On this week’s episode of Inside Outside Innovation, we sit down with Amos Schwartzfarb, Managing Director of Techstars and Co Author of the new book Levers: The Framework for Building Repeatability into Your Business. Amos and I talk about the framework for going from idea to scalable repeatable company and the challenges startups face in the process. Let’s get started.
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Interview Transcript with Amos Swartzfarb, MD of Techstars Austin & Coauthor of Levers: The Framework for Building Repeatability into Your Business
Brian Ardinger: [00:00:00] Welcome to another episode of Inside Outside Innovation. I’m your host, Brian Ardinger. And as always, we have another amazing guest. Today we have Amos Swartzfarb. He is the Managing Director of Techstars Austin, Author of the book Sell More, Faster and Coauthor of a new book and the reason we have him on today’s a new book called Levers: The Framework for Building Repeatability into Your Business. Welcome Amos.
Amos Schwartzfarb: [00:01:01] Hey, thank you so much for having me. I’m excited to be here.
Brian Ardinger: [00:01:04] I’m excited to have you here too. You’ve been in this space of spinning up new ideas and helping companies get off the ground. You’ve got a new book coming out called Levers. And so, I wanted to have you on the show to talk about that and give some insight into what it takes to build a business. So maybe let’s start off with what’s this new book about, and we can go from there.
Amos Schwartzfarb: [00:01:25] What the book is and I should clarify it is, it’s a book, but it is more a book that you do versus read. And that gives you a little sense of what it’s about and the goal that my coauthors and I had when putting this together was, we’re all investors and operators for many, many years.
And as we sort of looked around, and this is the stuff that we teach and profess to the companies we work with, and we realized that there wasn’t really a great place, resource to go, accelerators included where the focus is on, what are the fundamental things you need to do to operationalize a business. How do you get it to repeatability? And how do you scale it?
I like to say this is sort of like a recipe book. Like you open it up and follow the instructions and it doesn’t guarantee you’re going to get there, but it certainly will help you figure out the right ingredients so that you can have the recipe for the cake you’re trying to bake.
Brian Ardinger: [00:02:18] What I like about the book is the fact that it really does start at the very beginning. And I think a lot of startup founders take the startup journey. They see the big vision of where they want to go and that and they start 25 paces ahead of where they really are. And the book really starts off with who are you really trying to serve. What are you trying to build? And that, so maybe talk through that initial W Three methodology and your belief around that.
Amos Schwartzfarb: [00:02:42] So I think maybe just for the listeners to give context here, the book is a five-chapter book. Each chapter is dedicated to a piece of the overall framework. It’s very intentional in the order that we have everything and the way that we see it makes most sense to think about building the business.
And I should also clarify that the framework absolutely works when you’re sitting in the coffee shop and the writing an idea in the back of a napkin. And really where we focus our energy is working with founders that are a little further along than that. Usually there’s some customers or some revenue. There’s no repeatability in the business.
And so our thought process is regardless of the business you’re building, it all starts with really having a deep understanding of who you’re serving. Who you’re serving is who your customers ultimately are. And so, the, the W3 framework is a way to answer three fundamental questions, which are, you know, when I say them, everyone’s like, yeah, of course these are the questions you need to answer. But getting to the right answer is the hard part.
So, the three questions are who is your customer and what is the very specific and narrow definition of the customer that, you know will say yes, 100% of the time. That doesn’t mean that your prospects will, that’s not your entire tam. It’s just like, what are the attributes of someone who, you know, will say yes, a hundred percent of the time.
That’s the first W. The second W is what are they buying from you. Not what are you selling to them? And that’s a really important, often subtle nuance. And you know, I think as you know, the reality is your potential customers. They don’t care what you do. They only care what you do for them.
And so, we just try to really get at that so that when you’re talking to them, you can talk in the language that they understand. And then the final W, the third W is why are they buying it? What’s the impact on the business? Have a clear understanding of what that is. And more importantly, or equally as important is how are they going to measure that impact? Because if they don’t know, they won’t know if there’s an impact and they won’t be a customer for very long.
In the book, we also get at that there’s two different parties that you need to understand the why from. There’s the obvious one, which is the business why. But then there’s also the individual buyer. What’s their motivation and making sure that their motivations are aligned to.
So even if the business looks like the perfect customer for you, they might not be because of the kind of person they have in the role or the exact person they have in the roles. Understanding that deeply as important to getting at, figuring out who your customer is on a deep level.
Brian Ardinger: [00:05:00] Yeah. Specifically, based on the business model too. Oftentimes you have multiple different stakeholders where you have to figure out what that why is for not only the user of the product, for example, but the buyer or the influencer, whatever the case may be.
Amos Schwartzfarb: [00:05:12] Yeah, you have to understand why they’re going to care. If you’re going to get them to understand why, what you’re doing matters. Or conversely, to understand why maybe they’re not actually the right customer for you right now, even if they look like it from the outside.
Brian Ardinger: [00:05:23] Right. And then we could grow into it. But those early adopters are sometimes a little bit different than the ones that buy longer term. So you mentioned at Techstars, you tend to have companies that have thought through that a little bit more, and maybe they’re in the early stages of developing that customer network and stuff. What’s the next step? Where do startup founders typically get tripped up? Once they’ve started that business and have gotten a little bit of traction.
Amos Schwartzfarb: [00:05:44] There’s sort of two things that I see most often are the operational trip ups. The first is the notion that they have product market fit literally years before they actually have it. And so, this goes around, figuring out who your W3 is, but saying like, okay, we’ve got a couple of customers, we’ve got a bunch of people that have said they would buy, we’ve found product market fit.
That is not a true statement. It’s the furthest thing from a true statement. Product market fit is when you have a huge base of customers that are working with you, that can’t live without you. That is product market fit. That takes years to get to. So, the first is kidding yourself into thinking you have it long before you have. You might have great product market direction or signal, but that’s different than product market fit.
And then the second thing is skipping over finding repeatability and moving right to scale. So maybe you have 10 or 15 or 20 customers and saying like, great, I’m going to hire a sales team and we’re going to go from 20 to 200. But the reality is most of the time, you don’t understand why it’s working the way it’s working.
And until you understand why you really can’t scale because you don’t know what to scale. You might think you do from the outside, right, from a hundred thousand feet away. But when you get into the nuts and bolts, it’s often very different than what you think.
Brian Ardinger: [00:06:55] So how do you define repeatability and what are you looking for for that portion of it?
Amos Schwartzfarb: [00:06:59] Yeah. Repeatability is when you have proof with data that you understand that by doing a thing, you have a crystal ball to understand what the result of that thing is. And you have enough back data that you can reasonably predict what will happen. You may have good instincts and you may be right often because your instincts are good, but if you don’t have the data to back it up, you don’t have repeatability yet.
So, the thing that people do is they have good instincts, they see things starting to happen, and so they skip the repeatability step and move right to scale. And then things break down because they didn’t realize that, oh, well actually there was these pieces we didn’t know existed or mattered or things broke that we didn’t think were even there.
Brian Ardinger: [00:07:40] Interesting. Very interesting. So, let’s say, you understand your customer, you understand what they’re buying. You started to kind of create some value. One of the chapters in your book is really talking about how do you create that revenue model around that? How do you start putting the pieces in place to know how you make money and the quote, unquote levers, I guess that you can pull to make that happen? Talk a little bit more about that.
Amos Schwartzfarb: [00:08:00] So that’s Chapter 2 of the book or the second step of the overall framework, which is we call it, finding your revenue formula. And so, the simplest way to describe it is there is a simple math equation, that is your business. It’s, you know, something times something, times something, times something equals revenue, right? And every business is a little different.
What’s interesting about this is like, if you’re a marketplace business, you might assume that all, all marketplace businesses are reasonably the same are all SAAS businesses are reasonably the same. And the reality is that’s the furthest thing from the truth. But when you’re looking at it from a hundred thousand feet away, it can sometimes feel that way.
So, finding your revenue formula starts with having a theory of what that math equation will be at some point at scale, and then mapping out, and if you can picture the math equation sort of on top, and then under that, a list of things that we call them, drivers that drive the values, the different values in your math equation or your business model.
And then those drivers all have sub drivers. And so, these drivers and the sub drivers are the things you need to do or learn or research or prove in order to know how to move one of the values in your formula. These are your levers. What are the things that actually allow me to, to move that? So, until you, what we say is like, until you understand that the levers of each value of your formula, and you can point to it and you know, you have repeatability.
If I do this thing, this other thing will happen. You don’t actually have repeatability in your business, even if you have it in part of your business. And that’s often what happens is you get repeatability in one part, you’re still learning about the other parts, right? And it’s always an evolution. You never have full complete understanding.
Big billion-dollar public companies still only have 90 plus percent understanding of the levers because you know, there’s just things that happen. The economy shifts. There’s a global pandemic. Or there’s a new competitor in the market. Right. These things change. But generally speaking, you have a crystal ball that’s relatively clear.
Brian Ardinger: [00:09:49] Yeah. And I like that analogy too, from the standpoint of like a lot of the times you can get one or two levers, right? Like for example, you can get people into your funnel. But then they fall out because of something else. And until you understand across the board, how do you actually get it from that first conversation to dollars in the bank? A lot of things can happen in between.
Amos Schwartzfarb: [00:10:07] Yeah. And even dollars in the bank, like what happens at renewal time?
Brian Ardinger: [00:10:11] Or what would happen if you turn off a particular part of the funnel. Does that change the dynamics of how they buy or come back to you?
A lot of information is available out there to startups nowadays, you know, 8, 10 years ago when you and I were starting kind of this journey, a lot of it was much more black box and that. You know, what are the biggest changes that you’ve seen in the regard for access to resources and availability for startups to actually get started?
Amos Schwartzfarb: [00:10:36] I think probably one of the biggest changes that I’ve seen in the last decade is that there is a really true and sincere desire for people that have had some experience to help people that don’t have experience. You know, and I’ve been doing this for 25 years. I wish the level of people that were willing to give first and help was there, and it just wasn’t.
So, I think that there’s been a huge shift there. And I think there’s a lot of really great resources out there and theories and philosophies and thought processes around the way to do things. There’s lots of accelerators and incubators, and most of them are really well intentioned. I would say that to me, that’s probably the biggest shifts, that, which is that more and more there is access to information to help you figure out what to do.
And I think not to bring it back to the book Levers. What we saw was all of this stuff out there. We felt like there was a gap to tactically what do you do to operationalize a business. Nothing in this book is new. What we’ve done is we’ve packaged it in a way that hopefully makes sense. For someone to say, okay, like I said, open it up.
I know the steps I might, they might learn that the thing that I want to build is actually not a real business or not possible, but we’ll give you a framework to figure that out too, so you don’t waste time and money.
Brian Ardinger: [00:11:52] Well and that’s an important part, especially like in the corporate world where I see a lot of corporations kind of spin up new ideas and they keep spinning it up and throwing resources at it rather than saying, okay, this idea is bad or we need to pivot it or let’s pick a different one and push it through its paces. You know, that ability to say not right now. And let’s try something else, I think is an important piece. Not only for founders, but corporate innovators, things, anytime you’re trying to push it.
Amos Schwartzfarb: [00:12:16] Yeah. Well, I say going back to your question. I think another thing that has happened in the last, on and off for the last 20 years. But I think in the last, you know, five to eight years, which I don’t think is a positive thing, is I do think that there’s been a notion there’s so much available venture capital out there, and a lot of VCs, people that get into VC, they’re not necessarily operators first.
And there’s a lot of people who think that being an entrepreneur is a career path versus an infliction. And I think you put those two things together. I think one of the negative outcomes of that is a notion that money solves problems when you’re building a business.
And actually, it’s completely the opposite. I’ve seen way more businesses raise too much capital and fail because they think they can throw money at solving a problem, versus solving the problem and then using money to scale once it’s solved.
Brian Ardinger: [00:13:07] Yeah. If you take that money too early and don’t know what to do with it, you can burn through it pretty quickly and not get to where you want to go. You mentioned COVID briefly, but you know, what are you seeing coming out of COVID. What are some of the biggest trends or opportunities that you’re seeing?
Amos Schwartzfarb: [00:13:19] I get this question a lot and I feel like I’m always giving a really dissatisfying answer. I don’t know that like I’m ahead of seeing any trends. I’m in the middle of it with everybody else. I mean, there’s lots of things around, how do you get people together virtually? How do you bring people together virtually or in person more together?
In my last investment class, there were a lot of community things that have popped up. Candidly, I don’t know that I’m ahead of the curve there. I wish I had that crystal ball, but I think I’m using my instincts just as much as anybody.
Brian Ardinger: [00:13:50] Yeah. I think it’s going to be an interesting time, especially coming out of COVID. That’s going to be, actually, folks are going to struggle even more with that transition versus actually going into COVID. I think.
Amos Schwartzfarb: [00:14:00] So true. I’m even having trouble getting used to like getting back to in-person meetings. It feels weird to say yes or to offer it up.
Brian Ardinger: [00:14:07] Exactly. Yeah. I’m going out this afternoon and to see people in 3D and it’s going to be a little bit weird. I guess the next question is like, what’s next for you? What’s next for Techstars? What’s next for the book?
Amos Schwartzfarb: [00:14:18] This thing that we do at Techstars is really, really fun. You know, we’re in Austin. We’re looking to increase the number of times that we’re running a year. So, my hope is that, you know, over the course of the next couple of years, we’re more frequent, so we can be more impactful on companies that are part of the Techstars or want to be part of the Tech Stars network here in Austin.
I mean, the book is doing great. We’re getting tremendously good feedback. Trevor, my co-author and I, we do some work with non Techstars companies on the process. So there is that too, which, you know, it doesn’t take a lot of our time, relatively speaking, but it is fun because we get to work with companies that wouldn’t necessarily be a fit for Techstars, but we’ll get to give them, you know, the same sort of, it’s not the same thing at all, but we get to give them this process, which to me is really the most important piece of it.
For More Information
Brian Ardinger: [00:15:06] Yeah, I found it very in line with a lot of the stuff that I’ve seen in lots of the, we’re doing both again inside corporations, as well as working with startups out there. And I’m excited to see where, where it comes out. And it’s always good to have people talk about what it takes to do this, because I think that’s where a lot of people struggle.
It’s, it’s so glamorized out there nowadays. And like I said, there’s so much capital and it’s never been easier to spin up something. But it’s just as hard as ever to scale it and grow it. And it’s always nice to see some ways to think through that process and actually make it happen. So, if people want to find out more about the book or more about you, what’s the best way to do that.
Amos Schwartzfarb: [00:15:41] To find out about the book, go to Leversbook.com, L E V E R Sbook.com. One word. Find out about me there too. You can reach out to us through there.
Brian Ardinger: [00:15:52] Excellent. Well, Amos, thanks for coming on Inside Outside Innovation. Looking forward to continuing the conversation as the world changes. Appreciate your time.
Amos Schwartzfarb: [00:15:59] Yeah. Cool. Thank you so much for having me. It’s great chatting.
Brian Ardinger: That’s it for another episode of Inside Outside Innovation. If you want to learn more about our team, our content, our services, check out InsideOutside.io or follow us on Twitter @theIOpodcast or @Ardinger. Until next time, go out and innovate.
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