The Pepperoni MBA
What making pizzas taught me about running a global company and allocating capital
Pizza made me who I am. In the summer of 1998, I dropped out of college and started a pizza restaurant called Growlies in my hometown in rural Canada. My seed money: a credit card with a $20,000 limit.
The lessons the restaurant taught me on allocating capital helped me avoid some major pitfalls when getting my social media company off the ground a decade later.
For resourceful tech founders, finding capital is rarely a problem; making the best use of it is another story. A few years slinging pepperoni pies and chicken wings — on tiny margins and with minimal investment — might not be the worst fiscal training.
Lesson one: financial discipline. Landing a million-dollar investment for your startup is exhilarating. But as big as that number sounds, it doesn’t go far. Many startups just getting off the ground won’t have a CFO to monitor finances. It doesn’t take much for spending to spiral out of control.
During the early days of HootSuite, when social media was still seen as a fad, I made the decision to treat our funding as if it were my personal bank account. That’s not to say I blew it on fast cars and fancy dinners. Exactly the opposite.
I looked at those dollars as if I had personally earned them and wasn’t about to give them up without a fight. My team and I had a choice: live the rock star startup lifestyle for a year or so or build something for the long haul. We chose the long haul. So we renewed the lease on our grungy offices in the worst part of town. We traveled on the cheap. We kept salaries low and took the bus to work.
But there are some corners that shouldn’t be cut. Cheap ingredients will sink any pizza joint, no matter how good the marketing is. The same principle holds true for tech. We made a strategic decision early on at HootSuite to focus on product over promotion. In other words, our goal was to actually build the best social media management tool, not just to build the hype.
That doesn’t sound profound, but — for better or worse — hype is the currency on which lots of startups trade. I saw competitors, most of whom are no longer around, spend $60,000 on launch parties at the annual SXSW Interactive conference in Austin, the Super Bowl of startup-dom. Ostensibly, they were generating buzz, attracting investors and projecting an image of success. In reality, they were getting a lot of people drunk for free.
I should qualify that by saying that for certain businesses — particularly those making a short-term play to be acquired — spending aggressively on advertising and PR can pay off. And even for startups taking the longer view, promotion is obviously important. But be creative and be judicious. Instead of hosting a catered blowout at SXSW, we rented a bus for a fraction of the cost and kitted it out to look like a giant owl, our mascot.
Pizza taught me one last lesson on capital allocation: Get into the black and stay there. After a few months at Growlies, my credit card was maxed out. The only thing that saved me was selling lots and lots of pies. Basics like revenue and financial viability are too often taboo topics in the startup world. But I feel it’s critical to have money coming in and to hammer down income streams sooner rather than later.
Raising capital can become an addiction, and I’ve known my share of addicts. They raise one round, binge on hiring or advertising or new offices, raise another, splurge again and on and on. There’s the illusion of growth but very little revenue to back it up. In the end, the house of cards almost inevitably tumbles.
