Episode 7 – On Cheating, Money, and Important Truths About Growth

On Episode 7 of Up Right & Better, I talk with Stephen Green, one of my favorite Portlanders and startup thinkers. He’s an economist, entrepreneur & general do-gooder. A Portland native and recovering banker and venture capitalist, he is a champion of the little gal/guy, creator of the event PitchBlack and the Oregon Public House. He spends his days as Community Manger for Townsquared, a tech startup connecting small businesses with the knowledge they need to succeed and grow. On this episode, we’ll be talking about funding, why you might not need money, how to cheat, and more – join us!

Kristen G: Hi, welcome back to Upright and Better, the podcast where we talk about growing businesses up and to the right, and up and better. On this show, it’s not just about scaling for scaling’s sake. It’s about making organizations that deliver value to everyone involved. I’m your host, Kristen Gallagher.

Today’s guest is Stephen Green. I got to meet Stephen during the first year I lived in Portland when I was an AmeriCorps member at Micro Enterprise Services, Oregon. Since then, he’s gone on to make so many stunning contributions to our community, and I am so honored to talk with him today.

Stephen Green is an economist, entrepreneur, and general do-gooder, a Portland native and a recovering banker and venture capitalist, he’s a champion of the little guy and the little gal. He’s also the creator of the Pitch Black event that highlights Portland’s black founders and also one of the founding board members of the nation’s first nonprofit brew pub, Oregon Public House. He spends his days as community manager for Townsquared, a tech startup connecting small businesses with the knowledge they need to succeed and grow.

I also recently learned that Townsquared is a hugely diverse company. He was awarded 2016’s small business advocate of the year by Portland Business Journal and was also highlighted as one of Portland’s top 40 under 40 in 2015. When not making spreadsheets or helping founders, you will find him with his family in Portland’s Woodlawn neighborhood. Help me welcome, Stephen Green. Good morning, Stephen. How are you doing?

Stephen Green: I am doing fabulous. How about yourself?

Kristen G: I’m doing really good. I’ve actually gotten a lot of work done this morning, which isn’t always true for my morning, so I’m quite pleased. All right, so I want to go ahead and dive right in. You have a really long history of being in finance, of advising small businesses, of actually starting a couple of things yourself, and you recently gave a talk at TEDxPortland, that’s your hashtag, #cheatmore, and you gave a really wonderful story about a construction contractor that you’d worked with. I want to say, did you work with him 10 years ago?

Stephen Green: Yeah, it was about 10 years ago.

Kristen G: 10 years ago, so maybe you can talk a little bit about that, but why are you drawn to this space personally?

Stephen Green: First and foremost, I think it’s because I’m the son of two entrepreneurs. As a child, I was able to see both of my parents start their own separate businesses. My mom had a tech company in the 90s. My father had a really successful human resources consulting firm where he worked with tech companies in the Portland area, mainly. And so, being up close to it, I could see them benefit and them grow, and the power of having other people say yes to ideas that you bake up on your kitchen table.

Kristen G: That’s amazing. I did not know that about your parents. That’s funny, it’s close to home. A human resources consulting company and a tech company. What type of work was your mom doing?

Stephen Green: She does information systems. She worked at Tectronics for 20 years.

Kristen G: Oh, wow.

Stephen Green: My dad worked at Intel for 20, 25 years, and then my mom started a tech company in the insurance space back in the early, early 90s that she ended up exiting from a few years after they started it. I’ve grown up seeing strong people of color doing amazing things, and so I think it’s only natural that I spend my career supporting those folks around me in Portland.

Kristen G: Definitely. I want to talk a little bit about cheat more, for those listeners who haven’t watched your talk, which is amazing and you should definitely take… I think it was 13 minutes, 13, 14 minutes to take a listen to it, but can you talk about what cheat more means and how it supports businesses here?

Stephen Green: Yeah. The idea of cheat more is really to break up the dynamic and the conversation around what it means to support small businesses, and generally, that conversation is always a binary conversation of either you’re buying local or you’re a douche bag and you’re supporting some national business. The idea of cheating really comes from what my buddy Neil Blassingame who’s a body builder does. He works really, really hard, and he’s lifting all the time, but he has cheat days, and so just like it’s okay to have those when you’re working towards a goal, it’s okay to cheat on the big guys. I understand why people shop at companies like Starbucks and Walmart and Amazon, and it’s not about telling them to stop. It’s about them understanding the power that they have in their community when they have cheat days or cheat weeks or cheat months or whatever as opposed to them feeling some sort of shame because they went and bought some items on Amazon.

My talk is really… you know, quantifies what happens in local communities when you do decide to cheat and what a big deal it is when you spend your money in local communities and the direct benefits to the people in the community that connect all the way to your own personal health. Communities that have more small businesses actually have higher health outcomes than communities that have fewer small businesses.

Kristen G: Wow. I did not know that before your talk about the health outcomes, which is a really amazing statistic. I love how your thoughts around cheating on the big guys actually contributes to your work in finance, almost like the most tangible work that I can think of that you’ve done. There’s the financing you’ve done where you’ve made sure that companies had millions of dollars of funding that they needed, but this is the $5, this is the $3 in the local community that really does add up. It kind of leads me to my next question that does everybody need financing or when should you not go look for financing and can you do it from a community perspective?

Stephen Green: Yeah. I think firms are always seeking financing, and one way to think about financing is a loan or equity. Another form of financing is revenue. I think as a business owner, you should always be seeking to figure out who your customer base is, do they want to buy your product, what are they willing to pay for your product, how much does your product cost you to deliver to your customers? When i think about providing financing, it’s from those different sources. It doesn’t have to always be a bank or your home equity line of credit or doing a kickstarter campaign.

You should be seeking the optimum ways to figure out how you can produce revenues at all times. I think we’re living in a day and age where it’s the easiest time ever to get access to capital if you have a business, for better or worse. Venture capital has grown here in Oregon, but so has crowd funding. Crowd funding nationally is now at 39 billion dollars as of 2016. Venture capital nationally is only at 31 billion dollars.

Kristen G: Oh, wow.

Stephen Green: When you look at the landscape as a business owner, you’ve never had more opportunities than now to gain funding. When you go and you look at the data for why businesses go out of business, access to capital is the number five reason why businesses go out of business. And so far too often I see entrepreneurs going and looking for the next round of funding or the next loan or the next side investor, but they aren’t thinking about am I serving my market? Am I pricing things appropriately? What are my margins? Am I solving a problem out there? When you’re always seeking funding, sometimes you prolong the inevitable when you don’t have a really, really sharp, proper business plan.

Kristen G: That’s such a good thought because the name of this podcast, Upright and Better, we’re trying to move up and to the right from a profit perspective and a revenue perspective, but we want to move up to the right and better. We want to be a better type of company, a better organization in our communities, and I think you’re speaking to that, that you can’t just be looking for the money and that’s your business plan. Have you seen some businesses that have succeeded without seeking either crowd funding or VC or seed capital, but they’ve done it on their own merits and their business plan?

Stephen Green: Yeah. I think probably one of the best examples here in Portland is the digital media company Digital Trends. They’re approximately a 40 million dollar a year company that hasn’t raised any equity financing. They’ve really always been keenly focused on who their customer base is, who their competition is, and how do they do things better and cheaper over time? How do they diversify their product mix over time to a changing market? Before they just had Digital Trends as a platform where people were engaging, but recently they’ve added another standalone brand called The Manual, which still targets a similar demographic, but caters to them to talk about other products. There’s a perfect example right in our backyard of a bootstrap company that’s always been keenly focused on their customer segment and how to do that better and cheaper over time.

Kristen G: Why do you think that’s not talked about so much? I think the talk in the startup space especially in Portland, last year there was some big conversation about the difficulty of getting venture capital and seed capital in the Portland area for Portland companies, and there’s a history of this, of a conversation between Silicon Valley and Silicon Forest, but why do you think there’s not much of a conversation on the type of road that you say Digital Trends is doing?

Stephen Green: One, it’s not sexy. It’s not a really super great story, I don’t think, potentially, for readers to go and read about two guys who put something together and failed a bunch and over the years slowly created this juggernaut that’s doing so well. I think it’s better to tell the story of the company that raised 12 million dollars and they got six employees and now they’re going to have 50 employees.

But part of what’s happening is these stories go and feed into what people think of this, what it means to be a startup founder and that you have to have really fast growth. Unfortunately, when you look at what it means to grow a business, uncontrolled growth is the actual number three killer of businesses.

It’s even worse for you than access to capital, and so when you read about all these stories in the paper of these high growth companies and you never read about boot strappers or the people that are really being agile and managing growth and controlling their brand, it leads people to have this false positive idea that well, the focus is really fast growth and that’s what I need to point to. That gets a lot of founders in trouble.

Kristen G: I think you’re right. Not only, well, I don’t think you’re right. I know you’re right. The data says that, but I think people do have this image in their mind of the fast company or the wired. They want to be on the front cover, but it’s so ironic to me because I’m not building a tech company, but I want my company to be sustainable and to be able to look back and say, for example, this morning, I got told no from a potential customer, and that’s tough, and you’re going to get that more times than you’re going to get a yes, but eventually you’re going to grow.

For example, Edify’s already seeing double its first year in revenue. It takes time. I don’t know, that’s the story that I want to see. I think that’s the story that’s going to keep our community afloat actually when we see the trouble in other communities that are startup funded or venture capital funded over time. When a business approaches you for financing or advice on financing, what do you say to them? What do you ask them first?

Stephen Green: Generally, the first question is always what do you want versus what do you need in financing, and the answer to that question will tell me a lot about where the founder or founders are at with the company. If they go and say, “Well, I don’t know the difference,” that tells me a lot versus, “Oh, well to get to the next milepost, we need $18,000, but right now we’re fundraising for $60,000 because that’ll allow us to do these two other things that we really want to do.” Financing, getting capital into your business is gasoline, and so you should use gasoline to propel you forward to the next spot, but oftentimes, a lot of founders don’t have a plan of where the next spot is, and they’re just chasing to put more gas in the gas tank as opposed to they don’t know where the car’s leading to, and that’s difficult because that’s where, if you don’t know what road you’re headed, then any road will do I think the saying is.

I’m always looking for business owners that have a plan, and they’re working their plan. I sit down and talk with them about financing, they should be using financing as a tool to propel them down their plan. Oftentimes, we leave the financing conversation and go and talk about, “Well, what’s the plan? How would you spend this money? How do you know it’s going to cost $50,000 for a marketing plan and not $32,000?”

Kristen G: What research have you done? This isn’t a perfect analogy, but it reminds me a little bit about college loans. I remember being in school and I was about to graduate and a freshman came in and she was kind of getting settled, and we were talking about her money for some reason, about financing, and she said that she got the entire tuition in student loans. At that time, that college was $40,000 a year. That was just her first year, and right there she’s already over, at that time, she was over the national average for four years of college debt. She was a freshman, so she didn’t know necessarily where she wanted to go, but I think about her often because I think, I wonder did she find her way? Did she find a place that would make sense for her and that would ultimately pay it back?

I guess it’s not a perfect analogy because I think sometimes you can do that uncontrolled growth and you can get that money and you don’t always have to prove that you’re using it wisely. You kind of get out of jail free card if your startup fails. It seems like it’s a badge of honor that “I’ve had a couple of failed startups, I’ve taken money. I had a couple of exits”, but you still didn’t produce anything at the end of the day, so not a perfect analogy, but something that I think about based on what you’re saying.

So, I want to hear some of the successes and the horror stories of financing, so what are some of your favorite stories? I would love to hear construction contractor story again just because I love it, but I think everybody else would too.

Stephen Green: The construction story that I give in my talk is about a contractor, Mr. Hartley, and I use a different name in the talk, but when I met him, he was homeless, living in his van in Nevada. He’s a Portland native, and his dream was to come back to Portland with his head held high. He was an amazing lath and plaster professional, but had fallen on hard times. As with a lot of folks, he knew a trade, he was good at something, but knew little to nothing about running a business.

So, when we connected, he had an opportunity to work on one floor of one building in the South Waterfront Towers that were being built here in Portland, and if he was able to complete that, then he’d be able to get the remaining other 20 floors of the building. It would become very quickly a very large project. The only thing standing in his way was the $20,000 he needed to pay for the materials to do that first floor.

You can imagine being a banker. At the time I was working at Albina Community Bank, and starting off with the fact of someone coming in for a loan who’s homeless, you can imagine what the initial application looked like. I think in hearing his story and finding out that he was a talented person and looking into some other resources here in town, we were able to put together a pretty compelling argument for why he was the kind of person that you want to take a risk on. Some other partners came to bear that were going to help on capacity building for him to really be able to manage a project, but in the end of the day, he was able to get the money he needed to do that project.

Kristen G: That’s amazing.

Stephen Green: And ultimately did get the other 20 floors.

Kristen G: I love that story so much because it feels to me like one of the original ways to build your business, to show that I am somebody you can trust and I will return this. I’ve got to believe that he had to employ people, he had to buy materials, so he’s putting those resources back into the community, and especially because it was a loan from the community bank, I think it’s so impactful to me. On the flip side though, what about some success stories from a VC perspective or an angel perspective? I know that you’ve been on that side of the table too.

Stephen Green: I think one of the things that I learned in my foray in the venture capital world is it’s a really, really, really myopic tool, and I spent probably 90% of my time explaining to people what the tool was, and more importantly, what it wasn’t. Sometimes a big win was helping people understand that they don’t need venture capital because I think one of the things you alluded to in one of your earlier comments is that fundraising is kind of this badge of honor, and it’s kind of a cub scout badge. I’ve done my fundraise, but I’m always seeking to make more informed founders in the city, and if I can help someone understand that they don’t need VC funding, or they don’t need a loan, or they don’t need an investor and they can really get to that next milepost without it, then that’s a big win.

When i think of successes, what comes to mind is Tyrone Poole, the founder of NoAppFee, a technology platform here that helps people with barriers to housing find appropriate rental housing. When I met Tyrone 12 years ago, he was actually living in a homeless shelter, and to see him build two companies in the past 12 years, raise financing, win Pitch Black, go on to win the Challenge Cup in Washington DC and raise more than a million dollars for his company is phenomenal. Phenomenal.

I think he epitomizes everything that the venture world should be supporting, someone who’s dealt with adversity, someone who’s got a crazy ability to manage risk and navigate tough spaces and also has probably an industry leading advantage as far as being able to relate to his clients because he was one of his clients. I think one of the keys to his success is that he’s faced barriers to housing. He knows what it’s like to get turned down by 10 different places when you’re trying to rent an apartment.

Kristen G: And have spent all that money on the application fee.

Stephen Green: Yes. I’ve got to think that folks sitting in a dorm room in Stanford University aren’t thinking about how to solve that problem because they’ve never had to experience it generally.

Kristen G: Definitely generally, but I’ve got to think that you’re right because look at the companies that are getting the press and that are getting the money that we see thrown around. It’s not necessarily the NoAppFees of the world, right? I think that’s, we were having this conversation before we started recording about diversity and access to capital too, but I think one thing you just said, which was there are people that the capital, venture capital world should be funding, and they’re people who can manage risk. They’re people who have seen that adversity. They’re people who have actually experienced what their customer is interested in or has problems with and it’s not just that they can’t get their food delivered at the time that they want.

Stephen Green: Good point. I think the other way to think about it as well is that being able to raise venture capital equity is not the litmus for building a successful business either. Less than 1% of businesses in the United States will ever raise venture capital. It’s a really myopic tool. I hate seeing entrepreneurs leave the table of not raising venture capital and correlating that to “I don’t have a successful business.”

Kristen G: Exactly.

Stephen Green: Because in fact, they just may be a bad fit for that tool, so maybe I’m barking up the wrong tree for capital.

Kristen G: There are better ways, different ways to build the business.

Stephen Green: Yep. Conversely, to play alongside with you, the numbers bear out. Companies that have diverse founders return higher shareholder returns than ones that have more monolithic founder teams. If I’m a VC or I’m an investor who’s strictly about making money, you would invest in teams that have women or people of color or immigrants as founders because that’s how you’d make a crap load of money, right?

Kristen G: Right.

Stephen Green: If you’re not doing it for the moral side of it and you’re not doing it to be a capitalistic pig and make a ton of money, what you’re left with is you’re doing what you’re comfortable with. I think how do we break out of that mold of doing what we’re comfortable with and really seeking to be truly disruptive beyond using the word disruptive and using the word innovative and really using evidence and data in these stories to build a case for why when you do invest in a women owned company, when you do invest in a company owned by a veteran, it’s an impact investment, that it actually is about making returns on your bottom line.

Kristen G: Right. I think that could be a whole other episode. I would love to talk more about that. It would actually be pretty cool to get you and maybe Arlan and a couple of other people on the podcast to talk about that, so maybe we’ll have to come back to that. As the last question I want to ask you, maybe a big one, but how does taking funding from any source impact your company’s culture?

Stephen Green: That’s a good one. That’s a pretty high level question because when I think about taking money, I think of the multiple levels of what that means. That could be a bank loan. That could be a successful kick starter. That could be grandma wrote a check for $20,000. At the end of the day, all of those things point to there’s either one person or hundreds of people that believe in the idea of what you’re trying to do. I think that in and of itself is a good thing, and now it’s on you as a founder team and the employees to deliver on that better and cheaper over time.

Kristen G: Definitely.

Stephen Green: If you’re doing that without having a plan, then ultimately it could lead to the inevitable of you closing down and you just put more gas into a tank of a car that’s not moving. The point is how do you be a really informed founder and make sure that whatever gas you have in that tank, you’re using it to its fullest and getting you to where you understand that you need to go, right? Because sometimes you have conversations with founders and they come to the realization of, “Wow, if I can’t raise 1.8 million dollars and not a penny less, this just doesn’t move forward.” Sometimes pulling the plug is a really great option, right?

Kristen G: Right.

Stephen Green: Know when to say when. Fail fast. I think that really is part of the mantra that Gary V would talk about, of failing fast and knowing when you’re at failure. Far too often, people don’t, they don’t have a plan and they don’t know what failure looks like and they found some dentist in Lake Oswego that’s willing to give them another $200,000 of runway, but that’s not necessarily smart money, and they don’t have a market that’s really been validated. They don’t have a growing customer base, but they’ve found yet another person that’s willing to put some gas in the tank, but the car’s really not going anywhere.

When I think about getting access to capital and getting financing, it’s got to be about propelling you forward and what’s the next milepost that this money’s going to get you to, and if you don’t have a plan to be able to articulate that, you shouldn’t be getting a home equity line of credit. You shouldn’t be asking grandma for another $300,000 or whatever. You got to be able to answer those questions not only for yourself, but for your investors, and for your employees. If you’re going to be a good leader, you got to be able to articulate the path forward. What’s the mission, vision, values, and where we’re going?

Kristen G: You can’t see it, but I’m just shaking my head because I agree with all of that so much, and definitely the employee piece. I was just thinking about a person that I am acquainted with in Portland who was an employee at a remote company that was kind of winding down, and from the story she shared with me, she actually was hired in the middle of them winding down, which feels like one of the most irresponsible things you could do to a new employee, to a person. At the end of the day if you know your runway is coming up and you know this is not a good business to pour more gas into, don’t hire more people. Don’t hurt your employees like that, and that’s on the negative end of it, but I think you’re so right that it ends up being how are you going to lead the ship through this journey. I want to just say thank you. I love talking to you all the time that we get to talk and this has just been really helpful. Are there any last thoughts that you want to share with us?

Stephen Green: No. I hope the work that I’m really committed to is about changing the experiences for underrepresented populations, and I feel like Portland’s at a point where we feel like diversity, equity, inclusion is important, but it’s not necessarily urgent, and you do the things that are urgent. You talk about the things that are important.

So, I think when it comes to supporting underrepresented founders, people have to be committed to doing something, not just talking about something, not just changing their mission statement, and every little bit helps. Having that focus on changing experiences that people have as opposed to just sprinkling some equity on it.

Those are the thousands of little things that I like doing. That’s why I do events like Pitch Black because it’s really, you got to do something to shake up people’s perceptions. Once you can get people to shift their perceptions, it’s amazing how much quicker they will act on things because their perception has been challenged and shifted.

Kristen G: Right, exactly. Well, Stephen, thank you so much for your time today. I really appreciate it. I look forward to talking to you again.

Stephen Green: Thank you for having me.

Kristen G: That’s it for today. Thank you so much for joining us for another episode. If you’d like to ask a question or suggest a guest, email me at hello@uprightandbetter.com. Until next time, grow better.