Launching a company, even in the best of times, is one of the most challenging exercises a person can go through. In an economic recession, it can seem downright impossible. But founders across the country, and indeed across the globe, are in the midst of that process as I write.
They aren’t the first. Alexa von Tobel, founder of LearnVest and founding partner at Inspired Capital, publicly launched her fintech startup in 2009, and founded it in May of 2007. In that span of time, Lehman Brothers went under — in December of 2008.
The company was launched in the midst of the worst economic downturn in at least three generations (current circumstances notwithstanding). We briefly chatted with von Tobel about this in a recent episode of Extra Crunch Live, but the topic deserved much more exploration. Von Tobel was gracious enough to talk to us again, and gave us her advice and insights on what it means, and what it takes, to launch a business in the midst of economic uncertainty.
Write it down
Von Tobel says that one of the most important exercises in forming LearnVest — a company that was acquired for $375 million by Northwestern Mutual — was writing out a business plan. It was 75 pages, and by no means a formal document. Rather, the LearnVest business plan was a brain dump of everything von Tobel could possibly think of as it relates to her idea.
“It was nothing beautiful and by no means a work of art,” said von Tobel. “But it was valuable to put it together and walk through this blueprint of all the big questions, all the concerns. How would the customer feel? How big was the market? What was the competition? I even drew up a product plan of how I would roll it out. It was a budget, looking at how much money we think we need to get up and running.”
This business plan also included the areas in which von Tobel felt she was not an expert. She wanted a clear expression of her own strengths and weaknesses built into the business from its very inception.
von Tobel had never written a formal business plan before. She had taken a few business classes at Harvard Business School, but didn’t see the exercise as preparation for publication, but rather her own personal space to develop a product and business.
“It was a macro, more thoughtful plan that allowed me to understand where things were positioned,” said von Tobel. “Perfect is the enemy of good enough. You don’t have to be perfect, but you have to do enough that you have a really clear sense of the picture and a really clear sense of the cracks.”
Eliminate risk
“I’m more optimistic about startups today than I was a year ago,” said Roelof Botha, Sequoia partner and head of the firm’s U.S. business in an episode of ECL. “I just think change unfairly favors the startup, the nimble small company.”
The pandemic has crippled our economy, and ushered in an era of uncertainty. But it has also catalyzed the greatest acceleration of change the world has ever seen. Entire industries — several of them, in fact — have sprung forward by at least five years, if not a decade.
The opportunity is there. Small startups, nimble companies, have the chance to capitalize on that change. Von Tobel saw the same opportunity back in 2008. She had been working on her 75-page business plan for LearnVest while attending Harvard Business School.
In December of 2008, she was on the elliptical machine at her gym when a breaking news announcement flashed across the TV: Lehman Brothers has gone under.
It was at this moment that she decided to drop out of Harvard and go full speed with LearnVest.
Most people are not willing to take a huge risk in a moment of global panic. But von Tobel hadn’t just been mulling LearnVest in her spare time, musing about it to herself for a year. She had written it all down, and in the process, eliminated as much risk as possible.
“I grew up as a diver in high school and then in college, and diving is a risky sport,” said von Tobel. “You can hit the board, you can fall, you can smack the water. Diving is a good analogy for entrepreneurship because it’s about hypertraining and getting prepared. The first time you ever jump off the board, you hope that you’ve done everything you needed to by that point to de-risk it so that nothing catastrophic would happen.”
Not only did those 75 pages de-risk von Tobel’s entrepreneurial journey, but the steps outlined within that business plan added an extra level of security that allowed her to drop out of school and take the plunge. For example, she had already identified and signed on a lawyer and some accountants. She had set aside her own personal savings for the initial push. She had drawn out prototypes.
“I had been taking these microsteps for a year that made it feel more real,” said von Tobel. “Step by step, I was de-risking into the place where I could make that decision to drop out of school.”
Set milestones
Part of the de-risk process included setting clear milestones, both for the business and for von Tobel personally. She focused on one month at a time. The first month was a business plan, and the next month was a prototype of the website, and the following month was conducting hundreds of customer interviews.
“That’s a very linear way to think about it, but it’s helping build conviction on the idea and figure out what the problems are,” said von Tobel.
She also built out a financial plan for herself, understanding fully that she needed psychological safety in order to have the time and space to do it right.
“I literally had a number of months planned out,” said von Tobel. “I told myself that, if by this date — at the time it was about nine months out — I haven’t gotten to a place where I can get anything working, then that’s when I’ll turn into a pumpkin and Cinderella has to leave the ball. The gig is over.”
She clarified that she never had plans to be super strict about that timeline — if something started clicking in that final six weeks, then she was willing to extend her timeline. But she said that the exercise was productive, giving herself a format around how to process her own progress.
“I took every day with full force, full focus, full energy, full commitment.”
Don’t rebuild the wheel
She also stressed the importance of innovating where it makes sense, as opposed to trying to start from scratch with every facet of the business.
Within the 75-page plan, a section was dedicated fully to competitors. Many of them no longer exist. She also outlined the major incumbents in the financial space, like Fidelity and Schwab. She listed the good and bad about all of them.
“You can literally model the product after what works,” said von Tobel. “You don’t have to rebuild the wheel. If certain parts of a business work, you can use that. If seven companies are all doing the same thing, it has been proven that thing works.”
She explained that the ability to resist rebuilding the wheel is a very important trait because there is so much out there that entrepreneurs can reuse.
“Then you have to figure out where you can fundamentally change the model.”
Disrupt and delight
The concept for LearnVest seems obvious today. Financial planning for everyone, including educational online content, 24/7 support, and at an affordable price point. But back in 2008 that wasn’t the case.
Von Tobel not only spent a lot of time thinking about how to disrupt financial planning based on target demographic, but how to delight that customer base.
“I was a really big Amazon user,” said von Tobel, describing how frictionless and easy the process of shopping online was. She read product development books like “The Purple Cow” by Seth Godin and realized the importance of the “wow” factor. “Spending your life’s work wowing somebody around a financial plan was a challenging thing to do, but it was almost what made it special, that it was such a hard thing to do. I don’t think very many people cared to wow somebody around their wallet at that moment. It wasn’t an area of delight that everybody was running after. So I said, ‘Let’s go bring delight to your wallet.’”
Again, many of these “delightful” features seem straightforward today, but they weren’t in 2008, and certainly not in the financial realm. This included super transparent pricing, with no hidden fees, and 24/7 customer service. Von Tobel recalled that banks, at the time, were pushing out ads that said they were open from 11 a.m. to 1 p.m. on Sundays.
“The plan had a section around customer expectations, and in a user’s retail life, they were going digital and mobile and things were getting easier, across delivery and ordering products and even invitations have all gone online,” said von Tobel. “And yet your wallet is still literally walking into the bank.”
On the one hand, von Tobel had a list of all the things that had proven to work for the big banks and financial planning institutions. On the other, she had her own list of disruptive, delightful features around pricing, product, business model.
“What does it feel like to the customer?” asked von Tobel. “I literally wrote in words how I want them to feel when they use the product. I went through the mindset of the customer and how they would feel as they open a LearnVest financial plan. Then, we looked at the business model and how we could make money.”
She added that it wasn’t all perfectly clear from day one, but she listed out all the ways the company could generate revenue, and over time whittled them away as she determined which models were viable and which ones weren’t.
Invite (some) criticism
Perspective is everything. No matter how great an idea is, it needs to be inspected from every angle. Von Tobel understood this and built a team of advisors. To be clear, these weren’t board advisors and they didn’t hold any formal title at the company. Rather, they were a group of people who had, over the years, earned von Tobel’s trust and respect.
“I went to the five smartest people in my life and asked to borrow 45 minutes of their time,” said von Tobel. “I asked them not to just tell me two things they love. I really gave them the psychological space to be critical, and I listened to the criticism. When three smart people say the exact same thing, it’s probably something you really need to think more about and dive into more.”
She said that it wasn’t until after this process that she felt ready to build a team and fundraise.
But there’s a flip side to inviting criticism. Von Tobel stressed the importance of understanding the line between not being immune to feedback but also not allowing 400 different voices into your head. Listening to every naysayer out there could make it tough to get out of bed in the morning, she said.
If one person brings up a piece of feedback that no one else has repeated, it’s probably fine to ignore it.
“If you have 400 voices in your head, you’re not going to have a clear vision of your own,” said von Tobel. “It’s about having the right voices and the right feedback. I say this with incredible humility: You have to learn how to get good feedback, and for me that will be a lifelong pursuit.”
Build a team
The final thing that von Tobel looked at was building a team.
“Who do I know from my network that would come and join this?,” she recalled. “Who could I recruit? In what areas do I not know anybody?”
Through the process of writing down her own strengths and shortcomings, and more importantly, looking at what the culture of LearnVest should be, she was able to start building out a deck.
She’s shared a few of the slides from that deck with TechCrunch, which you can find below.
The slide deck was really a distillation of the 75-page business plan that started it all, and that took about a year to develop.
Become an expert
As she went into fundraising, von Tobel felt confident. That confidence didn’t come from ego, founded or unfounded, but rather preparation. She had done the work, just as she did with her diving career in high school and college, to feel like an expert in her field.
Not only had she talked to the smartest people in her life, but she had been talking to experts within the industry, learning each day about the missed opportunities, the parts that were lacking.
“You have to have a really clear point of view, and truly become an expert,” said von Tobel. “The day I felt confident to go fundraise was once I felt so informed that when a VC pushed back and said ‘I don’t like this’ or ‘What about this part?’, I could come back and say ‘I really appreciate your thoughts on that but after talking to these three experts and reading these books, I respectfully disagree for these reasons.’ That was a pretty important moment.”
She reiterated that this has absolutely nothing to do with arrogance. It’s about preparation and being informed.
“I always say, ‘How do you get to Carnegie Hall? Practice. Practice. Practice.’”
Build with passion
Von Tobel and I ended our conversation focusing on the most important piece of advice she has for founders.
She narrowed it down to one thing: Build with passion.
“Whether you’re founding a company during a recession or during normal times, don’t ever build something that you don’t want,” said von Tobel, adding that building something you truly want and believe lets you wake up each morning and feel a moment of energy. She said you should come alive.
“Building a company is a labor of love, and the deeper you get in, the bigger the challenges are,” she said. “More stress gets put on your shoulders. You develop calluses and toughness. If you don’t really love the idea, you’re going to be so miserable that it’s almost impossible to be successful.”
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