20VC Why People Should Never Be Surprised If Fired, Subscription ECommerce Is Hot & People Never Give True and Direct Feedback with Amir Elaguizy, CoFounder @ Cratejoy

Summary Notes


In this episode of "20 Minutes VC," host Harry Stebbings interviews Amir Elaguizi, the founder and CEO of Cratejoy, a YC-backed platform that provides website building and backend services for subscription ecommerce stores. Elaguizi shares his journey from a professional poker player to a tech entrepreneur, detailing the sale of his first company, Market Zero, to Zynga and the pivot to Cratejoy after participating in Y Combinator. He discusses the importance of team dynamics, the distinction between foundational team members and mercenaries, and the necessity of direct feedback and transparency in leadership. Elaguizi also highlights the two major forces driving the subscription commerce space: ecommerce fundamentals and the formation of niche communities through social media. Lastly, he outlines Cratejoy's mission to enhance the consumer experience in subscription shopping and to simplify the process for merchants.

Summary Notes

Introduction to Amir Elaguizy and Cratejoy

  • Amir Elaguizy is the founder and CEO of Cratejoy, a YC-backed website builder for subscription e-commerce stores.
  • Cratejoy has received funding from notable firms such as General Catalyst, Andreessen Horowitz, Y Combinator (YC), and Charles River Ventures.
  • Amir's previous venture, Market Zero, was a poker software company that got acquired by Zynga.
  • He is recognized for his deep insights into team dynamics and managing employee expectations.

"And joining us today, I'm delighted to welcome. And I'm going to get this wrong, so I'm sorry, Amir. Amir Elaguizi, founder and CEO at YC, backed Cratejoy, the website builder and backend for subscription ecommerce stores."

This quote introduces Amir Elaguizy and his company Cratejoy, highlighting its backing by Y Combinator and its role in the subscription e-commerce space.

Amir Elaguizy's Background and Path to Founding Cratejoy

  • Amir started as a professional poker player in college and wrote a profitable poker bot.
  • He co-founded a business in the online poker space, focusing on analytics, catching cheaters, and selling data.
  • Market Zero, his previous company, was sold to Zynga due to their fraud issues and Amir's unique expertise in detecting poker cheaters.
  • After leaving Zynga, Amir co-founded Cratejoy with a co-founder from Market Zero.
  • Cratejoy went through Y Combinator in summer 2013, pivoted in 2014, and has raised about $10 million.

"And then I left with one of my co founders to start what ultimately become Cratejoy. We did that in late 2012. Then we did Y combinator in the summer of 2013. And after demo day at YC, we pivoted to Cratejoy in 2014."

This quote explains the journey of Amir from leaving Zynga to starting Cratejoy with his co-founder, participating in Y Combinator, and the eventual pivot to what Cratejoy is today.

Decision to Sell Market Zero to Zynga

  • Market Zero had reached market saturation with 56% of poker players visiting their website within any 130-day period.
  • Expansion options were limited without violating US laws or leaving the country.
  • Zynga had a significant fraud problem that Market Zero could solve.
  • The acquisition by Zynga provided a new challenge and was a natural fit due to the lack of exit opportunities in the online gambling space.

"We were really excited because we didn't see any other way for us to keep expanding the business, and we just wanted a new challenge."

This quote captures the rationale behind the sale to Zynga: the desire for a new challenge and the lack of expansion opportunities for Market Zero at that time.

Overview of Cratejoy

  • Cratejoy is a subscription commerce marketplace and a platform for merchants to start their subscription businesses.
  • It provides tools for merchants and drives consumer demand by connecting them with subscribers.

"Crayjoy is a subscription commerce marketplace. So consumers come to crayjoy.com and they browse the thousands of subscription boxes that our founders, our merchants have curated."

This quote succinctly describes what Cratejoy is: a marketplace for consumers to find subscription boxes and a platform for merchants to manage their subscription businesses.

Misunderstandings in the Subscription Commerce Space

  • The e-commerce fundamentals driving subscriptions include lower margins due to competition, difficulty in brand differentiation, and the increased cost of inventory mistakes.
  • Subscription models are becoming attractive to sellers as a way to navigate these challenges.
  • The social aspect is often overlooked, where groups connected by common interests on social media can now be targeted for niche subscriptions.

"But there's this other side that I don't think anybody really is paying attention to. So this is what's happening with groups largely on social media."

This quote points out that while many understand the commerce-driven reasons for the rise of subscription models, the social aspect and its influence on niche markets are often not considered.## Evolution of Niche Communities and Subscription Commerce

  • Social networks are enabling niche communities to form dense, connected nodes.
  • These communities are rapidly growing and producing "mega consumers" known as influencers.
  • Subscription boxes and commerce are being curated by experts within these niche groups.
  • Amazon is not efficient for discovering specialized products within these niches.
  • Subscription services offer both replenishment and discovery of new products tailored to specific interests.

"And these niche communities are growing in leaps and bounds and they're spitting out these mega consumers, the voice of the group, which we are calling influencers and subscription boxes and subscription commerce in general are starting to be these curated offerings by these experts in these niches."

This quote highlights the growth of niche communities and how influencers and subscription services are emerging as curated solutions within these specific interest groups.

"Amazon's actually really bad for that, especially for discovering new products because Amazon services the best hairbrush, not the best hairbrush for Shetland ponies."

The quote points out the limitation of generalist platforms like Amazon in catering to the specific needs of niche communities, emphasizing the advantages of niche subscription services.

"So the value proposition is twofold. Like, one, you just get more books because you need more books, right? And two, you discover new stuff curated by the people who know what you want."

This quote explains the dual benefits of subscription services, which provide both a steady supply of desired products and the discovery of new items curated by knowledgeable experts.

Importance of Owning Recruitment in Startups

  • Founders should recognize recruitment as a core competency and own the process.
  • Amir Elaguizy personally conducts recruiting and interviews at Cratejoy.
  • The initial team's strengths and weaknesses propagate through subsequent hires, making early recruitment critical.
  • Founders must balance the need to be involved in recruitment with the scalability of the company.

"Owning recruiting is the single most important thing you can do."

This quote emphasizes the significance of recruitment in a startup's success, suggesting that it should be a priority and not outsourced.

"The first ten hires you make for your company, their strengths will be what the next ten hires emulate, and that just keeps on propagating."

The quote highlights the long-term impact of the initial hires on a company's culture and performance, underlining the importance of the founder's role in early recruitment.

"I'm going to do it for as long as I possibly can."

Amir's commitment to recruitment underscores its importance and his belief in the value of a founder's direct involvement in building the team.

Employee Evolution and Company Growth

  • Early-stage companies require generalists who can handle various tasks.
  • As companies grow, the need for specialists becomes more pronounced.
  • Founders often fail to recognize when the company has outgrown an employee's skill set.
  • Transitioning from generalist to specialist roles is case by case and requires transparent communication.

"Especially as the CEO or as the founders, you can only have so many people reporting to you."

This quote addresses the limitations of a founder's capacity to manage employees, necessitating the introduction of specialists as the company grows.

"I think founders make a big mistake of not recognizing when the company is outgrowing a person's skill set, and that can really hold the company back."

The quote points to a common oversight by founders, which can hinder company progress if not addressed by adapting the team structure to the company's evolving needs.

"I try to have a very candid and transparent relationship with everybody at my company, and I've spoken to them about what's happening."

Amir's approach to employee transition from generalist to specialist roles is based on open communication, which helps in managing expectations and facilitating role adjustments.## Investing in People

  • Amir Elaguizy emphasizes the importance of distinguishing between foundational members and mercenaries within a company.
  • Foundational members are deeply invested in the company's mission and are seen as long-term contributors.
  • Mercenaries may contribute but are motivated by short-term gains and are not reliable for long-term commitments.
  • Investment in foundational members should be heavy, both in terms of compensation and time, and they should be given ownership of important, long-lasting projects.
  • Mercenaries should be managed according to their motivations and not placed in charge of long-term projects.
  • Amir looks for individuals who independently seek knowledge improvement, don't repeat mistakes, and are open to showing their work early for feedback.
  • He values humility and a continuous learning mindset over self-proclaimed expertise.

And basically what it is, is you have to understand, as your company grows, who are your foundational members, the ones that really you're counting on for being there forever. Right. They're motivated by the company. They feel deep ownership of what they've helped build and a sense of mission.

This quote explains the concept of foundational members who are integral to the company's long-term success and are deeply connected to its mission and growth.

And then you need to understand who's really just a mercenary. I mean, that doesn't necessarily mean they're bad people, but they're there for a short period of time, whether it's a career move or to make hope in hopes of making money, you can't really count on them to be there in four or five years as you're growing the business as a founder, just knowing that distinction, you can make much better decisions.

Here, Amir defines mercenaries as those who are part of the company for short-term benefits and are not expected to stay committed in the long run.

So with your foundational people, you can invest heavily in them, both from a compensation standpoint, equity especially, but also just from investing your time and giving them ownership over things that you need to be working well for very long periods of time.

The investment in foundational members is outlined here, highlighting the importance of compensation, equity, and ownership in their long-term engagement and success within the company.

And then with the mercenary people, you know what motivates them and you know how to get the best use out of them. And you also know to not put them in charge of something that you're going to need to be working still in four or five years, because it's likely that they aren't looking to make those sort of long term time commitments.

This quote addresses how to manage mercenaries effectively by aligning their roles with their motivations and avoiding reliance on them for critical, long-term projects.

They independently seek to improve their knowledge, right. Everybody talks about how they're going to learn some new skill, but they actually do it. They read the books, they watch the videos, whatever it is. They make mistakes because they're trying new things, but they don't make the same mistake twice.

Amir describes the qualities he looks for in individuals to invest in, emphasizing the importance of self-improvement, learning from mistakes, and not repeating them.

And as far as ego goes, they need to be humble. And what that really means to me is if you think you're an expert, you've implicitly decided that you're done learning. And when somebody talks to me about how they're an expert at something, I really don't want to work with them because it means that they're not going to be flexible going forward.

The importance of humility and a growth mindset is highlighted, with a focus on the dangers of considering oneself an expert and becoming inflexible.

Transparency and Candor in Leadership

  • Amir distinguishes between transparency and candor, considering both crucial for leadership in a startup.
  • Transparency involves sharing company challenges with the team to foster development and alignment.
  • Candor is about giving direct, nurturing feedback that bypasses natural defense mechanisms.
  • Direct feedback should be clear and unambiguous, avoiding qualifications that can lead to misinterpretation.
  • Regular, meaningful performance reviews are essential, and employees should not be surprised by the feedback they receive.

We share everything with the team because the right people are motivated by the challenge and take the struggle as their own. And then when we ultimately win, which we always do, they gain that much more pride of authorship, whereas the wrong people, they weren't going to stick around anyway.

Amir explains the value of transparency in motivating the right team members and how it contributes to a sense of ownership and pride in the company's achievements.

The leader will think that they said, you aren't performing satisfactorily relative to your peers. And the team member will think that they said, you're doing really good given that you're so new.

This quote illustrates the common disconnect between what leaders think they are communicating and what team members perceive, highlighting the need for clear and direct feedback.

I call that skill set candor. It's being truthful with people without being hurtful. And most people, the first time they experience that, when they realize that a performance review at my company is actually, first of all, we do them quarterly, not annually, but they're actually meaningful that we've put a long time, a lot of time into it.

Amir defines candor as the ability to provide honest feedback in a constructive manner and emphasizes the importance of regular, thoughtful performance reviews.## Effective Communication in Management

  • Proper communication of expectations and performance issues is essential in leadership.
  • A leader must ensure that an employee is aware of their performance shortcomings before termination.
  • Surprising an employee with termination indicates a failure in leadership communication.

"If somebody is surprised by the fact that you're letting them go for performance reasons, that means that you as a leader have really failed at communicating expectations."

This quote highlights the importance of transparent communication between a leader and their team members regarding performance expectations. A lack of such communication can lead to unexpected terminations, reflecting poorly on management practices.

Importance of Inclusivity in Work-Life Balance

  • Involving family in company events can increase their understanding and support for the sacrifices required by company work.
  • Building a sense of participation among family members can lead to a more harmonious balance between work and personal life.

"If you have any level of traction, they will be that much more forgiving of the sacrifices, and they'll support you if they feel like they're a part of the win."

This quote emphasizes the positive impact of involving one's family in work-related activities, which can foster a supportive environment and mitigate the strain that a startup's demands may place on personal relationships.

Challenges of Entrepreneurship

  • Entrepreneurs face judgment while making uncertain decisions with limited information.
  • Founders must navigate through constant uncertainty and lack of clear guidelines.
  • Empathy for founders is crucial due to the unique pressures they face.

"It's uncertainty the whole way, and that's a hard place to live in."

The quote captures the essence of entrepreneurship, which is characterized by continuous uncertainty and the need to make critical decisions without full information, often with significant consequences.

Customer Dependence on Small Businesses

  • High customer demand and pressure can indicate their reliance on a business's services or products.
  • Customer complaints and urgency for new features or support can be a positive sign of their need for the business.
  • Silence from customers can be a negative indicator, implying disengagement or lack of interest.

"The reason they do that is because they need us. They need us that badly. They're dependent upon us."

This quote suggests that customer pressure and demands are signs of their dependence on a business's offerings, and while challenging, this is preferable to customer disengagement.

Personal Preferences and Influences

  • Amir Elaguizy prefers Ben Horowitz's book "The Hard Thing About Hard Things" for its relatable depiction of entrepreneurial struggles.
  • He also values Andy Grove's "High Output Management."
  • Amir listens to news aggregators and specific podcasts, including "20 VC," "SaaStr," "a16z," and "Stanford Entrepreneurial Thought Leaders" podcasts.

"I seriously love Ben Horowitz for writing this book. I want to hug him because somebody finally captured the essence of the struggle and really wrote it down."

This quote reflects Amir's appreciation for Ben Horowitz's book, which resonates with him due to its accurate portrayal of the challenges faced by entrepreneurs.

Future Plans for Cratejoy

  • Amir Elaguizy aims to enhance the consumer marketplace for subscriptions and improve the shopper experience.
  • Cratejoy's focus is on making it easier for merchants to run subscription businesses by handling more logistics and providing services like custom packaging.

"We want to make it so that our merchants really only have to worry about assembling high quality products, and then we're just handling the rest."

The quote outlines Cratejoy's goal to simplify the operational aspects of running a subscription business, allowing merchants to focus on product quality while Cratejoy manages logistics and other burdensome tasks.

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