Lou Shipley: Founder-Led Sales, Product-Market Fit, and the Go-To-Market Playbook Behind a $565M Exit

Kosta Panagoulias: All right, we are live. Uh, my guest today has done something that most of us are still working toward. He's built companies, sold them and then gone back to teach what he learned at Harvard and mit. Lou Shipley is a three time CEO, a senior lecturer at Harvard Business School, and the co author of a new book called Unlikely Entrepreneurs. His most well known run was a CEO of uh, Black Duck Software, where he took a slow growth compliance tool, repositioned the whole business around open source security, quadrupled revenue and sold it to Synopsys for $565 million in 2017. Ah, so a lot to dive into there. Lou. Welcome to Founder Views.

Lou Shipley: Thank you very much. Great to be here.

Kosta Panagoulias: Pleasure is all mine. So where to start? You know what, um, if you don't mind, Lou, kick it off. Take, take a minute or two to just introduce yourself.

Lou Shipley: Sure, yeah. So, um, I've done uh, six startups, all of them were in Massachusetts. First one was um, a, ah, company called Avid Technology, which, which was uh, a pioneer of digital video editing. And uh, that was a rocket ship. And once I had been in one startup I was never going back to big companies. So spent my entire career either in them or managed them, ran them. Now I invested them, advise them, serve on their boards, write about them. So I profile 17 entrepreneurs in this, uh, book, unlikely Entrepreneurs, and sort of go through what uh, people have done well and what mistakes they've made. And I've made plenty of mistakes myself. So we don't just talk about success, we talk about failures because as you know, there's a lot of failure in entrepreneurship. So, so I really enjoyed writing the book with my co author and profiling people actually kind of like you, like people that start businesses, see a problem and get after it.

Kosta Panagoulias: Love it, love it. Um, so I want to start with Black, uh, Duck Software. So did you, did you uh, found that company or did you go in?

Lou Shipley: I was, I was not the founder. I had run a couple companies before that, but I had been a, a customer of Black Duck. Uh, my uh, first, uh, company that I ran was called, uh, Reflectance Software, which we sold to Citrix. And in the process of selling to Citrix, they wanted to check out our software, our intellectual property. So they ran our software reflectance software through the Black Duck system and basically compared our code to their open source database to tell them, um, Citrix, the buyer, like how much of our code was open source. And it shocked me to realize that like more than half our code was open source, some of it was compliant with Citrix's licenses and some of it wasn't. So we had to rewrite it as part of the whole deal. But I thought, wow, that's a pretty cool company. So when um, the opportunity to run Black Duck came along, I jumped at it because I knew it was a company with a really good brand and a good product.

Kosta Panagoulias: M. How long were you CEO of that company?

Lou Shipley: Uh, five years. Yeah. And um, the big thing we did was we changed three things. We changed sort of the culture of the company. That was one. And then we changed the product strategy from that compliance use case I just mentioned to open source security because that was really a C level pain for a lot of companies. You know, boards were talking about uh, open source security vulnerabilities. So we, we became a security company and then we also pioneered kind of our go to market model, our sales model which was um, really successful. And when Synopsys bought us, they wanted to take all their products and put it through our sales model. So it was a, it was a good acquisition because they wanted the company, they wanted the product, but they also wanted our sales model.

Kosta Panagoulias: Amazing. Okay. And, and today uh, are you working on any companies right now or.

Lou Shipley: Yeah, no, I'm on uh, I guess six software boards. Do uh, a lot of advising and investing and then teaching. Um, so I found the closest thing to being a CEO is being really collaborative as an independent board member with another CEO. So on the board of Wasabi, David Friend, uh, is the CEO Fair market Kevin Frechette, uh, customer gauge. A bunch of different CEO companies where they usually ask me for go to market help because you know, everybody has sales problems. And um, so I just found it to be almost as good as being a CEO. But I don't have to manage the day to day business.

Kosta Panagoulias: Yeah. Awesome. Speaking on sales. So one thing you, uh, you speak about and touch on quite a bit which, which I totally agree. Uh, I also mentor and you know, um, advise startup founders. Uh, and one thing is that you know, you, it's never a good idea in my opinion to pass on sales, uh, too early. I think there's a lot of value to me, the most important skill set of any founder and entrepreneur, sales. Uh, it's one of those things that stick with you uh, till the very end when you're starting out, especially in your bootstrapped. Right. I've always been bootstrapped. I never took a single dollar for, from anyone in any company that I found.

Lou Shipley: Wow, that's impressive.

Kosta Panagoulias: And, but from that lens, when you're bootstrapped and resources are scarce. The only, oftentimes the only marketing and sales channel you have is, is, is outbound sales and just learning how to sell. And if you can't sell as a bootstrapped company, your business simply dies like your only source of fund your customers. And, and, and I see you're also adamant that founders can't hand off sales too early. So what specifically breaks when they do, in your opinion?

Lou Shipley: Well, first of all, congratulations on what you've just said. Bootstrapping without raising money is, is incredible. One of the entrepreneurs that I profiled in the book, uh, Liz Elting, uh, did the same thing and she built a company that's worth a billion dollars.

Kosta Panagoulias: Wow.

Lou Shipley: Um, and she's like, know. Her point was I was going out talking to investors and they're saying, who are your customers? Can I talk to them? And she's like, no, um, these are my customers. I'm talking to you. So she's like, I don't need this money. I'm just going to go build the company. And it was, it was very, very interesting. So the mistakes that I've seen, um, happen is if, uh, you know, if you don't, if you don't create a sales culture as part of your overall company culture and if you delegate the sales function too early, you, you have the run the risk of giving up the culture and like, letting it be dominated by somebody else. You also run the risk of bringing somebody in who, you know, basically, if they were successful, you want them, but they might come in and bring the same comp plan and the same salespeople to your company where the, the buying context and the compensation for the sales rep could be completely different from what they were doing before. And I've seen this happen. I've made that mistake myself, uh, of, you know, bringing on people who are successful at one company into another and they just didn't work. And m. So, so each company is so custom and each company's buyers buy. The journey they go through to buy is so different that you have to instrument that before you can figure out compensation and what kind of person would work. And that's why I think the founder has to do it. So they then know who to hire when it is time to delegate the function.

Kosta Panagoulias: Yeah, I totally agree. You know, it's especially early on, I feel, you know, if you're, if you're a founder and you haven't done the sales yourself and then you're hiring someone to do the sales, you're now relying on this third Party person to now arbitrarily come up with all the metrics, like, you know, the conversion rates, the, uh, how many calls you can possibly make, how many opportunities, like, you know, you're relying on this person. When you haven't done that, those metrics could be, could really be off. And I find in, in most cases, no one's going to have the same drive and passion that a founder does when it comes to sales.

Lou Shipley: Exactly.

Kosta Panagoulias: So when you're passing that on or too early, I think that could be more, uh, detrimental than positive.

Lou Shipley: I, I completely agree. Actually, I. Kind of a fun story. This is the, uh, this is the book Unlikely Entrepreneurs. And when we put together our business plan, this is our startup, Trish and my startup. We, we assumed our ideal buyer would be, you know, founders like you or, um, venture capital firms or maybe schools that run an entrepreneurship program. Well, we, we launched the book. It did really well. But my biggest order came in from a company called HB Hood, which, if you're from Boston, you'd know them. You might not know them in Toronto, but it's a 180-year-old dairy company.

Kosta Panagoulias: Okay.

Lou Shipley: So I'm like, wait a sec. Um, I thought it was going to be this one set and it's 100. So I talked to the CEO of Hood, and he said, he asked me to come and speak to his senior team and he bought books for the whole company and he said, no, we wouldn't survive as 180-year-old company if we weren't entrepreneurial. Like they've been entrepreneurial in terms of business model. Their Hood was Hood ice cream and milk, but now their number one product is almond milk, Almond breeze and oat milk. And so I guess my point to this founder thing is you learn so much in those initial sales calls that you learn how to position your company and how to talk about it, that if you delegate it too early, uh, and the, the head of sales might not have the context you have to piece this all together to realize really where you fit in the marketplace.

Kosta Panagoulias: Yeah, totally agree. Yeah, that's, that's something I talk about a lot actually, is, you know, something I, you, you learn as you go, but you realize that especially early on, one of the, one of the biggest, the most value that you get when you're doing sales early on, even more so than the actual sales itself, is what you learn from speaking to as many potential leads and clients as you possibly can. Because just the feedback you get is priceless. You know, what people are asking for, uh, what they like what they don't like. And that helps, um, build the product in a way, uh, that you, you wouldn't really know if you're, if you're not speaking to people, uh, or again, back to just relying on someone who, who is not looking at it in that context. Uh, so, you know, and when you say founders should optimize for learning, not revenue on, on the first customers, what does that actually look like day to day?

Lou Shipley: Well, yeah, I think it's interesting. Um, so I've, I've been teaching for many years and a lot of students want to be entrepreneurs now. And I saw a, a pattern of founders, um, coming up with an idea, you know, building maybe an mvp, raising venture capital money, and then trying to figure out how to sell it. And so I thought that's sort of bass ackwards. Why don't we do it the other way? We create a course where for the semester you can just figure out if you can sell this thing. You figure out what, how many cold calls you need to make. You need to talk to a hundred people. You gotta, yeah, you know, you gotta figure out, do you sell it direct or through partner or through an oem or what's the best go to market search. And the output of the whole class is what we call your go to market sales playbook. So when you do hire your first sales rep, you give them the playbook and then they're off and running. And so that's been successful because I've seen fewer students fail because first of all, they might find out this product doesn't sell. This idea isn't that good. So before you go raise venture money, let's figure that out. If it's really the right thing to do. And if you don't have a personal experience with an area, you have to make at least 100 calls, not to your mom or to your dad, but to people that will say no or give you a really honest feedback.

Kosta Panagoulias: Absolutely. I'm curious to hear your feedback. We were kind of speaking about this offline, um, you know, related to the companies that I've founded, uh, and currently run today. Job table. Very, uh, very competitive markets to say the least. And I find a lot of, uh, founders and entrepreneurs, they shy away from competitive markets. And I was like that as well early on. But today it's total opposite total, 360. Like, I would only start and found another company that's very competitive. Um, and why is that? Because when you're in a competitive market, that means that there's already Product market fit in this market. The idea has been validated. There's real companies making real money, there's customers paying these companies. So now it's just a matter of you finding your kind of pocket in this market and getting your slice of the pie. And as I said offline, a small slice of a big pie could be a really, really good business. So I'm curious to hear your kind of perspective on that.

Lou Shipley: Well that's a really interesting. We could talk about this for the whole time but I think founders or uh, entrepreneurs feel like I've got to build this thing that's unique and differentiated and no one else is doing. I found this seam in the market and no one's there. And they think the larger your tam m and the fact that no one's competing makes it a more attractive investment. But what you've just said is counter to all that, that you, what you do want to do is go in and either offer something better. I mean here's, there's some good examples. Like I don't write about this company in my um, in my book but cologuard, you know the guys that do um, cancer screening is you basically get a box and you, and you poop in it and send it in the mail. Like it's like, it's like this simple business that would have thought about but it's a fantastic business as opposed to going through the whole process when you go in and get a uh, colonoscopy. So that's, that's sort of an interesting, that's like a big competitive market. You just you know, offered it a different way. One of the companies I'm involved with, uh, that been involved with since it was a startup and it's now a very large successful company is called Wasabi. They do hot cloud storage and they compete with Amazon, Microsoft and Google. And when the founder David Friend was out raising money, people say why do you think you can build a business against those three? And he was like well we have a simpler product at a better price and it's easier to use. Like to your point, huge market, the storage market's gargantuan and we've carved out a multi um, hundred million dollar business doing it better than Microsoft, Google and Amazon.

Kosta Panagoulias: Yeah, amazing. And I also think when you're getting into a business that doesn't have any competitors, maybe it's something new. To me that's, that's often it is a lot more risky. To me that's a red flag. Now you, you have to, you know Determine if there's product market fit. You have to validate, uh, that idea. And uh, to me there's a lot of red flags there, especially nowadays. It's like, why doesn't this exist, um, with now, with AI So I don't know. That's um, interesting. Uh, take there, um, related to your book. So you, you m, you mentioned that the young genius founder narrative is uh, mostly uh, mythology. So what does the data actually say and what patterns do you see in the founders who do make it?

Lou Shipley: Yeah, no, it's really interesting because, you know, our cultures sort of celebrate, you know, someone who, you know, Marks Zuckerberg, you know, drops out of Harvard, starts Facebook. And yes, there are cases of those, those people. But if you look at the actual research on this, Pierre Azuli from MIT Sloan School did a lot of research on this and found that 44 is actually the best age to start a business. In our book we profile, um, three entrepreneurs that started businesses in their. Actually they're all in their 50s. Um, and why is that? Well, it's because you've been around for a bit. You've seen what good looks like, you've seen what bad looks like. You may have saved a little money, you've got a network and you might have been able to really focus on a problem or thinking about a business that you've been curious about for a long time and have seen, seen what has happened there. So we profiled these, uh, entrepreneurs. One is a guy named Charlie Tillinghast who was the president of M. MSNBC News Interactive. And they, he launched a product there called Breaking News. And then the company that acquired MSNBC shut it down. He's like, why are you shutting this down? I like, oh, we don't like that business. And he's like, well, I'm going to started up just like this on my own and changed the pricing model from advertising to subscription and it's off and running. Factual is doing great. Uh, Dave Piccarello from Twin Barns was a very successful consultant, um, his whole career, but he loved beer and he wanted to start a brewery and he's, he's got a great brewery in uh, in New Hampshire now. So, um, just, it's, I think it is counterintuitive because most people think you got to, you know, be in your early 20s or late 20s, but the reality is your higher chance of likelihood is after you've had some experience and been around the block a bit.

Kosta Panagoulias: So is, is it just the experience then? Like, like a, comparing a 45 year old or 44 year old founder to uh, a 25 year old, you know, like what, what does that 45 year old have, uh, other than experience that the 25 year old doesn't? Or is it just experience that's the leverage?

Lou Shipley: Maybe, maybe wisdom is a little bit better. I mean, I think about how uh, the benefits of what I was like when I was in my twenties was that I, I thought I could do anything and I would just work forever to get it done. But the reality is the older you get, I think you work a little wiser, a little smarter. And um, and I also think you learned you've worked with both good people and bad people. Right? And so what I'm a big uh, proponent of the Oliver Cromwell school of people managers. Um, a few good people are better than numbers. And there's still in that, especially in the tech world, there's always this sort of braggadocio about hey, I got a company with 100 or 200 or 300. Like I don't care if you have 100 people. I just want a few good people. Because you just need really, really good people in these startups. Because as you know, it's just hard work. It's hard work and you got to have a lot of, you know, stick to itiveness and you can't give up, you can't quit. So, so I think, I think there's a lot to it that you, you kind of get better as you're older now. There's still a lot of successful young entrepreneurs. But I also think you see in the longer you've been in your career, you see pain points that could end up really turning into businesses. And, and that's, that's sort of the benefit you get from doing it a little older.

Kosta Panagoulias: Yeah, okay. Um, um, yeah, I agree. Um, you've said you all, you've also said that understanding, uh, like truly understanding your customer pain point is the single most important founder skill. Um, speak on that. Like what, what does that actually mean and look like in practice? And how do you, how do you know when you've, you've actually understood that pain deeply enough? Or will you ever know?

Lou Shipley: Yeah. Now this is really, really interesting because when we were coming up with the name of the book we had pitched to Wiley Unlikely entrepreneurs and they liked it. But as we went through and finished the book, we thought we might change the name of the book to chapter one, which is called the Problem with the Problem. And this is, this is all about, um, how big a pain are you solving? Is it really worthy of a company, or could it be a feature, a product, or a company? Like, you see things all the time. You're like, oh, that could be a feature of a product or maybe a standalone product, or it could be a company with multiple products. And. And I think the pain. So I profiled a guy named Bill Warner, the founder of Avid, who was trying to make videos, uh, multiple videos in the era before it was digital, so on physical film and videotape. And he couldn't. He couldn't. He couldn't make multiple versions. So he's like, why isn't there a digital version of this? And he thought there was one out there kind of to your point before, there must be something out there. And he's like, there's nothing out there. I think I can. I think I have a free path to this. So he started Avid Technology and digital video editing. And, um, so he understood the pain of what it was like to try and make videos before the digital era. So he knew what features to put in the product and then what to grow and how to listen to your customers and grow over time. The company's been around 40 years, not 45 years. So. But if you don't have that. And this gets back to what we were talking about before, if you don't have the pain associated with you, if you just think it's a good idea, that's when you really have to do your customer research and ask these 100 different conversations, these really objective opinions. How much pain are you in? And is. You know, because you could be in pain, but there could be some other way to solve the problem. Um, you know, I don't know if you've read a book called Competing Against Luck by Clayton Christensen, but he had a theory called the Jobs to be Done theory. Every product has a job to be done. But, you know, people could do what you're talking about with other products. Might not be as flashy or cool or avant garde is what you're doing, but you can still do it. And so that's why you have to really ask the questions of people before you realize that someone's going to pay you enough money for you to build a business.

Kosta Panagoulias: Yeah. What are some of the signs that a, uh, founder, entrepreneur has built something without truly understanding the problem?

Lou Shipley: Um, right. So there are, there are people that just come up with a good idea. I mean, if you think about why anybody buys anything, you're usually either in pain because you can't get it done, or you do think there's going to be some amount of gain from doing it this new way and using this new product or service. And so there's plenty of those examples, um, out there. But you still have to do the research to find out if someone would say, yes, this is something for me. And on the 10 things I have to do this year, this is number one. Because someone, you might have an initial conversation and say, that looks really interesting, but you have to ask them on a scale of 1 to 10, like, how important did you solve this problem this week? So it becomes this decision making process of asking questions about, yes, it's a good idea, but is it a bigger priority than all the other things you have to do, um, in your busy schedule? And I think that's where the most founders fail because then they go off and like, I'm just going to build the product, I'm going to make sure the product's really good. I'm going to work on the product some more. It's like, don't do that because you kind of get the feedback and the learning that you said you're talking about learning from your first customers rather than pricing it really high. Just get as much usage and learning as you can to know what to build next.

Kosta Panagoulias: There's so much value in just early on speaking to as many people as you can. Like, I know you said 100, like, I would, I would double or triple that. More the better, obviously, depending on the tam. But, um, this small anecdote for me, kind of touching on this is something I realized is, so with my current company, jobtable, I think the, the ultimate hack and leverage to build a company that I've learned is building it for yourself. So my two partners, uh, in Job Table, uh, own a commercial plumbing company here in the area. So that's how Job Table kind of evolved, was kind of like, you know, they had a need for it. We're going through software, didn't really find anything that they liked or fit well within their flow and their process. We built something for them internally and realized like, there's a real business here. And so reflecting back on how it all started, could I have. And I'm not a contractor, although I'm the only male in my family that's not an electrician. So I've been around construction, but I'm not, um, I'm not in construction with my hands, but could I have built Job Table or like a similar company? Absolutely. Would it have been nearly as good as it is now, Building it with people that are in the business, not even Close. And I think that's, um, we see that now with our competitors and just like the little nuances, like if you're not in construction, there's a lot of nuances in the process and the workflow, how they talk, how they work, that if you're not in it, you just don't know. And I think there's a lot of, um, lot of value, a lot of leverage in building something for yourself.

Lou Shipley: Now it's so interesting because one of the other trends that you see is as you're hiring your first salesperson, do you hire somebody with domain expertise, like what you were talking about, or with software sales, like if it's a software product? And I've written a few cases on this dilemma because you need both, but you only usually have enough money to get one or the other. And it's just very interesting because you have to know the domain well enough to get customers to trust you that you're building the features that'll make their day easier. But you also have to make your numbers and you need someone to understand sales. And isn't just somebody who thinks the product's going to sell, sell itself?

Kosta Panagoulias: Yeah, I'm, uh, curious to hear. So at Black Duck, you came in and repositioned the whole product. How did you diagnose and figure out that that company was going to market with the wrong story, and how did you change it?

Lou Shipley: So, um, I would say the company had been successful and they were the leader in this open source license compliance, uh, business. And they did it Both with a SaaS product and with a service. You could just call them and say, I needed you to scan my code. And they would, blackducker would do it for you. And that was, that was a good business. It wasn't software margins, but it was still a good business. But we weren't growing that fast. We were growing, I don't know, 20% a year. And for venture capital, that's not anywhere near what you need to be growing. And so the interesting thing about Acosta is gets back, it always, to me, always gets back to customers. So I had, in my previous company sold, um, turbonomic to JP Morgan Chase in New York. And so I went down there, they asked for a meeting with Black Duck. I went down and spent the day with them. And I spent all day and like about 5 o', clock, as we were wrapping up, I said, why did you ask us to come in here? Because we were going through all these features and everything. I asked sort of a junior kind of person what were you doing? He goes, oh, you don't know that. Jamie Dimon gets a hand curated list of open source security vulnerabilities delivered to his desk every day. He wants to know how many open source security vulnerabilities there are in our 10,000 software applications. What? So it's the number one bank in the world and the most famous CEO is getting a hand curated list. Like, maybe we ought to build a product that automates that because that's going to be important. So I literally came back to blackduck and said, we're repositioning around open source security. And a lot of people didn't like it. I had to deal with a lot of people that just weren't on the same page, which was fine. We were going that way and some came along and some didn't. But you have to be aware of where the market's going and be agile for changing to that. Despite what people in your company don't like about it. Uh, that was sort of the impetus for it. Then we had to go out and execute on it and become known as a security company. But that was the first thing I remember, like, wow, the biggest customer, biggest bank in the world is trying to solve this problem and they can't do it. So they thought of us that maybe we could. And so that was sort of the story behind the repositioning.

Kosta Panagoulias: Yeah, I know for sure. Ah, that's, that's a good one. Um, kind of, kind of speaking on that a little bit. So you know, as a, as a startup founder and as your business grows and evolves, you hire people, departments, your, your role evolves as well as a, as a founder, uh, doing everything to managing, to being a CEO. Um, and I know you touch on this as well. Um, what's the difference between managing a team and leading a team?

Lou Shipley: Yeah, well, I mean, you must have experienced this. You said you took your previous company to 20 million and how different was your first day on the job from when you sold the company for that much? I mean, that's incredible. That's so hard to do. So few people can accomplish that. And so what I've seen over the years is that there is a point where as founders, like entrepreneurs, you want to be, have your hands in everything and know all the details and every function. And then as it grows, you have to really abstract yourself and learn about hiring people that are actually better than you at each function. And then building a team and motivating the team and recruit, recruiting, motivating and managing the team and then Replacing people that aren't, you know, working out and bringing in new people. So I found, I talked about it in the book about the flailing founder where you see someone who did really well up until a certain point when the business just got too big and they still want to default back into this time when it was just them and, but that doesn't work anymore. You really need somebody who's seen where, where the puck's going or you know, seen the movie before to realize what they need to do to further grow and the kind of people they need. And I, I found I was good up to about 100 million in sales myself and then someone else was probably better than I was. So we were all pretty good in a lane. I've never really seen anybody who's a great founder and a great large company CEO. There, there are a few of them out there, we know them, but it's very rare. I have a couple that are doing it now. Kevin for Shett at Fair Market, Zach Moritis at Teamworks, and David Friend at Wasabi. But even at that point, at some point the business might get so big that they're like, you know, there might be somebody better at doing this because running a really big company, a multi billion dollar public company is very different from being an entrepreneur.

Kosta Panagoulias: That's a good point. I do agree with that. Do you think, do you find um, most real high quality CEOs were also founders as well or no?

Lou Shipley: No, I think it's pretty rare. I think to be really good at both of those is just very hard because you know, founder has to create something from nothing, come up with an idea, get the first customers, finance the business. And that's just very different from operating at scale. Actually one of my classmates from um, Harvard Business School is a guy named Larry Culp who's the CEO of ge. And it's like he's just really good at managing big companies. That's just a different skill set than someone who's good at, you know, sub $100 million. And it's not good or bad, it's just people have different skill sets. So I found it pretty rare that somebody's really good at both. Um, but you can get there. You just need to be very, very self aware that you might be the job might be getting not beyond you, but beyond what you know how to manage. And so you need to bring in mentors and advisors to help you get, get adapt.

Kosta Panagoulias: Ah, it's a whole new, it's a whole new skill set that you have to Learn it's a totally different ball uh, game. One thing I hear a lot, um, again a lot of early stage growing companies who um, who Ah, CEOs and founders, they have a very hard time getting outside. Like they're too drawn into the business and they can't like take a step back and work like on the business. And like do you have any just like real tactical kind of tips or advice for founders like that who are struggling to, to take a step back and, and get, get out of the weeds and focus higher level?

Lou Shipley: Yeah, I'll tell you because I've been fired as a fast growth CEO of a company and I thought a lot about like I spent a lot of time hiking one summer after I was removed, thinking about what happened like, and trying to like was it my fault or what was I doing wrong? There's a couple things I would, I would recommend for founders. Um, the first one is so you know, because I've seen it from being a employee, a salesperson, a CEO, a board member, an investor is, is to, is for everybody who's involved in your company to try and understand everybody's different perspective because an investor looks at a uh, business completely differently than an operator. So I had to find like I would, I would go to these board meetings with our investors and I just didn't have the right answers to their questions. I could tell you everything about operating the business, you know, our customers, our employees with competition, you know, finance and that sort of stuff. But I couldn't answer the questions these investors had because they were just thinking of it. Uh, I bought it at this price and is it going to be worth this price and how much time and do I need a new CEO? So I, I would block out time each quarter to say I'm just going to spend time and not let that day get scheduled. And I was going to think for like three hours. As an investor it really helped me get a different perspective on someone looking at that business that I was running. So it's very, it's very helpful because now as a, as a board member I can see it both as the CEO's perspective and the investor's perspective. And neither of them is right or wrong. It's just the whole thing has to come together for the whole enterprise to be successful.

Kosta Panagoulias: Makes mhm sense. Um, switching gears a little bit. So you, I saw you introduced what's called a farm model for developing the

Lou Shipley: plane model in the plane model. Yeah.

Kosta Panagoulias: Okay. Yeah. So walk me through that model. Like what is it? How does it actually Work in practice.

Lou Shipley: Yeah. Okay. So, uh, actually farm, Farm teams was, was sort of part of the analogy. So here's what it was. I had come up through enterprise software sales, where usually for enterprise software, you know, you'd go to the big cities. You go to, you know, Toronto, New York, Chicago, L.A. you know, hire a rep who had a Rolodex, been there, done that, and set them out on their way, give them a good cop plan. And I tried this with Black Duck, and I think I hired 10 reps, and I had to get rid of nine of them. One of 10 worked. And I remember sitting at a board meeting with a, with a really great board member who said, you know, you got to go get some more sales reps. And I was like, you know, I could try to go 2 for 11 when I've been 1 for 10, but I think I need to do this a different way. So what we decided to do was we call it the plain model. We broke up sales and thought of, thought of a, uh, sales team as a unit of sales capacity. It used to be one person, but instead what we do is we hired four people and broke the job up into outbound cold calling, dealing with inbound leads generated by marketing, closing little deals and closing big deals. We broke them up by territories. And so what happened with that is that the pilot of the plane and each plane had its name. Like you could be a, uh, Mustang if you were the Americans, or the Spitfire through the Brits or whatever, but this plane was a unit of sales capacity. And what you could do is give it a geography. And then if you train people in specific skill sets, the co pilot who's doing small deals and working on lead gen with the, the gunner and the navigator could then be promoted to run a new plane when it was time to expand. The beauty of the model was that you knew what your variable cost wasn't exactly. When you could move somebody who already knew your system to copy, create a new team, build that team out. And we started with one plane and we ended up with, I don't know, 25 or something. When Synopsys bought us, that's what they wanted, uh, to put their products through because they had seen how this system worked. And it also enabled you to hire students out of college, train them up, figure out what their right role was. So it became a scalable model and you could promote from within, which, uh, was back to this culture piece. You had a much better chance of building a sustainable culture with promoting people from within then always doing like the Analogy in a sports team would be, go, go hire a free agent. Go get, you know, Vladimir Guerrero, who's great player but like, he's cost a lot of money. But if you could grow him, um, up through the Toronto farm system, you're gonna have a better chance of keeping him for longer.

Kosta Panagoulias: Mhm. Most early stage founders, you know, they, they, they hire, let's say one senior sales rep and just hope they figure it out, like, what, what goes wrong there and what, what should they be doing instead?

Lou Shipley: So this is, we can go back to, um, this. And that's because I get a lot of inbound calls from people, you know, maybe venture capitalists or pe, people from my network, whatever, who are like, hey, Lou, I got this great company, it does XYZ and it's got venture funding or whatever, but they have a, and their voice kind of softens and they go, we have a sales problem. Like, like they, they're not making their numbers, like, and they act like there's something wrong with the sales problem. Like, of course you have a sales problem. Everybody has a sales problem. Your entire career, you're going to life cycle of a company, you're going to have sales problems. Microsoft, a $2 trillion company, has sales problems. Right? So I always ask the founder if you were a, what's your favorite sport? And they'd say, all right, soccer. All right, so if you were, uh, if your sales team were a soccer team, what would it be? Would it be like the little youth soccer team or would it be like a college team? Or would it be, you know, the team that Ronaldo's on? Right. And then you just go through, they're all playing the same game, but they just have different skill sets. There's one or two people in this, in the, you thing that can, can play the game. And then as you get up to the big, big, big teams, you know, their systems in place with coaching and everything, which is yours, and everyone always goes, oh, damn, like I'm, um, running this little league. So it's all about building up the competencies and skills of everybody and then establishing systems, which is where you get predictability and then you get value out of your company. If you can be very predictable about what you're going to sell each quarter.

Kosta Panagoulias: Yeah. If you're a smaller SaaS company that's growing, what does a good sales onboarding look like?

Lou Shipley: Uh, yeah, that's a really interesting question. Because back to the plain model, one of the big investments we made, um, which you probably as a small company, you can't do a full time person, but you can um, create a sales enablement function where you basically say these are the standard set of competencies that we require in our company. That what good looks like for a salesperson. One of the first things you can do is just record calls. I mean I find I still today listen to sales calls all the time because I learned, I learned everything about the company on the sales call. But I also learn about how well the sales rep knows the story and how will they answer objections and that sort of thing. So just start with a basic rule of what competency looks like. And we used to have a, we had a guy who ran um, our sales enablement team that put everybody through flight school. And it was just, you know, you had to pass some tests about what you had to be able to master as a set of competencies before you were able to sell our product. So if you're in a small company, you can't do get somebody full time, but you could maybe bring a consultant in or you could take a person and give them part of their job to be training and training and enablement. Mhm.

Kosta Panagoulias: Okay, makes sense. Um, you can't talk SAS without churn. So you've said that churn is a symptom, not the disease. So what is the disease and how do founders find the root cause?

Lou Shipley: Yeah, I know this is really interesting because it gets back to almost the first chapter where we talked about the problem with the problem is, is your idea really worthy of, of a company? Because you know, my colleague that I teach teach with, Mark Robert should say that the most important thing he looks at, he's a venture capitalist is, is the cohorts of the first customers and are they driving usage and growing and not some random revenue number. Oh, we've achieved product market fit when we get to 3 million in sales. No, we get, we achieve mark product market fit when we have 40 customers doing this much with the product this much period of time in this much period of time. So I think that's where you start to look at usage. And it's funny because very successful companies lose their product market fit as they, as the market changes, the new competitors come in. And like I even had a company, uh, I've worked with that was growing really quickly and then they all of a sudden had a churn problem. We had to figure out why was that? Well, their original buyer changed and they were still a buyer, but there was another buyer that was revolting against their product. So you just have to keep reinventing and, uh, imagining what your true ideal customer profile is because you can lose product market fit as fast as you gain it.

Kosta Panagoulias: Yeah, for sure. Um, kind of, kind of touching on that. How do you think about product market fit as something that evolves? Like what, what causes it to shift? You know, especially now with you. You said competitors AI. I feel like products are totally democratized now. Um, like, how do you think about that?

Lou Shipley: Well, what you're looking for is leading indicators to predict churn rather than lagging indicators that show you did churn. And that's where it gets, that's where it gets really tough. One of, one of the, um, things that I did when I was a black duck to, to this effect was I trained our salespeople on a sales methodology, but I also trained our customer success people on the same thing so that both were talking the same language to the customer. One when the customer is a prospect and the other one they're a paying customer. And I think there's gotta be this bridge between the people that sell your product and the people that service your product to be on the lookout for what are these early signals of churn or people not being happy or a competitor that's just jumped ahead of you that's taking the market. So I think, um, part of that is also just having a culture of being customer focused. We spent a lot of time with using surveys for Net promoter score. How do the customers like you? And keeping track of that, because that can be another leading indicator of people aren't very happy with you and they don't always tell you this. Uh, one of the things I did was when I, we had a Net promoter score system called Customer Gauge, where when any of our customers got a zero to six, it would route to me as the CEO and I would call the customer. Like, hey, um, I remember calling Amazon, they just gave us a zero net promoter score. I'm like, hey, I'm the CEO of Black Dog. You just, what's, what's going on? And they're like, oh, I was, you know, just. They were shocked that I would call. But I mean, that's important. If you hear a big customer is unhappy, the CEO should be the one who's making sure the customer knows you care about them.

Kosta Panagoulias: For sure. Yeah, that, that's, that's super important. Uh, any, any specific metrics that like, or what specific usage, uh, metrics that you actually watch. Is it. I know it probably is tough to answer different with each company, but, um, can you give any examples?

Lou Shipley: Well, I mean, you Always look at gross retention, net retention. Um, and I think the other thing that you can look at is just sort of the timeframe of what it takes to onboard a customer. Because oftentimes what some of the problems are is the customer when they're in the buying phase is in one mindset and then if it flips over to another group once you become a customer, if you're not, if the customer isn't getting value from the product quickly, that's, that's a problem. And, and it's, they're probably ultimately churned because they'll say, you know, I don't, I don't need to do this, or I can do it another way. Based back to the competing against luck, jobs be done theory. I can achieve what Black Duck gave me this other way. It's not as good, but it's still fine. I'm under price pressure here. I gotta cut my budget. So I think those are the, some of the things that you have to have to look at.

Kosta Panagoulias: I wanna, um, I wanna pick your brain a little bit or just see your perspective on AI. Um, you know, you teach at Harvard and mit. What are you telling founders right now about AI? Is it, is it hype? Is it real? Somewhere in between?

Lou Shipley: Like what's your. Yeah, no, it's uh, it's definitely real. I mean I, I'm involved with a number of pure AI, native AI companies and have seen the growth rates are ah, are really remarkable. So it's real. I think the um, there's two pieces of it though. There's, there's, there's this risk that AI is just this summary of summaries. Like you just keep getting summaries of different things and it's like, wait, this back. I need to actually talk to a person to figure out if this is real or if it's just some really fast index summary. Um, the other piece that's very interesting as it relates to this topic though is, you know, classic software sales has always been, all right, what's the use case? Who's my ideal buyer? How much are they using it? That's the signal for if you're a plg. It's like, you know, you're getting usage now you can figure out a price to charge them for an upsell or it's enterprise sales and you can, you get the price when you close the first deal and hopefully they, they use it. The, the thing that's happening with AI and software is that the, there's like infinite use cases that are possible now that you know, Claude and some of these other tools are doing so many of the things that used to be done just by uh, a person. And so now that that changes sort of the number of use cases. And so I think it becomes even more important for founders to really understand how the customers want to use this new technology that you have because you have to sort of sharpen it so that you don't have everything, just be some customers. Off the shelf custom software versus off the shelf software. Because one of the things I think we're seeing here in this AI in the software world is things are going custom and there's always been a pendulum of like off the shelf versus I'll build it myself. Yeah, you know, that's what the whole open source movement was that way. So I think we're in a bit of the pendulum back to we're going to do custom until you realize like some of the slop I've written in Claude probably isn't going to hold up

Kosta Panagoulias: for long for sure. You might have seen this, there's been a lot of uh, discussion. Now, um, this is a recent article. Uber CEO says it's getting harder to justify the money spent on AI. Um, says it's getting harder to justify the trade offs of AI investments in the company. He's not seeing proportional productivity gains from uh, increased AI costs. Um, any perspective on this?

Lou Shipley: Well, yeah, I mean, I think this is a really interesting point because you know, you had the SAS apocalypse earlier this year where companies like Workday or Salesforce were trading at their terminal value, which personally I thought was crazy because those companies are still great companies. Just because everyone thought you're not going to replace those with Claude. That's the other flip side of it I think you're seeing is there so many people requested money from the CFO's office to do this new AI tool and they're now pushing back and saying, well, tell me, what were you getting in return for it?

Kosta Panagoulias: Yeah.

Lou Shipley: And if you are, we'll give you some more money. But you can't just have more, just to have more. You have to show real performance improvement or real efficiency gains to uh, to justify further investment. So yeah, at some point the pendulum will swing back on that.

Kosta Panagoulias: Yeah. Are you seeing any, um, are you seeing AI create like genuine advantage for early stage founders and in any specific use cases that you can share?

Lou Shipley: Um, you know, I see a lot of it. Um, for the, the, the first use case that I think really makes sense is software that writes software or software that recode software so you're seeing a lot of these companies that are taking older code and refactoring it quickly and bringing code bases up to speed. That's a real problem for lots of enterprises. And so that's why I don't know if you know a company called Blitzy. That's what they do. And their growth has been remarkable. I mean just crazy growth over like a couple years. These are two former uh, Harvard Business School students. Mine, that one was a sales coach in my class and one was a student in the class and they went and started this. But that's a real problem as you saw, uh, like older code that's been around for 40 years where the, the coders have died or just no one wants to code in those languages anymore. Software that writes software using these AI tools is very powerful for bringing a code base up to speed and making it better and more performant.

Kosta Panagoulias: Yeah, ah, that's for sure. You might have seen this um, uh, post here, this chart that's going around David Sachs, um, about um, AI and what that's going to do to the job market, the labor market. Is it going to take away jobs? Um, that, that whole debate. And uh, there's this uh, chart here that shows the number of software engineers is rapidly increasing compared uh, to just the overall uh, job postings. I, I feel like this chart is kind of counter to what the kind of mainstream narrative has been around AI. Um, do you have any insights or perspective on this?

Lou Shipley: I haven't, I have a very strong perspective. So look at this. I mean here's what I'd say if you look at, just take the US economy.

Kosta Panagoulias: Yeah.

Lou Shipley: To become the biggest economy in the world over the last 50, 60 years, um, what percent of our population, our workforce was in software development? 1 to 2%. Now these tools are going to enable people to go from 5, 10%. So I think, I think everyone looks at it. It's so funny. This happens in every stage of every single new technology. Uh, uh, life cycle is first of all people are afraid of it and then they realize, oh, but if I use it, I'm going to get so much more productivity. And I think that's exactly what's going to happen is more and more people become facile with it and it's no surprise that they need more developers because the tools are now incredible. I'll give you just one example of this because it relates to the, to the book. I, um, I started at Avid Technology Digital Video Editing and I ended up early on getting asked to run The Asia Pacific region. So I was spending all time traveling around Asia and I went to Australia and I, I would bring in this la. This demo, two big monitors, a big computer, and I would, I could demo the software. But I demoed a guy who is a professional film editor. He used to, you know, edit on film. And he saw this demo of mine and he said, I'm going to be out of a job. That was his first reaction. I'm going to be out of a job. Look at the new way. And then after about 10 minutes of watching me edit and demo the system, he said, you're not a very good editor, are you? Like, I'm actually not good at all. I can show you the basics. And he's like, boy, if I use this, I still have my editing skills. So he ended up becoming a great customer, but I thought it was any. And he actually told us a couple years later that the product changed his life. Because you have to. There's always change in the market. You just have to be available, open to learning, uh, how these new tools can help you do your job better.

Kosta Panagoulias: Yeah, yeah, no, it's, it's, uh, Yeah, I agree. It's, uh, where this goes. Um, we'll see, but I feel like we're just getting started, uh, revolution underway. And, uh, we'll see, but, uh, a couple more, uh, questions here. Lou, you run three company or more than three, right? Six, you said.

Lou Shipley: Uh, I was in six startups. I ran the last three.

Kosta Panagoulias: Yeah. Um, what do you do, what do you do, uh, differently as a CEO in year one of a new role versus what you did the first time?

Lou Shipley: That's such a, such a. I love this question because I think if you're like, you basically ambitious person. I want to run a company. I wanted to be a CEO. Um, you spend a lot of time getting that job, and then you realize getting the job is just the first part. Getting good at the job takes a long time. So I was way better in years 10, 11, 12, 13 as a CEO than I was in my first nine. And I just learned what the job meant, what it was, how to manage a board. All these things that you don't know. When you come up through a function that qualifies you to either found a company like you did or run a company as a CEO. So I think there is this notion of you've got to be open to continuously learning to get better at the job. I remember when I was a student at, uh, Harvard Business School, everybody back then wanted to be Jack Welch who was the CEO of ge. And he said he came to class, he had been running GE for 20 years. He said it took him 10 years to learn how to run GE. I think, you know, it took me at least a full year to learn what Black Duck's business was, you know, and it's like, businesses are complicated. Your team is complicated, your investors are complicated, your competition is complicated. Takes you a while to figure out what are the few things you need to do, really focus to have success?

Kosta Panagoulias: Yeah, for sure. Um, is there anything. Is there one thing you wish someone had told you before your first CEO, CEO role, um, that you actually had to learn the hard way?

Lou Shipley: Well, I think, you know, it's funny because when we, when Trish and I did our book proposal about, like, what is, what is this book similar to. And we. And our goal, obviously was to sell. I wanted to sell, ah, 100,000 copies of this. And we sold a number of thousand. We're not up there yet, but one of the best books I've read was the Hard Thing about Hard Things by Ben Horowitz. I don't know if you've read that. I thought the thing that. So I get a lot of students also that come to me and say, I really want to be a founder. I want to be a CEO. And I'll say, that's great. Read Ben Horowitz's book first and then come back. And when he says, like, the thing you take away from this book is that no one cares about your problems as a CEO. No one cares you took the job. You should be able to figure it out. And I think you have to go into these things realizing that no one's going to feel sorry for you because your days are long or, you know, big customer leaves you, or a venture, uh, capitalist tries to fire you. It's like, it's just what you signed up for.

Kosta Panagoulias: It's true. I. I guess that's. That's true with just life in general, you know, like, no one, no one cares. You gotta, um. You gotta have thick skin and you gotta keep moving. Speaking on that, though, I feel like this is something that doesn't get talked about as much as maybe it should. But as a CEO, as a founder, you know, you have your ups and downs. And when things are going sideways, what does your personal reset look like? Like, how do you kind of reset, recalibrate any.

Lou Shipley: Yeah.

Kosta Panagoulias: Tips?

Lou Shipley: No. I'm glad you asked that, because I think it's really, really, really important. I think, um, first off, I've been very Fortunate to have a partner, um, who's been with me through all these journeys. Uh, she's my high school sweetheart. So having a good home life and support at home and somebody who understands you by the way, they are not, they are biased towards you. So you still need like independent board members that tell you what's really not working in your company. But um, I think that I just always, you know, dedicate a lot of time to reading. I read a lot, um, because I think you can recruit people and give them, you know, compensation and excitement sighting office. But I think people like to learn, they like to be in a learning environment. So I feel like I always need to keep learning. And then the other, the other piece is just really taking care of sleep and exercise.

Kosta Panagoulias: Yeah, yeah, the basics. Yeah, that's true. Um, before we wrap up, Lou, I do want to be mindful of your time, um, want to learn more about uh, where we can find your book. But besides your book, any, any favorite reads that ah, that you, you could share like stand out that every CEO, founder needs to have on their bookshelf.

Lou Shipley: You know there's a couple of, a couple of them that we, they recognize in here. I think Lean Startup is good. I think um, on the sales topic, the Qualified Sales leader by John McMahon is absolutely a must. Um, I think the Science of Scaling, uh, by Mark Roberge, his ah, new book is really, really good of how you scale your business because we've covered some of the topics here. But those are good. I think. Um, Jeff Bus Gang's book, his most recent one was about AI Trying um, to remember the name of the title of it. But that was. Those are some good ones. Um, in our case, um, uh, this is available on Amazon or you can get it in your bookstore. And if you don't like the book, it's a decent doorstop. You know, you can just prop your door open with it or if you really want doorstop. I have those too.

Kosta Panagoulias: Nice. Nice. So, yeah, unlikely entrepreneurs, uh, where can people find that?

Lou Shipley: Amazon is Amazon Barnes, uh, and noble.

Kosta Panagoulias: Um, bookshops.org Is there a Kindle version as well or.

Lou Shipley: Yeah, there's a Kindle version and I think in a couple of days there will be a um. Audiobook.

Kosta Panagoulias: Audiobook. Nice. Are you narrating or.

Lou Shipley: No, unfortunately my publisher didn't let me do it. I. Next time around I'm going to do it because I, I feel like you tell the story better from.

Kosta Panagoulias: I think so too. Yeah. And you got the voice for it I think. Uh, yeah, that's awesome. All right, we'll put. Put all that in the notes. Um, last question. Ah, I like to ask, uh, this to, to guests. If you can put one message on a billboard for every CEO and founder, um, to read, what would it say?

Lou Shipley: Okay, I would, um, I would. I like, um, Winston Churchill. Uh, I've read a lot of Churchill, and my favorite one, uh, uh, that Churchill said. And I found this when I was going through the turnaround at Black Duck. Uh, Churchill said, like, in the midst of World War II, before the US got into the war. He said, you know, when you're going through hell, keep going.

Kosta Panagoulias: Yeah, I love it. Yeah, that's. That's a great one.

Lou Shipley: I love that you can't stop.

Kosta Panagoulias: Yeah, absolutely. Lou, this was, ah, a real pleasure. Thank you so much.

Lou Shipley: Thank you.

Kosta Panagoulias: Um, if. We'll put all the notes in the book, if someone about the book, where to purchase it, but if someone wanted to reach out, uh, to you, learn more about you, where's the best place?

Lou Shipley: Yeah, connect on LinkedIn. I'm happy to connect and message and all that sort of stuff. Yeah.

Kosta Panagoulias: Amazing. Amazing. Lou, thank you so much. This was very insightful. Uh, for me, I'm sure everyone listening to this is going to get a ton of value, so I really appreciate it. Best of luck with everything. And, um, keep an eye out for that 100, 100,000 book sales.

Lou Shipley: Okay, Thanks a lot.

Kosta Panagoulias: All right, Lou, appreciate it.