20VC Why PreProduct Market Fit Is About Systems Design Not Engineering, The Right Way For Leaders To Approach Wartime Leadership Today & A Guide To Recruitment Forward Planning with Ryan Denehy, Founder & CEO @ Electric

In this episode of "Founders Friday" on the 20-minute VC, host Harry Stebbings interviews Ryan Dennehy, the ambitious founder and CEO of Electric AI, a company revolutionizing IT solutions with centralized, secure, and lightning-fast services. Ryan's entrepreneurial journey began at 17 with an action sports video production company, leading to an acquisition and later roles at USA TODAY and founding Swarm, which Groupon acquired. The episode delves into Ryan's insights on startup growth, from the importance of minimal viable products (MVPs) to the challenges of scaling and the necessity of building a team for future company goals. Ryan emphasizes the need for honesty and vulnerability in leadership, the strategic hiring of experienced executives, and fostering a supportive yet high-standard culture. Electric AI's success story is punctuated by Ryan's fundraising experiences and his perspective on investor value beyond capital, particularly through supportive VCs with entrepreneurial backgrounds.

• Ryan Dennehy is the founder and CEO of Electric AI, a company offering centralized, secure, and fast IT solutions.
• Electric AI has raised over $37 million from investors including GGV, Bessemer, and Primary.
• Ryan began his entrepreneurial career at 17 with an action sports video production company, which was acquired four years later.
• He worked at USA TODAY in various roles for five years.
• Ryan's second company, Swarm, was acquired by Groupon three years after its founding.

"To date, Ryan has raised over $37 million in funding from some dear friends of the show in Rich at GGV, the team at Bessemer Primary, Bowery, just to name a few."

This quote highlights Ryan's success in fundraising for his company, Electric AI, and the notable investors involved.

• The Pod by Eight Sleep is a mattress that uses technology and temperature regulation to improve sleep.
• Customers who sleep on the Pod reportedly fall asleep faster and experience increased deep sleep.
• A special offer includes a $150 discount and free shipping for listeners.

"The pod by eight sleep the first bed to combine dynamic temperature regulation and sleep tracking to ensure you're getting the best sleep possible."

This quote describes the unique selling points of the Pod mattress, emphasizing its innovative features designed to enhance sleep quality.

• Point is an invite-only mobile banking platform that offers a debit card with rewards for shopping at popular brands.
• The card offers points for services like Uber, Lyft, and Spotify, and features an industry-leading interest rate.
• Listeners of the podcast can use a special invite code to gain early access and earn points.

"Point is an aspirational mobile bank that features the only debit card that enables card members to earn points when shopping at popular brands they already love."

The quote explains the benefits of the Point debit card, which combines the rewards of credit cards with the advantages of a debit card.

• Intercom provides chat bubbles on websites to facilitate customer communication.
• The company offers conversational bots and guided product tours.
• Unity, a customer of Intercom, saw a 45% increase in customers after implementing Intercom's solutions.

"Intercom extends your team with conversational bots and guided tours inside your product."

This quote summarizes Intercom's services, which are designed to enhance customer interaction and support for businesses.

• Ryan was motivated to start his own company in high school, questioning why age should be a barrier.
• His "aha" moment for Electric AI occurred when he saw the potential for automating IT tasks with software, similar to HR tasks.

"I realized, hey, I can do whatever I want. And the next day, I started my first company, producing mountain biking videos."

Ryan's quote reflects his early entrepreneurial mindset and the spontaneous decision to start his first business.

• Ryan emphasizes the importance of focus and speed in reaching business inflection points.
• Determination is key, even when facing potential failure.
• Inflection points for venture-backed B2B SaaS companies are often defined by accepted metrics like product-market fit and revenue models.

"We were always very clear about what the next inflection point needed to be. And everything we did was in service of getting to that next step."

This quote explains the strategic focus on reaching clearly defined milestones in a startup's growth trajectory.

• Ryan acknowledges many past mistakes and emphasizes the need for a product to be a "need to have" rather than a "nice to have."
• It's important to project the future economics of a business to ensure sustainability and scalability.
• Past businesses faced challenges due to non-essential products, poor business models, and not considering the end state economics early on.

"The solution you're delivering has to be a need to have, not a nice to have, full stop."

Ryan's quote stresses the critical importance of creating a product that addresses a fundamental need for customers.

• Ryan advocates for extremely minimal MVPs (Minimum Viable Products) to focus on solution design rather than engineering.
• Pre product-market fit, using open source or off-the-shelf tools is often sufficient.
• There is concern about accruing technical debt, but the initial focus should be on validating the problem and solution.

"Until you have product market fit, you don't have a, you know, your only job as a founder at that point is to define a problem and then design a solution that people really like."

The quote underscores the founder's primary responsibility to identify a problem and create a likable solution before achieving product-market fit.## Technical Debt Management

• Technical debt is a concern for every company, similar to managing credit card debt.
• A balance of zero in technical debt may indicate under-leveraging, while a high balance could be problematic.
• Companies must find a reasonable technical debt balance for their stage of business.
• Being intentional about when to incur technical debt and planning to revisit it later is crucial.

"I think most good engineering teams sort of look at technical debt like a credit card, right? A balance of zero means you're probably not leveraging it enough. And if you owe Amex $150,000, that's probably not good either."

This quote explains the analogy between technical debt and credit card debt, highlighting the need for balance and the concept of leveraging debt wisely.

• Swarm used a simple and cost-effective approach to create an MVP for measuring foot traffic using Wi-Fi routers.
• The MVP was not perfect but good enough for early adopters to recognize the business potential.
• Early MVPs do not require significant funds and can be built with simple, innovative solutions.

"We could have made that problem as expensive as we wanted from an MVP standpoint... We just didn't have the money to make it an expensive problem."

This quote reflects the constraint-driven innovation that led to a simple yet effective MVP, emphasizing the importance of resourcefulness in the early stages of a startup.

• Capital markets have become more founder-friendly, allowing longer development cycles.
• The cost of running a software business is lower than ever, permitting extended pre-revenue periods.
• Despite long beta phases, companies must eventually engage in meaningful commercial activity to be considered successful businesses.

"But at the end of the day, you have to build a business, not a university research project."

This quote underscores the necessity for startups to transition from product development to viable business operations, regardless of the development time.

• Honesty is paramount for leaders, especially when facing significant challenges like running out of money.
• Leaders should take responsibility for their company's situation and focus on bridging the gap to success.
• Demonstrating vulnerability and strength is essential for effective leadership.
• Having a co-founder or a network of founder friends can provide a safe space for leaders to share challenges and seek advice.

"So the first major takeaway is you just have to be honest. If you're running out of money or your product sucks or your team hates you, you just got to acknowledge that."

This quote emphasizes the importance of honesty and self-awareness in leadership, particularly during difficult times.

• Vulnerability and strength are not mutually exclusive; they can reinforce each other.
• Leaders need to be transparent and authentic to earn their team's trust.
• Exhibiting vulnerability can be a sign of strength and courage in leadership.

"Absolutely. The two actually, really, I think, are self reinforcing."

This quote highlights the relationship between vulnerability and strength in leadership, suggesting that acknowledging challenges can enhance a leader's credibility and effectiveness.

• Humor and levity can be helpful when discussing serious business challenges.
• The balance between vulnerability and portraying strength to the board is a nuanced aspect of leadership.
• A leader's reputation among board members and references can reflect their operational effectiveness.

"Ryan executes like a Texas prison warden."

This quote from a board member's reference check illustrates a strong endorsement of the leader's execution capabilities, using a vivid metaphor to convey decisiveness and efficiency.## Balancing Execution with Culture

• Ryan Dennehy emphasizes the importance of upholding high standards and focus.
• Execution at Electric is likened to a sports team's training regimen.
• Maintaining a positive office culture is essential for high performance.
• Electric's culture includes humor, music, team socializing, and concern for well-being.
• High standards and clear goals are maintained alongside a supportive environment.

"When we think about execution, it has a lot more to do with upholding a high standard, having excellent focus, delivering in a consistent way."

This quote explains that at Electric, execution is not about ruthlessness but about maintaining high standards and focus, similar to how a sports team trains.

"We laugh a lot and crack jokes. We play music all over the office. The teams go out and party together. We care about each other's well-being and mental health and all that good stuff."

Ryan describes the positive and supportive culture at Electric, which includes humor, music, and team-building activities, emphasizing the importance of a caring environment for effective execution.

• CEO roles and responsibilities change dramatically with company growth.
• As a company scales, a CEO transitions from a player-coach role to managing managers and eventually to leading senior executives.
• Each stage of growth has unique challenges, such as context switching, decision fatigue, and strategic thinking.
• Ryan references David Politus' blog post on the topic, agreeing with the stages outlined.

"You're a player coach, so you're doing a lot of jobs as an IC, but you're also managing maybe some frontline folks, and you have CEO stuff to do, and it's brutal."

Ryan describes the early-stage CEO role as multifaceted and challenging due to the need to perform individual contributor tasks while managing others and handling CEO responsibilities.

"As a CEO, most of your direct reports are other senior executives. That's the great place to be because a lot more of your time can be spent thinking strategically."

In later stages of company growth, Ryan explains that a CEO's role becomes more strategic as they lead senior executives and focus on solving key problems.

• Trusting the process is crucial during challenging moments.
• It's important to stick to effective strategies and address what's not working.
• Having faith in the processes set up helps maintain perspective during crises.

"The most important thing is you got to just trust the process."

Ryan advises that during difficult times, one should rely on established processes and strategies to navigate through challenges effectively.

• Forward-thinking in recruitment is essential for company growth.
• A company's success is directly linked to the caliber of its employees.
• Hiring for future needs requires anticipation and an understanding of the time it takes to recruit high-level positions.
• Ryan stresses the importance of starting the recruitment process well in advance of when new roles are needed.

"Your first five to ten million in revenue can come from a lot of individual heroics, but beyond that, you need really scalable processes and teams with bench depth and predictability with respect to the outcomes they're driving."

This quote highlights the necessity for scalable processes and a strong team to achieve predictable outcomes beyond the initial growth phase.

"It's going to take three to six months to hire a VP level or above person...so you can't start recruiting in Q4 for things that you want to have happen in Q1."

Ryan points out the time required to hire executive-level employees and the need for proactive recruitment to avoid being unprepared for planned growth.

• Hiring should be aligned with fundraising cycles to ensure leadership is in place for execution of growth plans.
• Starting recruitment ahead of fundraising is advised to prevent being caught unprepared.
• New hires need time to onboard and implement necessary processes before contributing fully to the company's goals.

"You've got to start ahead of the fundraise and ahead of that next inflection point."

Ryan advises starting the recruitment process before fundraising to ensure that the company has the necessary leadership to execute on post-fundraising growth plans.

• Ryan is passionate about developing managers within the company.
• Fostering internal talent is key to maintaining efficiency and growth.

No verbatim quote provided for this theme in the transcript.## Talent Allocation and Promotion

• Incorrectly promoting a talented individual can lead to them being in the wrong job.
• Promotions may occur too quickly due to challenges in hiring externally.
• It is crucial to be honest about whether a promotion is the right decision.
• A checklist of non-negotiables is used to determine if someone can succeed in a role.
• Assessments are made to see if the person can meet the checklist in a reasonable timeframe and if they can stay in the role long enough to be beneficial.
• In high-growth companies, the job's scope expands rapidly, which can be challenging for individuals to keep up with.
• There is consideration for right-sizing roles, making lateral moves, or promoting based on the individual's capability and the company's needs.

The worst thing you can do is have a talented person in the wrong job. And so typically that happens by promoting someone too fast. This quote emphasizes the pitfalls of rapid promotions and the importance of ensuring role suitability for an individual's talents.

• At the seed stage, it is important to find VCs who truly add value beyond just providing capital.
• The size of a VC's portfolio support team can indicate their commitment to assisting startups.
• In later funding stages, it's beneficial to have investors who have entrepreneurial experience and can provide practical support.
• Investors with entrepreneurial backgrounds are valued for their ability to empathize and offer balanced support.

So at the seed stage, vcs always say they add value beyond cash, but few actually do the best way. This quote suggests skepticism towards VCs' claims of adding value and highlights the importance of verifying their actual support to startups.

• The advice given is to take things one step at a time and not overcomplicate the entrepreneurial process.
• Legal aspects of deal processing are acknowledged as complex.

Oh man, I've heard this a few times, but just put 1ft in front of the other. None of this stuff is that complicated. This quote simplifies the entrepreneurial journey to basic steps, suggesting that complexities can be managed by focusing on one task at a time.

• There is a desire to see more diversity within the tech ecosystem.
• Lowering startup valuations is seen as beneficial to prevent companies from getting into difficult situations.

Two things. One, diversity. So just like to see more of it. And then the second is people are going to call me crazy lower valuations. This quote identifies two key areas for improvement in the tech industry: increased diversity and more realistic startup valuations.

• The best investor meeting was characterized by a genuine connection and a productive discussion about building a company.
• The meeting took place under challenging weather conditions, which demonstrated the investors' commitment.
• The dynamic of the meeting was less of a pitch and more of a collaborative conversation.

Oh man, the first meeting with Bob and Mike from Bessemer, I mean, that'll probably go down for the rest of my career, is like one of the ones that's hard to top. This quote reflects on a memorable investor meeting that set a high standard for future interactions due to its positive and collaborative nature.

• The goal is to become the market leader with strong public market fundamentals.
• The leadership team is envisioned to be world-class.
• The company aims to maintain its reputation for having the coolest swag in the game.

Envision us as a de facto market leader. This is a hundred million plus ARR business, strong public market fundamentals, world class leadership team, and probably still the coolest swag in the game. This quote outlines the ambitious goals for the company Electric, aiming for market leadership and strong financial performance while maintaining a unique company culture.