Data-Driven Life Changes
For those who follow its insights, data is a magical tool. It’s non-emotive and gives you a clear picture.
I learned this building my first meaningful business (greater than 200 employees) in the legal data processing/review industry (eDiscovery) where we used technology to help attorneys find key facts and insights by organizing and making sense of the millions of files/emails traversing enterprises. Modus eDiscovery innovated the space multiple times and saw great value growth during the big jumps in revenue/product progress.
Data, the same thing that built my first great company, led me to a life-altering decision. After 7 years in the legal industry, I retired my post and dove headfirst into the unknown.
Many of my closest friends/family members/colleagues asked me how I could walk away from an established data-centric business in a technologically evolving industry.
Why move to the next adventure?
Here’s why I retired my “Big Company” CEO job.
In 2015, a very hard working and sharp CEO was in my office having a 3rd meeting about his SaaS product. I shared with him that I just couldn’t make another angel investment because my running success rate was low. It wasn’t his fault. I just wasn’t ready. After an hour he asked me this question:
Why don’t you just help me and others like me build valuable companies?
Great question. After thinking about it for a few days, his question continued to nag me — I believe waking up in the morning is a privilege and our time is precious. I started feeling that I may be losing out on a huge opportunity.
After building a badass spreadsheet (thanks to the great CFOs and finance guides I have worked with) to help visualize all the variables, the picture became clear. While I loved my Modus family and was proud of the awesome growth we had achieved, I came to realize that Modus’ future value growth was severely limited.
Executives know, value generation goes through “pops”. Modus had seen its share and the next one was a slog based on the direction our investors set (PS, after you sell someone your business, they run the show). I had been testing their appetite to take risks, and it wasn’t a fit. Coupled with the other clear indicators of industry maturity, Modus’ value-creation formula had dramatically changed from where it started.
Here’s another way of looking at the CEO’s question on whether I should be spending more of my time working with early stage companies:
What is my current and estimated future IRR (internal rate of return) if Modus continues to grow and prosper?
VS
What would my current and estimated future IRR be if I helped other early stage businesses in my knowledge space get from where they are to the value increase we achieved at Modus?
I came to the conclusion that if I helped (invested and supported) 1–2 companies though a 20x value increase, it would dwarf how much value I would gain by continuing to grow Modus in the same time frame.
This fact was super hard to stomach. It led to many sad sleepless nights. How can I part ways with the unbelievable team of misfits we’d put together that took an industry by storm? How do I tell my friends and family about it? Will they understand?
Naturally I assumed by spreadsheet was wrong. I showed the spreadsheet and my logic to my wife and some of the folks I trust the most. They all confirmed what I saw.
Data doesn’t lie. But it’s not always easy digesting the picture it presents.
After 9 months of transition, I sent out the last letter to my staff.
Fast-forward 2 years, and my mission has evolved into building a machine that gains future insights into what a company can achieve. That machine is called Model B. Our mission: to understand how people react/interact/engage/buy stuff.
You may ask why I believe it’s critically important to understand how people buy stuff? Check out the most shocking stat I learned along the way…
2% of the entire VC industry (that’s like 600 people) produces 95% of the returns.
Something is wrong here and it’s not the basics of investing: Let’s assume for the sake of argument that just like any average angel investors, we’re careful and thoughtful. We choose great founders/managers. And thanks to Peter Thiel’s clear explanation, we invest only when we believe the company has the opportunity for a meaningful outsized return.
So, yet again, I find myself in the data field. Such a wonderful place, full of opportunity.
And, yet again, I find myself working with amazing people. (yay!!) Our team is top-notch and we are making great strides every day thanks to the clients/companies we are working with. Just as I learned in the eDiscovery arena, data, when used correctly, is a weapon that can educate the best course forward.
The biggest lesson data recently taught me — Don’t waste time. Set your intention, focus on what is important to you, and where appropriate, listen to your data. When you combine the logical picture it shares with your intuition, intelligence, and team, your path forward may come into focus differently than you initially imagined. Often times, it will lead to something better than you could have expected.
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