20VC The Mindset The Best Investors Assume When Assessing Opportunities, Why So Many Hardware Startups Fail Today & The Right Way To Think About Employee Retention with Andrew Farah, Founder & CEO @ Density

Summary Notes


In this episode of "20 Minutes VC," host Harry Stebbings interviews Andrew Farah, founder and CEO of Density, a startup that anonymously measures real-time office occupancy, which has raised over $16 million. Farah shares his journey from managing partner at Rounded to creating Density, emphasizing the importance of addressing fundamental problems and the creativity they inspire. He discusses the role of superconnectors in expanding networks, the significance of diverse hiring for varied perspectives in problem-solving, and the impact of storytelling on investor engagement. Farah also highlights the challenges in hardware startup economics and the potential of Density's technology to revolutionize space utilization in cities and corporate environments by eliminating inefficiencies like vacant but paid-for spaces and tailgating in secure areas.

Summary Notes

Introduction to Density and Andrew Farah

  • Density is a startup that measures real-time occupancy of every room in an office.
  • They have raised over $16 million in funding from notable investors.
  • Andrew Farah, prior to Density, was a managing partner at Rounded, a software development agency.
  • The first Density prototype was built at Rounded.

"I'm very excited to welcome Andrew Farah, founder and CEO at Density, the startup that measures real-time occupancy of every room in your office."

This quote introduces Andrew Farah and his company Density, highlighting the innovative nature of their product.

"Prior to founding Density, he was a managing partner at Rounded, a software development agency and product studio."

This quote provides background on Andrew Farah's experience before starting Density.

The Founding of Density

  • Andrew started Density with five co-founders.
  • Density was the 7th side project funded by profits from their consultancy.
  • The consultancy was closed to focus on Density.

"Density was the 7th. So over about three years we invested in a variety of different potential products. And density has some legs. So we spun it off as a separate company."

This quote explains how Density was one of many side projects and was eventually chosen to be developed into a full-fledged company due to its potential.

Determining Project Viability

  • Andrew focused on fundamental problems that people care about.
  • Creative suggestions from others indicated strong interest in Density's potential.

"The ones that seem to be really fundamental problems, things that people really care about."

This quote describes the criteria used by Andrew to determine which side project to pursue, focusing on solving fundamental problems.

The Role of Superconnectors

  • Superconnectors are generous and excellent advocates.
  • Their enthusiasm and introductions can be instrumental in expanding a network.
  • Superconnectors have played a significant role in Density's success.

"There are a handful of people whose enthusiasm for what we do and whose enthusiasm for our team. I mean, it's contagious."

This quote highlights the impact of superconnectors on the morale and network growth of a startup like Density.

Impact of Superconnectors

  • Jonathan Treist at Ludlow Ventures is cited as a key superconnector for Density.
  • Treist introduced Density to the lead investor of every funding round they've had.
  • Superconnectors can be pivotal to a startup's fundraising success.

"Jonathan Trees has single handedly done every introduction to our lead, and that wasn't by design."

This quote exemplifies the significant influence a superconnector can have on a startup's ability to secure funding.

Maintaining Relationships with Connectors

  • Storytelling is crucial for engaging investors and connectors.
  • Investor updates should be compelling and convey the startup's story.
  • Good storytelling facilitates the spread of the startup's narrative.

"We try to do that through writing. So in a lot of our investor updates, they're not just like, here are the bullet points of what you need to know for your investment."

This quote emphasizes the importance of storytelling in maintaining relationships with investors and connectors, going beyond mere transactional updates.## Importance of Storytelling in Business

  • Storytelling is crucial for bringing simple business concepts to life.
  • Good storytelling enhances investor updates, making them more engaging and personal.
  • Sharing stories and visuals of the product development process can make investor updates more compelling.

"That's a rather simple concept, but it really comes alive with, I think, good storytelling."

The quote emphasizes that even straightforward business ideas can become more vivid and impactful when paired with effective storytelling.

"We had a circumstance where we hand built product to deploy into customer locations, and that process was rigorous... Those initial prototypes came alive with photographs of the process and video of the process, and then stories of the actual deployment in some of our customer locations."

This quote illustrates the value of using visuals and narratives to bring the early stages of product development to life, making the process more relatable and interesting to investors.

Talent Attraction and Retention

  • Employee retention is seen as a key indicator of a company's broader success.
  • High levels of churn could negatively impact a company's success due to the high costs associated with finding and training new talent.
  • Being proactive and transparent in the hiring process and staying ahead of employees' needs can improve retention.
  • Diversity in early hires can be beneficial for future recruitment and product development due to varied perspectives and problem-solving abilities.

"I've always wanted to do a study of companies and graph them based on their retention rates and then sort of their relative success."

Andrew expresses a hypothesis that there is a correlation between employee retention rates and the overall success of a company, indicating the importance of keeping talent.

"Staying ahead of an employee's questions and staying ahead of an employee's needs is the best way to retain exceptional talent."

The quote suggests that anticipating and addressing employee concerns proactively is a strategy for retaining top talent within a company.

"I also think doing your absolute level best to fill a team with diverse candidates is not only hard, it is probably the single best thing you can do as an early stage startup."

Andrew advocates for diversity in hiring as a crucial strategy for startups, indicating that it leads to a wider range of perspectives and enhances problem-solving.

Diversity in Hiring

  • Achieving diversity in hiring requires commitment from leadership and a cultural shift within the company.
  • It's important to look beyond personal networks and actively market job opportunities to diverse communities.
  • Investing in reaching out to different networks can improve the candidate pool without compromising on quality.

"If the leadership in an organization doesn't buy in... then it'll never happen."

The quote points out that without leadership commitment to diversity, efforts to diversify the workforce are likely to fail.

"I think spending the time and dollars it takes to go into communities that you have no personal connection with... is a great way to improve your candidate pool."

Andrew emphasizes the need to invest resources into reaching out to communities outside of one's personal network to increase diversity in the candidate pool.

Company as a Product

  • Founders should consider the design of their organization as carefully as they do their products.
  • The team dynamics and abilities dictate the outcome of the products.
  • Early investment in how a team collaborates, communicates, and resolves conflict can be beneficial for the company's development.

"And when the organization eventually evolves away from that first product, the founder looks up and doesn't recognize the organization they're within."

Andrew warns that founders who neglect organizational design may find themselves in a company that has evolved beyond their original vision.

"The products you ship are a result of the dynamic of the team and its abilities."

This quote highlights the direct impact that team dynamics have on the products and services a company offers.

Internal Processes and Operations

  • No process is seamless, but continuous improvement in internal operations is key.
  • Having a high retention rate is a point of pride and indicative of successful internal processes.
  • Challenges in operations are expected, and acknowledging them is part of growth.

"Well, nothing works seamlessly... Since our founding four years ago, we've never voluntarily lost anyone."

Andrew acknowledges that while no process is perfect, their company's high retention rate is a testament to their successful internal operations and practices.## Understanding Employee Needs and Corporate Culture

  • Recognizing the importance of timely responses to employee requests such as raises.
  • Realizing that by the time an employee asks for a raise, they have likely discussed it many times privately.
  • Emphasizing the need for empathy in understanding employee psychology.
  • The importance of instilling a culture of empathy within the company.
  • Acknowledging personal weaknesses and the impact on team dynamics.
  • The value of recognizing organizational weaknesses to stay ahead of potential issues.

"When someone asks for a raise, I think oftentimes companies think, okay, well, this is the first time I've heard of it, so I can get to this, but it's not, like, necessarily super urgent."

This quote highlights a common corporate misperception regarding the urgency of employee requests, such as for a raise, and the need for a more proactive response.

"What I think sometimes people fail to realize is that the first time that someone brings it up to you, the company is probably the 32nd time that they've talked about it."

This quote emphasizes the idea that employees often contemplate and discuss their concerns multiple times before bringing them up to management, indicating a deeper level of concern than may be initially apparent.

"I think that empathy can go a really long way, and I think we really tried to embody that and instill it in the broader culture."

The quote underscores the importance of empathy in corporate culture and its role in effectively addressing employee needs.

"I love debate. I love logical debate. I love it like sport. It's fun for me, and that's great in certain circumstances and with certain teams, but it's not always great for everyone."

This quote reveals a personal preference for debate that can be both a strength and a weakness, depending on the team dynamics and the context of the discussion.

"I think that the organization, more broadly, if we're really good at identifying what we're bad at, then we're going to be able to stay ahead of the things that could kill us."

This quote speaks to the importance of self-awareness and the willingness to identify and address organizational weaknesses proactively.

Product Distribution Strategy

  • The significance of distribution strategies in a company's success.
  • The belief that distribution is more critical than the product itself.
  • The role of understanding space usage in product design.
  • The importance of privacy and anonymity in measuring space utilization.
  • The potential for changing physical architecture through effective distribution strategies.

"I think that like 80% of all great companies behind 80% of a company's success is typically a really interesting distribution strategy."

This quote emphasizes the importance of a unique and effective distribution strategy in the success of a company.

"It's vacant but it's paid for every year. And it's not that people don't know that they have a problem, they know they have the problem. They just don't know which 40% is vacant."

The quote highlights the issue of unused but paid-for office space, illustrating the need for better measurement and understanding of space utilization.

"Would we design things differently if we knew how humans use space? I think the obvious answer is yes, of course we would."

This quote suggests that knowledge of human behavior in spaces would influence design decisions, similar to A/B testing in website design.

"What is your distribution strategy for getting a device or some type of sensing or some type of thing into all of those relevant human spaces?"

The quote poses a critical question about the method of distribution for technology that measures space usage, stressing the importance of strategy in achieving widespread implementation.

Innovative Hardware and Manufacturing

  • The complexity and challenges of global supply chains for hardware startups.
  • The time and cost required to move from prototype to mass production.
  • The underestimation of costs and complexities in manufacturing hardware.
  • The importance of team members with experience in manufacturing and strategic sourcing.
  • The company's business model of selling data access, not hardware.

"I think that we would have failed had we not added certain team members to our team."

This quote acknowledges the critical role that experienced team members play in navigating the complexities of hardware production and supply chains.

"You're looking at 18 months, probably minimum from start. That's like from prototype to mass production."

The quote provides a realistic timeline for the production cycle of a hardware product, from initial concept to mass production.

"I think that the other thing that people underestimate is how expensive it's going to be to manufacture your first thousand units, how expensive it's going to be to manufacture your first 10,000."

This quote points out a common underestimation of initial manufacturing costs for hardware startups, which can lead to financial challenges.

"If you don't work with someone who understands what it's like to ship 100,000 units, or to build a factory in Asia for the Apple Watch, or to hire a senior strategic sourcing manager to manage your 137 unique components, then you're just talking about hardware like software."

The quote stresses the need for expertise in large-scale manufacturing and strategic sourcing to successfully produce and distribute hardware products.

"We don't sell the hardware. We sell only access to the data."

This quote clarifies the company's business model, which focuses on selling data access rather than the hardware itself, thereby shifting the responsibility and costs associated with the hardware.## Hardware as a Service Model

  • The company offers a flexible hardware solution that can be easily replaced or upgraded.
  • They charge for access or data fees related to the use of their hardware.

if a customer no longer needs that door, or if the device breaks for some reason, or if the technology improves for being able to support that particular door, you literally slide it off its bracket, ship it back to us, and we send you a new one. We're simply charging an access or data fee for count in that space for anonymous and accurate or real time count within that space.

This quote explains the company's business model, which allows customers to return hardware when it's no longer needed or if it becomes outdated, emphasizing the service aspect of the offering.

  • "The Idea Factory" is suggested as a book to read.
  • The book covers the history of Bell Labs and its impact on modern technology and office structures.

The idea factory. It's about bell Labs and about Mabel or at t and sort of like the transistor and the structure of offices today and sort of the origin of a lot of the things that we do. It is a remarkable book.

Andrew Farah recommends "The Idea Factory" for its insights into the historical developments at Bell Labs that have shaped current technology and work environments.

Silicon Valley and Venture Capital

  • Silicon Valley's system is seen as efficient despite its flaws.
  • There is a need for greater diversity among decision-makers in venture capital.

I actually think it's a surprisingly efficient system. There are all sorts of warts and flaws, barnacles and whatnot, but it's a rather good proving ground for are you hungry enough to be able to get in front of the people that can fund you? That said, I think that it definitely could really use some improvements in the diversity of the people who are making those decisions, whether it's corporate boards or it's managing directors. It is amazing the homogeneity it is.

Andrew Farah acknowledges the effectiveness of Silicon Valley's system while highlighting the significant lack of diversity among those who hold decision-making power.

Traits Valued in Venture Capitalists

  • Venture capitalists should assume the entrepreneur's premise and explore the potential of the idea.
  • Focus should be on the vision's scale rather than getting bogged down by tactical details.

Assuming the premise. You're always working with imperfect data and so taking what data you have and sort of putting it in front of someone, the best venture capitalists I've ever spoken to, assume your premise and then ask okay, what could happen if you were right and you spend 45 minutes talking about that portion of the idea and not 45 minutes justifying your existence?

The quote highlights the importance of venture capitalists being able to see beyond immediate imperfections and focus on the potential success and scale of an entrepreneur's vision.

Hiring Challenges

  • Hiring people who are not similar to oneself is challenging.
  • It requires work, commitment, and a proactive approach to build a diverse team.

Again, going to sound kind of redundant here, but I believe it is hardest for people to hire those who are not similar to them. It takes work and it takes commitment, and you have to be willing to really jump in and not be lazy in order to hire a diverse team.

Andrew Farah emphasizes the difficulty of overcoming biases in hiring practices and the necessity of actively working towards diversity within teams.

Productivity Tips

  • To overcome procrastination, start by doing just five minutes of the task.
  • This approach can lead to unexpectedly long periods of productivity.

Just do five minutes of it. And it's amazing how quickly you find yourself an hour and a half into whatever you were dreading.

Andrew Farah shares a productivity tip that involves starting with a short, manageable amount of time on a task, which can often lead to longer, more productive work sessions.

Future Vision for Density

  • Predicting room usage and designing spaces based on actual demand.
  • Optimizing schedules and resources, such as cleaning and transportation, based on accurate people count data.
  • The potential to eliminate security issues like tailgating in facilities.

I think that San Francisco gets designed slightly differently... And trains won't run on time schedules. They'll run on actual predictable demand based on foot traffic... We have all these proxies for people count... What if you knew that half of them weren't used?... I think we might be able to eliminate tailgating.

Andrew Farah outlines a vision where accurate data on people count revolutionizes building design, resource allocation, and security, leading to more efficient and secure environments.

Closing Remarks

  • Harry Stebings expresses regret for not investing in Andrew Farah's company earlier.
  • The podcast promotes various products and services at the end.

I mean, what an incredible guest Andrew, was to have on the show there. And as I said, I could not be more frustrated that I didn't get to see the deal when it was at its seed.

Harry Stebings concludes the interview by praising Andrew Farah as a guest and sharing his frustration at missing the early investment opportunity in Farah's company.

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