What started out as an uneventful morning eating breakfast burritos at Taco Bell and working through a couple of classes quickly grew into the extraordinary. In a class on “Failure,” Professor Yamakawa walked in with a limp, he had played a rough game of hockey the night before. To alleviate teaching pressures he invited a character that would absolutely stun the room, Enrico Palmerino. I’m writing this essay to record the ideas shared in the room.
I won’t go too in-depth about Palmerino’s background but I’m fairly certain he will become a household name. He’s been starting companies since twelve and has built several companies that generated $75k+ in revenue/year, one that generated far more before he graduated from Babson College. His current role is leading Botkeeper. His company recently raised its Series A with Greycroft and Gradient Ventures for total funding of $22.5 million. Now for his ideas.
Failure & Vulnerability
Palmerino considers himself to have “failed more than most,” he was being humble when he said this. He spoke at length of the “failures” he had experienced through the rocky road of entrepreneurship as if they were necessary learning experiences. During the early days of ThinkLite, a lighting company he founded in college, he installed a $40,000+ lighting system into a prominent tennis club. The lights were too dim and the entire system had to be replaced. To keep favor with the owner Palmerino and his co-founder named their proprietary lightbulb after the client and worked tirelessly to rectify the failure. The client would become their largest evangelists bringing them dozens of additional sales. The handling of the failure established the company as the leader in tennis club lighting. Palmerino circled back to the topic when discussing the trust he’d built with his investors. His comfort in sharing failures followed him into business. His investors consider him & his Botkeeper leadership the most transparent people they’ve worked with, “they trust us.”
With ambition comes failures. When it happens, use failure tactically. Hearing about your failure makes people trust you.
The topic of finding and working with co-founders came up a couple of times over the hour and a half talk. Palmerino has two criteria for co-founder evaluation: “drive and values.” These are the two non-negotiables, “your co-founder needs to share your drive, and the same values.” And these co-founders shouldn’t be your friends. Chances are, Palmerino states, that your friends are in the same lane, “you will be vying for the same position.” This particular statement is specific to business schools like Babson where a disproportionate number of students are aspiring entrepreneurs with a strong sales instinct. After class, I asked Palmerino for his take on founders splitting equity 50/50. He had done it twice for his two most recent ventures, it worked better for his first partnership though he does not regret it for his second. On the question of impassable decisions dividing the equal equity co-founders, he said, “hopefully it doesn’t come to that,” and if it does it’s a political battle.
Find a co-founder that isn’t in your lane, but shares your drive and values. 50/50 equity splits work but be proactive about avoiding impassable decisions.
Team vs Product
Palmerino ran the gamut of funding startups having bootstrapped several to respectable profitability, he used debt and raised multiple rounds of VC capital. He found the process exponentially easier as he grew, “experience is the number one thing venture capitalists look for.” He attributes his serial-entrepreneur status and two signaling hires as vital for Botkeepers access to VC funding, “experience gets you the round, business metrics get you the valuation.” As far as building the business, Palmerino doesn’t believe most people when they say they work smart and not hard. It takes working incredibly hard to learn how to work smart. He also believes that any business that fulfills the statement “ _______ would be nice to have” should be thrown away as an idea. It’s not impossible to start a nice-to-have business but it’s incredibly easier to start a must-have business. He views reinventing the mouse trap a tried and true method for successfully completing his test, the markets already there, you just have to make a better product.
The team is arguably more important than a startups actual product (although there’s a high correlation between an excellent team and an excellent product, which, I imagine, is why VC’s place such a great premium on it). Start must-have businesses, and reinventing the mousetrap is a way to get there.
I was utterly inspired by Palmerino’s talk today. I feel compelled to give everything to Daybreak (my startup) this summer in the Babson Summer Venture Program and beyond. It goes to show, the next time you’re eating breakfast at Taco Bell, be prepared for your world to shift that afternoon!