kut:
Well, thank you. Thank you, Jenny. Thank you everyone. It's been a pleasure and an honor to chat. And good luck to the to the future entrepreneurs and the current entrepreneurs in there.
Jenny:
Thank you. Take care. Bye everybody.
