Rob Hunter - An Unconventional Path to Entrepreneurial Success

Narrator: [00:00:04] Welcome to Compound Ideas, hosted by Ken Majmudar of Ridgewood Investments, this podcast will feature exceptional individuals to uncover deep insights into business, entrepreneurship, personal growth, investing, and multidisciplinary thinking so that you can learn how to improve your finances, find better investments, and pursue authentic lifelong growth, wisdom and happiness. Learn more and stay up to date at compoundideasshow.com.

Ken Majmudar: [00:00:35] It's my pleasure to introduce Rob Hunter for this excellent conversation. Rob has a wonderfully interesting background, starting with growing up in Canada, attending the Ivey Business School, also in Canada. Rob then started a series of franchised ice cream stores that he grew to multiple locations, and afterwards attended Babson for his MBA and joined Y Combinator as a founder, that led to his current venture backed opportunity. Please enjoy my conversation with Rob Hunter.

Ken Majmudar: [00:01:11] Rob, welcome. Thanks for agreeing to be on the podcast.

Rob Hunter: [00:01:14] Thanks so much, Ken. Really appreciate it. Excited to share the story.

Ken Majmudar: [00:01:18] Great. So, Rob, it's helpful to know where people are coming from. We generally go semi chronologically. So let's start with where you were born, family, environment, etc..

Rob Hunter: [00:01:30] Yeah. So, I'm from a small town, 15,000 people, arguably kind of middle-class blue-collar environment. I was the first on my dad's side of the family to go to university. Mom was a teacher. I was a crazy little entrepreneurial kid. I remember selling Tamagotchis to my classmates for a little markup when I was like ten, 11 years old. My first real entrepreneurial venture, though, and I think enough time has passed that I can admit this. The statute of limitations has expired. I sold Japanese professional wrestling videotapes and DVDs on the internet, and I was largely a bootlegger. I would buy these videotapes. I would do sort of mix matches, dub tapes, if you will, of like the best matches of 2001, the best matches of 2002, and found a pretty intense hardcore audience willing to spend money on Japanese professional wrestling. This was before streaming, this was before YouTube, and it's kind of silly and goofy in hindsight, but it did make enough money to purchase some real estate properties to pay for my undergrad tuition, and really gave me a little bit of a crash course in what it's like to be an entrepreneur at 14, 15, 16 years old. So I went to undergrad for business, went to a school that's very much like an MBA experience. You're in sections, you're doing three case studies a day, and a good half of the class graduates to go on to either be an investment banker or a consultant.

Rob Hunter: [00:02:52] Those two career paths, well, extraordinarily lucrative, did not feel like what I was destined to do in life. And so for much of my undergrad years, I had done some real estate investing and a few things here and there, but had been looking for a small business to buy or to start and kind of stumbled into the ice cream business. I was a franchisee with Marble Slab Creamery. I was initially the youngest franchisee at 22. I quickly grew to become the largest franchisee a few years later, and it was quite the ride. The first two stores made a great deal of money and so I doubled down, tripled down, took on a lot of funding and got five more stores open in a very short period of time. It turns out that was not a good idea. The chain itself suffered through a lot of challenges. About half the locations closed continent wide across North America, and learned a lot of tough lessons along the way there. But that was my first real full time entrepreneurial experience post-graduation and did lots of things after that. But that's how it got started.

Ken Majmudar: [00:03:48] What was your household environment like?

Rob Hunter: [00:03:51] So I was an only child. My parents had me a little bit later in life, and so there was some decent financial footing there. But we were solidly middle class, didn't do a ton of travel. My dad had tried and frankly, not been all that successful at a lot of entrepreneurial things in his life. He actually was a cop for a period of time and then did some private security work, some serving documents, bailiff type stuff, had his own security company for a period of time, but never really knew the sort of math side of it, and would bid on contracts that weren't necessarily profitable when all was said and done. Thankfully, my mom had the nice, safe teaching job to kind of keep a roof over our heads over that time. But I will say, my relationship with my dad, frankly, got a lot better after we sort of had mutual empathy on how hard it is to do some of these things, but generally a happy childhood, a good childhood. My mom was very supportive of all my crazy ideas and activities, especially because it saved a little bit on tuition when I was able to help pay for that myself. That was largely it kind of a normal middle class, small town, definitely small town childhood.

Ken Majmudar: [00:04:58] Got it. And what are your most formative memories? Pre college?

Rob Hunter: [00:05:05] I am very fortunate that my uncle, my mother's quite younger brother, they're part by about eight years. Uncle John was and is, I suppose, an entrepreneur inherently, but largely a contractor. He's done a lot of AV work, a lot of tech work for just a lot of different companies. And I think I was 13, either 12 or 13 when he sent me this. He would send me books. He would send me just interesting things. At an age where most kids weren't old enough to really appreciate it, he sent me an audio series, I believe it's called Success is Simple, something like this by a speaker named Larry Winget. Larry is in his early 70s now, has just retired from sort of active speaking and authoring and has not ever became really like a huge household name, but has carved out a very successful career as a keynote speaker and sort of motivational. I think he calls himself the first like D motivational speaker because he's very in-your-face and very direct, but just a lot of his life lessons on success and failure and business and taking personal responsibility for yourself. I didn't understand all of it, but it really did resonate and permeate with me. And that set of tapes actually is on my bookshelf behind me. I've listened to it north of hundreds of times at this point, and it led me down a journey of all the other, you know, Norman Vincent Peale and Napoleon Hill and Zig Ziglar and sort of all these books about how to make something of yourself at a quite formative age. And I wonder sometimes how things would have turned out if I hadn't have stumbled on some of that material at such a formative age.

Ken Majmudar: [00:06:33] For someone who hasn't heard all the material, give us a top three learnings that you actually applied and that had the biggest impact.

Rob Hunter: [00:06:41] One of Larry's quotes, and I parrot this to my classes that I teach. I think it goes something like discover your uniqueness and learn to exploit it in the service of others. That really spoke to me. The idea that there are so many different kinds of people out there, and it's one thing to try and just be better than everybody else. You're never going to be better. Everybody's always going to be better at something. But if you can discover truly what makes you unique and makes you special and something that ideally can be exploited in a positive sense, that's a wonderful thing to trap onto. The other thing that ties to that quite a bit is just be yourself and have confidence in yourself and don't worry about trying to convince the skeptics. Spend your time optimizing on converting the believers. That was very much one as well. And the other one that really hit home is failure started to pile up in the ice cream world is this idea of accepting personal responsibility and sort of coming at things with the mindset of listen, like the world is what it is. The only thing I can control is my reactions to things.

Rob Hunter: [00:07:38] At the end of the day, my success in this world is inherently my fault or not, and being able to really internalize that at a fairly young age where I don't know, it's easy being a teenager to blame your parents, blame the world, blame your teachers. But it's a bit of a mindset shift to say, hey, no, like whether I sink or swim is largely on me, maybe entirely on me, one could say. So. I would say those are three major lessons that came from that, and more broadly, just the idea of, hey, there are different ways to make a living and there are different ways to be successful. You don't need to go get a fancy corporate job to do this. You can be an entrepreneur. And I can remember lying in bed about 14, I think I was at the time, just like staring up at the stars out my window and thinking about where I wanted to go in life and realizing, no, I don't want to have a job. I want to create my own opportunities. I want to have my own pursuits. So yeah, those are some of my formative memories.

Ken Majmudar: [00:08:30] Why did you decide to go to Ivy Business School, and what were the big things that you learned there?

Rob Hunter: [00:08:37] It's funny, Canada, it's a little bit of a different setup than the US. We don't have quite the caliber of the Harvards and the MITs, but what we do have is a lot of really solid. What I suppose in the US might be considered maybe like second quartile options, and it's actually not that difficult to get into a lot of stuff in Canada. The idea of acceptance rates, like it's not really a thing here, you more or less get to call your shot most of the time. But I don't know. I just stumbled on the Ivy program. The case study method seemed very practical to me. They had just started building out their entrepreneurial division department as well. And so in Canada you get three slots to apply to universities, sort of inherent in your application. And I only use one, I only applied to Western, I only applied to Ivy. I kind of had my mind set on that from the beginning. And the program is again structured a bit like an MBA, where your third and fourth year at Western are entirely devoted to business curriculum. You're not taking any courses outside the school, but your fourth year is all electives, primarily, almost entirely electives. And that was really, I would say, where I found myself in the entrepreneurial finance course and the entrepreneurial marketing course in the new venture creation course. The finance marketing operations stuff in third year was great, but really diving into what I already thought of myself as in the fourth year was what solidified it as a good decision.

Ken Majmudar: [00:09:56] So now, right after school, you started the ice cream shop?

Rob Hunter: [00:10:00] Yeah, I sent off the check and the franchise paperwork within a week of my convocation in June of 2007. It took about a year to get the store open. We didn't get open until April of the following year, but I basically jumped right into it. I did a little bit of like tutoring and stuff to pay the bills while we got things open, but it was essentially the first material thing I did post-graduation.

Ken Majmudar: [00:10:21] How did you have the capital to open your first franchise location?

Rob Hunter: [00:10:26] So the economics of a marble slab essentially are in. This simplifies things a little bit, but essentially you need about 100 grand and the bank will loan you about 200 grand, more or less. And I had put together a fair, nice little run with my Japanese professional wrestling videotape sales in high school. That money had gotten parked in the real estate. I had two student housing properties while I was a student in my undergrad years. Can't say I really set the world on fire with those. I frankly wish I had held them for 20 years. They've skyrocketed in value since real estate in Canada has gone nuts, but made enough that I had pretty much just enough to get that first location open.

Ken Majmudar: [00:11:03] From what again?

Rob Hunter: [00:11:05] From the student housing and the Japanese wrestling sales.

Ken Majmudar: [00:11:07] Oh, so you did a bunch of, like, little entrepreneurial things before, huh?

Rob Hunter: [00:11:11] Yeah, some of it arguably. I mean, it wasn't big, big, but I was making 30, 40 grand, working part time, 22, 23 years ago. And I was good Scottish cheapness at the time. I didn't really spend much. It all kind of got socked away and then invested in the real estate.

Ken Majmudar: [00:11:28] How much real estate did you own? I'm also a real estate investor.

Rob Hunter: [00:11:32] Yeah, it was really small-time stuff. I had two student properties, one five bedroom, one four bedroom near the university. I lived in one of them for a year, so kind of got free rent for a period of time. Both properties now, I mean, to give you a sense, I think I got in at like about 150 grand each back in the day, both properties, because real estate in Canada is insane, now would be 500 to 800 grand or so in value. It really has exploded. Had I not invested in the ice cream stores and literally just kept cashing the rent checks every month, at least in that part of my life, I would have had a bit more money, but.

Ken Majmudar: [00:12:04] Do you still live in Canada?

Rob Hunter: [00:12:05] I do, yeah, I mean, I'm jumping ahead a little bit, but I was in the US for six years, had a great time there, built out my network, did a lot of good things, met my wife. The most important part of my network. We actually got engaged. The Facebook memory came up ten years ago today, so we got engaged December 19th, 2013, but headed back to Canada about five years ago. And my investing these days is kind of cross-border. We do a lot in the States and a lot in Canada. I think right now we have three investment properties in Canada and two in the US. So hopefully going to do a little bit better on those and be a little bit more patient with the capital than I was with the student properties.

Ken Majmudar: [00:12:37] Tell me about the franchise you opened. A store obviously worked out well enough that you opened multiple others.

Rob Hunter: [00:12:45] Yeah, the first two, I would say very much were false positives. They did very, very well. And so I had not wanted to just own a tiny little small ice cream shop. I wanted an empire. Right. And so through a lot of creative financing, a lot of purchase of used equipment, that might have been a sign, by the way, the fact that all the stores in the US were closing down and their equipment was available for $0.10 on the dollar might have been a little more analytical with that decision making, but the first two just did so well. I thought I was Teflon, I thought, well, this is going to work anywhere. The next four were money pits, and unfortunately, in this world, if you have a successful store, I don't know, you get two points. If you have a failure, you lose about ten points and that's ultimately what happened. It was a giant, giant failure by the end. We closed a number of the locations down in 2011, sold a couple off for what we could, but basically lost everything I put in, owed the bank a ton, had to do essentially a consumer proposal, which is kind of a Canadian equivalent of one of the chapters of bankruptcy in the states.

Rob Hunter: [00:13:47] It was not a good outcome, but it was very much a turning point and a pivotal post-college moment for me. I can remember sitting in my bed thinking, what am I going to do with my life? And I read a book at the time and I forget exactly the title of this thing. I think it was something like a Ping a Frog in Search of a New Pond. Some short little book. Stuart Avery Gold, I want to say, is the author, and there's a passage in there that was so moving to me about, I'm going to succeed, I will not fail. And the mentor says to Ping, well, actually, you are going to fail and it's going to suck and it's going to be terrible. But if you didn't fail, then you didn't try. And if you didn't try, then you didn't learn anything. And we sort of have to come to grips with failure as a part of the pursuit of dreams in life. And so that passage moved me so much. I actually got out a marker and two pieces of paper, and I transcribed this little passage from the book, and it is now framed and hanging.

Rob Hunter: [00:14:43] You can't quite see it, but it's framed and hanging on my wall. That was April 9th, 2011. And not to fast forward way too much here, but almost ten years to the day is when I had my successful eight figure tech exit. So it was kind of nice symmetry to that, but close the stores down and figured out what I'm going to do with my life. And for me, that involved moving to the US and doing an MBA. I did get into what I'd call some of the more top tier schools. The problem was that they all needed money, and they all wanted to loan me money at international student rates of eight and nine and ten and 12%. And it just didn't strike me as a good financial decision after nearly going bankrupt in the ice cream industry. Thankfully, though, a school just outside of Boston, Babson College, Babson is not a top seven school by any means, but it has been ranked number one for entrepreneurship for something like 30 years. And they were very, very generous with me. I got a full ride to Babson, including some living expenses, and it just sort of seemed like the prudent decision to make.

Ken Majmudar: [00:15:41] If money had not been an object, where would you have gone, do you think?

Rob Hunter: [00:15:45] I'll be honest Ken, I applied to Harvard and I like had my whole hopes and dreams tied up in HBS. I had a GMAT of 740, so like, I would have thought I would have been a good candidate there. But for whatever reason, the folks at HBS did not think that I was Harvard material.

Ken Majmudar: [00:15:58] They turned out Warren Buffett also. So don't feel too bad.

Rob Hunter: [00:16:03] You know what? I'm in good stead. I really like Duke. I toured Duke a couple of times, really enjoyed the vibe down there. It seemed like a decent entrepreneurial ecosystem as well. Ross would have been driving distance for me, which would have been nice in terms of staying in touch with family. Those were sort of the two that were most desirable and realistic, frankly, as well. I think I was shortlisted at Stern to New York, struck me as kind of expensive too, but it all worked out. My kids wouldn't be here without for Babson.

Ken Majmudar: [00:16:29] So what year did you graduate your MBA?

Rob Hunter: [00:16:33] Yeah, so I moved down to 2012 and then did the two year program. So finished up in 2014.

Ken Majmudar: [00:16:37] Okay, so what was next? What did you do right after that?

Rob Hunter: [00:16:39] So at Babson the game plan initially had been go get a nice, safe job for a few years and go and repair the finances. And for me, a nice, safe job was going to be defined as like seed stage, series a tech company, right? That was about as safe as I was willing to play it, and all was looking well in that direction. I interned at a tech company that had just raised a $3 million seed round in restaurant tech. It was sort of tangential to my experience as a franchisee. But while interning there and doing the Babson programming, we came up with the idea for what has frankly been my biggest achievement so far, Hire Me. Hire Me eventually turned into a SaaS platform for hiring tools for the restaurant industry. So think of us as your system of record for sourcing, screening, and onboarding new employees. If you are Dunkin Donuts or Panera Bread or Tim Hortons or Marble Slab, for that matter. And so we worked on that idea largely through the MBA. And this check is hanging directly. Maybe I can scooch over and you can see the big novelty check is hanging on the wall there directly below the failure quotes. We won 25 grand, ten and then 15 separately through a couple of different business plan competitions. And it was like, man, we've got nearly 30 grand here.

Ken Majmudar: [00:17:53] So you did this with a couple of other students?

Rob Hunter: [00:17:57] Yeah, one student and then one coworker that I met at the company I interned at, and that sort of covered us. I was business, one of the co-founders was product, one of the co-founders was technology and sort of technical. And collectively we were able to kind of bring it together. And yeah, it really got real for us after we were accepted into the Y- Combinator program. My sense even today is that YC doesn't necessarily love MBAs. YC is very technical and really respects the technical founder, but the fact that I had owned ice cream stores, there are not a lot of YC founders that have owned franchised restaurant or food locations before. So I think that really spoke to them. And we got into the program. We did it in winter of 2015, and I'll be honest, we had this impression, I think, that we would just snap our fingers and go raise millions of dollars post YC. Maybe that was the case 2020-2021, but it was not the case in 2015, especially for what ultimately is not all that sexy of an idea, right? Like helping restaurants with hiring. So we were only able to raise a few hundred thousand dollars after Demo Day in March of 15', but that was almost a good forcing mechanism for us because we didn't blow the money on stupid stuff.

Rob Hunter: [00:19:08] We kind of had to build things and sell things and build things and sell things, and that's what we did. We headed back to Boston, we put our heads down, and we eventually got the business to $1 million in revenue, raised a few million in venture capital off of that, migrated first to Buffalo and then to Toronto. And we're just all over geographically. But eventually got it to a point along the way, I sort of helped promoted a colleague of mine, um, longtime friend and lots of stories on Derek. We did own ice cream stores together back in the day, sued each other and then repaired the relationship. And Derek took over for me as CEO of Hire Me right before Covid hit. And you can imagine running a restaurant hiring business in March of 2020 and April of 2020 was a very challenging thing to do. But we survived and then got a very, very strong acquisition offer at the end of 2020, closed in 2021 and then had a nice solid eight figure exit at that point. So it was lots of ups and downs, lots of challenges and journeys along the way. But. It was very much a good, solid outcome.

Ken Majmudar: [00:20:06] So not everybody listening to this probably will know YC. So talk about what is YC to somebody who maybe doesn't know or hasn't heard of it. Stands for Y Combinator by the way.

Rob Hunter: [00:20:20] Yeah, Y Combinator. Gosh, going on nearly 20 years now, they've been around a while. And they were one of the earliest investors in companies you've heard of like Dropbox, DoorDash, Airbnb, Instacart, Stripe. Lots of the iconic multi-billion-dollar tech companies. I want to say the total value of the companies they've invested in, not their stake, but the total market cap, something like $700-$800 billion today. And yeah, they invest the small amount of capital. For us, it was smaller even than it is now $125,000. Their business model arguably is like invest that early, shine the company up, help it out as much as possible, and then present it to investors three months later at the Demo Day. And so companies in our batch were raising six, eight, maybe $10 million valuations after taking money from YC at essentially what amounted to a $2 million valuation. Now they're investing more capital. Now it's $500,000 per company that goes in. The size of the program has expanded intensely. There's something like 3 or 400 companies that go in per year now. And we were the first batch with 100. It's in person again, as it was for us. You're actually in Silicon Valley building alongside your other batch mates. Funny story, I actually got married in Las Vegas on the drive out to YC because I was an international founder coming from Canada, and my student visa was expiring, so I needed a way to stay in the country legally. But it was a very positive experience for us. We actually were acquired by another YC founder. And so even though it wasn't like an immediate ticket to millions in funding, for us it's the most beneficial, powerful, everything network I've ever been a part of in my life and has been a very positive experience for us.

Ken Majmudar: [00:22:02] So if somebody's listening and they want to do what you did, which is be in YC, what thoughts or recommendations do you have for them? And then also give people a sense of what it's like to be in that community. As someone who was there, started a company, I guess exited.

Rob Hunter: [00:22:18] Yeah. I mean, first of all, I've realized why YC funds have very specific profile of company. And so if you go to them and you say, I think there's a really clear path to making a $25 million company, and we've already got some traction on it, and we're growing 10 or 20% a year. That's awesome. And you could probably get rich with that opportunity. It's just not of interest to YC. We are a rounding error to them. Even at an eight figure exit, they make their money from the outliers. They make their money from the nine and the ten figure and the giant numbers that are out there. Right. And so the lens through which they view you is, can this be worth $1 billion, yes or no? And if no, it's really probably not worth considering. So being able to articulate that vision I think is really important. Their pitch process, if you will, is not really a pitch process as many other investors would see it. There is an application that's completed. It is pure just text. I mean, there's a little video you do, but it's largely text. And then something like and I'm sure there's more up to date numbers on these, but something like 3%, 2%, 3% of companies that apply get invited for an interview. In our case, the interview was in person.

Rob Hunter: [00:23:27] They do it remotely now, but only about 1%, half a percent of companies that first applied ultimately are successful in the interview. So it's a very tight funnel. The interview is 600 seconds. It is ten minutes long, and typically there are 3 or 4 people on the other end of it. Typically your founding team, you might have two, three, four people. And so it is very challenging to succinctly deliver the core message that you need to and not get sucked down a rabbit hole during the very limited 600 seconds that you have with the partners. Sometimes companies will get invited back to interview a second time. If there's some ambiguity around whether they're worth funding or not. We were one of those companies, and the stress level the second time around was pretty high. Sam Altman was one of the folks that interviewed us on the other side of the table, along with Jessica Livingston, who was one of the founders of YC as well, along with her husband, Paul Graham. So it was pretty intense the second time around. But I would say the one thing I wish I could have done over is that we got out there and we put our heads down and we worked and we hustled and we worked and we hustled and we sold and we built and we sold and we built.

Rob Hunter: [00:24:29] But we had a big backyard and a giant house that was a ten minute walk from the YC offices. And I really wish we would have done a bit of a better job just socializing and networking and like getting to know the rest of the batch, because I feel like I've got a good, strong network through the community, and there's an internal forum where you can post and really engage with them, but I don't feel like I did everything I could to build those solid relationships given the in-person time. It's 90 days, right? Like you're there and you're out. So that would be one thing I would say is just like, build stronger in-person relationships, given that it is in person again now and then, take advantage of it on an ongoing. Two. I am one of the power users, if you will, of the internal forum that's used. And there's just lots of great connections, great resources you can tap into. And of course like things you can offer up the rest of the community as well along the way. So yeah, great experience, but definitely only worth doing if you really are a billion or bust sort of opportunity. If you're building a nice, safe, let's say real estate or tech or whatever. Probably not a fit in those cases.

Ken Majmudar: [00:25:28] And I would assume that the way you've screened for those companies, that could be billion plus is mainly people talk about TAM, total addressable market. So it's got to be a really big TAMs. Is that the right way to think about that?

Rob Hunter: [00:25:41] Yeah, I think so. And paradoxically, their whole slogan is like build things people want and look for love in your users. You want something that, like an initially small group of people, is just insanely passionate about, with the thesis being, if a small group of people loves it, you can either expand and find more people that love it, right, that are so passionate about it, or or it can be slightly, slightly adapted for a wider audience. Certainly, it doesn't always play out that way. In Hire Me's case, our TAM initially was, well, we're going to replace LinkedIn. We're going to be all blue-collar recruitment, all manufacturing, healthcare, retail, restaurant, everything. And that is often great in theory. In practice, like many other YC companies that were not billion dollar exits, we very much narrowed in on a much tighter, smaller TAM. And what would be a bug to YC ended up being a feature to us in that we did really well in that smaller TAM because we were able to specialize and focus and really be the number one applicant tracking system for franchised restaurants. That's not $1 billion TAM, but it did allow us much smarter, deeper understanding of our customer than applicant tracking for blue collar employers would.

Ken Majmudar: [00:26:55] I guess the turnover in employee retention is very high in that industry, right?

Rob Hunter: [00:27:00] It is very much, and I think that's what lends itself to a SaaS model like we don't charge per hire, we don't charge per recruit. It's sort of this monthly rate per individual brick and mortar location that's paid. So I think of it as honestly more of like an operational piece of your restaurant than like a specific HR function. We would be selling to operations managers. We would be selling to franchise owners. They're often accepted the bigger ones, sometimes we did, but usually at sub 30-40 locations you don't have like a dedicated HR department.

Ken Majmudar: [00:27:30] Is that just something like there's no way to have a franchise or a restaurant without super high turnover? Is that the case?

Rob Hunter: [00:27:38] Some do a better job than others, like things like chick fil A and In-N-Out. I know a pretty good reputations for, frankly, good treatment of their workers, but I do think it's inherent in who you're hiring, right? Like a lot of these are students, a lot of these are often new Americans, new Canadians that are off to bigger and better things down the road. Now, granted, I think the other thing that gets left on the table that I just have to mention, I think a lot of people dismiss working in fast food as, oh, it's a mcjob, it's dead end. It doesn't go anywhere. Not realizing that like a general manager of a McDonald's sometimes is making like 150 grand, 200 grand, if they're really in a good position. And so if you're not college educated and not technical and not going to go for a white collar job, it's actually a lot of good up until the right opportunity in some of these places that I think people don't realize.

Ken Majmudar: [00:28:27] Plus, which if you worked there, you could potentially open your own. Right?

Rob Hunter: [00:28:31] Exactly. Yeah, exactly. And a lot of McDonald's franchisees started in some form or fashion as a frontline employee.

Ken Majmudar: [00:28:38] So going back to the marble slab for a second, because I've never heard of that brand. What was the problem with it? First of all, why did your first two locations work well? Is it just beginner's luck.

Rob Hunter: [00:28:47] A little bit? One was just literally the geographic location. It was next to a university and therefore next to all the dorms. And so we were able to stay open until 1:00 in the morning. The foot traffic in the winter helped the fact that you didn't need to get in your car and drive to get there. Marble Slabs started in the 80s. It got up to about 300 locations in the United States. Cold Stone if you've heard of Cold Stone, essentially rip marble slab off. They went through the marble slab training program and then raised some money and grew much faster. Yeah, I'd say bad locations. Cannibalization was another element. We ended up with four stores in a community of about 500,000 people, and unlike a dairy Queen, that's sort of a visit once a week kind of thing. We were expensive. I took my kids, actually, to my first store a few days ago, and I think it was like $18 for two small ice cream cones. Two of the seven are still in existence today, but the fact that it was expensive meant that, like, you kind of shied out of good chunk of the middle class from going more than a couple of times a year when it was a really special treat. When Dairy Queens, three bucks or four bucks, you're not going to come to Marble Slab and spend 8 or 9. And that was what we found. We had a lot of people that tried it the first year, and I'm thinking, okay, like if we do, I think the first store did $430,000 in revenue in the first year. I'm thinking, okay, like maybe it'll do 440 or 450 the next year. No, it did like 370. And then it did like 325. Right. And it sort of settled in around that 300 mark, and that was enough to support that one. But the fixed costs in these things are a tremendous the lease and the rent expenses are tremendous. It's not like software where you can sort of like just scale it very easily. It is very, very difficult to scale a brick and mortar business like that.

Ken Majmudar: [00:30:23] Knowing what you know now, would you have stopped at, say, two stores?

Rob Hunter: [00:30:27] Yeah. And you know what's funny? One is closed because of a dispute with the franchisor, which is a whole other can of worms to explore. There are three that probably could have survived as going entities, and there is probably a parallel universe where I just hired somebody to run those and still have them today, and they spit off, you know, 100 grand, 200 grand in revenue or in profit. But I don't know, it's like you couldn't pay me $1 million to go through that experience again, but you wouldn't give me a cent to, like, not do it. I forget the saying. It was such a pivotal learning experience for me that nearly going bankrupt and upsetting the banks and upsetting the franchisor, I would not have been able to weather the storm of tech startup life without that under my belt before.

Ken Majmudar: [00:31:05] What about today? I mean, obviously retail is kind of stressed. Do you think that someone who's entrepreneurial, do you think that finding a good franchise and going down that road is still a good way to have a successful business entrepreneurial career? Not necessarily in ice cream, but when whatever.

Rob Hunter: [00:31:24] Once in a blue moon, yes, I will say there are opportunities, almost like a flip in the real estate world where you can buy something that's poorly run, improve it, and then sell it for more. I do think there are certain brands that are very strong as well, but I also think there's a lot of garbage. There's a lot of garbage out there and a lot of false dreams being sold. I think you want to be the franchisor. You don't want to be the franchisee. Franchisors make money with a franchisee makes a dime or not. They're getting paid on revenue. They're sometimes getting sublease on the renting side. They don't necessarily care. At the end of the day, whether you're clearing a huge profit or not, so long as you're sustainable and open.

Ken Majmudar: [00:32:01] So since you alluded to it, which are the strong franchise opportunities that you see today?

Rob Hunter: [00:32:07] It's funny. I would have said McDonald's for the longest time. I get the sense that, um, maybe that is changing a little bit over time as well. What you want to find, and unfortunately, there are a lot of bad decisions in what I'm about to say here. But like, you want something that's really working in one area that is proven but has fertile ground in another area where you can really dominate it. So my sense is something like Raising Cane's, but 5 or 10 years ago would have been a good example of that. You want something that is not going to turn out to be a fad. My sense is Crumbl Cookies may be on that path right now. We'll see. I will say, though, if you're just starting out, they're very unique model in a lot of ways. But the highest dollar per foot franchise is head and shoulders is Chick-fil-A, and you can get into a Chick-fil-A, I want to say with like 20, 30 grand, it's not a huge investment. You are more of an employee there than a pure owner, and you are only, my understanding is allowed to operate one. But man oh man, if you want to get a crash course in like proper operations and optimizing how much money one location can make, a stint in the Chick-fil-A experience, I think would be it.

Ken Majmudar: [00:33:14] A lot of people have figured that out, so they won't give you a Chick-fil-A unless you're probably a pretty good employee, manager somewhere.

Rob Hunter: [00:33:22] There's that too. Yeah, there's that too. I will say Chick-fil-A is also pretty saturated at this point. Like there are a lot of them. I'm just seeing it in Canada because the first few are have gotten open here recently. So that's one other option, by the way, is find something that's working just geographically in another country, in another state, and sort of co-opt it for another area. .

Ken Majmudar: [00:33:40] Now, you also said, which is kind of consistent with my analysis, obviously, I'm a capital investor. That's my main job. Of course, I'm an entrepreneur in the sense I started my firm and I'm a partner in a couple of others. You said, well, a franchisor is a better place to be than a franchisee, but isn't that easier said than done?

Rob Hunter: [00:33:57] Yeah, and there's money and capital involved in taking a concept to become a franchisor. But let's say I had one independent location and maybe I've opened up 1 or 2 more, like I've got 2 or 3. If I had a choice in front of me of franchising that concept or opening ten more myself, I absolutely would do the former rather than the latter. It allows for quicker scale. It allows for lower risk, frankly, because it's not your capital on the line. It's definitely easier said than done, but also maybe not quite as hard as it might seem from the outside looking in, there are a lot of 20, 30, 40, 50, 60 location franchises that you've never heard of that make a nice little stream of income for the founders. And by the way, like if you get a little bigger, a lot of roll ups happening from larger operators that are buying, like, rather than wait for you to get to 500 and pay a giant premium, they'll buy it 100 and pay a little bit of a premium now. And it's hard, but not that hard to get up to that level.

Ken Majmudar: [00:34:54] Interesting. You also said with Y Combinator, you wish you had spent more time just sort of getting to know the people, I guess, in your batch. Right. That would have been the opportunity, at least initially, where they. Are any notables in your batch?

Rob Hunter: [00:35:06] So I think we're LinkedIn connections. I don't know, for Facebook friends or not. Sid, the founder of GitLab, they IPO'd, I want to say 2 or 3 years ago, 5 to $10 billion market cap, something like that. Right now, certainly lots of ups and downs with tech in the financial markets these days. But like he's a genuinely very nice, good guy that I frankly wish I had gotten to know more back in the day. That was probably the big winner from ours. There were a few others that haven't necessarily gone public, but that was probably the biggest one. Doordash was the batch previous to us. I helped with one of their early hires back in the day, but wasn't the same batch as us, so.

Ken Majmudar: [00:35:39] It's probably not obvious when you're in the batch who's going to hit it big and who's not.

Rob Hunter: [00:35:42] No, it's not, and I will say there are plenty of companies that, like were the darlings of the batch that raised snap their fingers easy and ultimately didn't make it a year or two later. So it's not a perfect correlation between raising money at Demo Day and ultimately being successful.

Ken Majmudar: [00:35:56] Now let's talk about your experience building your company, obviously from the batch and then beyond. You did it for five years until the beginnings of the sale. What were the big experiences, learnings, setbacks?

Rob Hunter: [00:36:10] Yeah, I mean, I would say one element that was pretty critical, one milestone moment for us was 2016. And so we had been chugging along. $5,000 deal here, $7,000 deal there like fairly small customers we're working with. Right. And I sent a cold email out to White Castle that's got 400 locations, family business. So not a franchise. They're all corporate primarily and managed to catch them at a good time because they were evaluating applicant tracking systems. And I want to say we were up against maybe 20-21 other vendors we got shortlisted to three. I can remember going into the office on the 4th of July to record a video, largely just to signal, like we were willing to go above and beyond. Right. But sending that out to their team and ultimately getting selected as the vendor. So we signed a three year deal with White Castle. It was a six figure deal. It very much was a tremendous amount of money for us and was very much something we could then use to go and sell to other companies. So that was very much a turning point for us.

Ken Majmudar: [00:37:09] Got it. Any other lessons in terms of how do you go from the Y Combinator stage to like building a company and how you handle obstacles that come up?

Rob Hunter: [00:37:20] Founder needs to do the first at least half a million, maybe a million in sales. It's really easy to think, hey, I can just hire a bunch of people that were account executives somewhere else, and they'll just figure this out. There's too much ambiguity of what you're selling and what you're doing and the messaging around it. No one is going to give as much of a care as the founders are. So I think the founders doing the early selling really are going to be the pivotal thing.

Ken Majmudar: [00:37:41] Now, you said you guys thought you'd be like the LinkedIn of whatever for whatever reason. I guess it didn't turn out that way, right?

Rob Hunter: [00:37:49] Yeah. I would say we got addicted to maybe this is a good thing, not a bad thing. Right? But like, we got addicted to revenue and we found that so many of our customers were coming from the franchise world, and we found that what they were asking for, that we could actually deliver on was more like process improvement tools than more of a job board sort of matching network thing. Right. So we doubled down on how do we save time during the hiring process. We doubled down on how do we evaluate candidates, how do you select the best candidates, etc.. Not necessarily on like we are LinkedIn and we are the source of these candidates as well.

Ken Majmudar: [00:38:26] But if you were to try to go back and say, was there a path to getting much bigger, quicker.

Rob Hunter: [00:38:31] It's hard to say. Like there have been lots of other companies in the space that raised lots and lots and lots more money along the way, either through good relationships with VCs that we didn't know at the time or through timing. 2020, 2021 stuff. I would say nobody's really cracked it at this point. Craigslist to this day is doing hundreds of millions of dollars in revenue, primarily job postings, of which primarily it's blue collar type jobs that are posted on there. No one has cracked the Craigslist nut yet.

Ken Majmudar: [00:39:00] What are the odds that you're somebody who has a entrepreneurial idea and you get accepted into YC to actually get the type of outcome that everybody dreams about getting?

Rob Hunter: [00:39:13] Yeah, I mean, what you see publicly trumpets a 5% unicorn rate. I am not certain as to what the numerator and denominator in that calculation are. Clearly, something like half the companies that have done YC have done it in the last two years. Almost zero companies ever have gone from 0 to 1 billion in like two years. Right. So I think they're probably defining some set start date and end date in terms of how they're coming to that number. Whatever it is, whatever the true number is, it's a heck of a lot higher than just random chance. It's a heck of a lot higher than most VCs. Right. And so I think it's this combination of like founders that have built some really novel product that has this foundational change going on in the world that they're able to exploit and take advantage of. So timing is part of it as well. I think careful deployment of capital and raising the right amount at the right time from the right people is important as well. Nothing will kill a company faster than crappy investors, and I think it's a matter of honing in on how narrow versus how wide this actually going to work.

Rob Hunter: [00:40:21] And VCs will take bets that this is going to work widely, when in fact, maybe it won't. Maybe it, in fact should be more of a narrow focus and more of a smaller TAM and tighter focus kind of business. And I think you, as the founder, have to have the discipline to say, okay, what do I want out of this outcome? Right? Do I want to take a 20% shot at being $1 billion company, or a 10% or 5% or whatever it is? Or do I want to play it safe and maybe not raise that $10 million series A, $20 million series A, and really aim for a lower dollar, higher percentage chance outcome that would put more money in my pocket personally as well. So lots of trade offs and lots of analysis that you have to make. And I think too many companies get married to the idea that raise money, raise money, raise money. I've raised my money, therefore I am successful. I think you've got to be really, really careful about that as you're defining trait as to whether you're successful or not.

Ken Majmudar: [00:41:16] That makes sense. So you guys did it five years and you decided to sell. Walk me through the thought process of why you decided to sell and why at that point.

Rob Hunter: [00:41:26] Granted, we had done YC six years prior, but I had another year or two behind me working on it, like during business school. So it was getting near that seven eight mark. And just really bluntly, Ken, I'll be honest, the expected value of what we could have sold for and we hung on for another 2 or 3 years probably was objectively higher than what we sold for. But subjectively, that first few million dollars for me was just transformational. I almost went bankrupt ten plus years ago. I have then a one and four year old. Their grandchildren will never have to worry about money now because of that sale, and even a 10% 5% chance of that not happening was not worth the odds to me. So it seemed to make sense. It did seem like 2020, 2021 was kind of a high point. And not to say we had our crystal ball out to know what SaaS multiples were going to do afterwards, but yeah, that was what went into it. We were engaged with a strategic good conversations there, but then got introduced to this other YC founder who had raised a search fund and bought us out. And yeah, just built a really strong relationship there. We did a bunch of in-person, well, one extended weekend in person, kind of in the heart of the second Covid lockdown. So logistically it was a little tricky to do it, especially coming from Canada. But it was essential to building trust and building a good relationship during what ended up being a fairly protracted diligence process. No regrets. The company has nearly tripled revenue since we sold signs and big contracts, done some really good stuff.

Ken Majmudar: [00:42:54] Something from like 2 to 6, roughly?

Rob Hunter: [00:42:57] More or less. Yeah, more or less. And granted, we continue to grow really strongly during the transaction. So they're in very good shape these days. But at the same time, no regrets, especially with what's happened to SaaS multiples. Maybe we sold at the right time, even objectively at the right time. But subjectively, I can't beat like never having to worry about money again. That is a big change.

Ken Majmudar: [00:43:17] That led to what you're doing now. So tell everyone about your new venture and how it sort of grew out of your own experience as both a founder and a seller.

Rob Hunter: [00:43:29] Yeah, 100%. So Speaker Ventures, still early days here, very, very early for us. But essentially we are helping people, frankly, kind of go through the hire me experience, where we're trying to find primarily YC companies that have raised venture capital, built a solid business, but determined that, you know what, we're not on a venture track anymore. We're not going to be $1 billion company here. There should be some kind of path to a liquidity event for those founders. What that means, mechanically is looking at companies that are doing on the low end, anywhere from a few hundred thousand dollars in revenue on the high end, about 2 million in revenue is sort of where we tap out and growing 20, 30, 40% a year. Again, not venture scale, not sort of on the unicorn trajectory anymore. They're what we like to call venture detox companies with founders that may be burned out, that are ready to move on to a new opportunity and maybe go try and swing the bat and hit a grand slam for their next venture. Meanwhile, we're looking for folks to operate these companies with our help that essentially, very explicitly want to try and hit a double. They want to aim for that $2,030 million outcome 4 or 5, six years from now.

Rob Hunter: [00:44:33] There are folks that are entrepreneurial, but don't want to take the risk of starting from scratch with a brand new idea. Conversely, they also don't want to just go out and get a job at Google. This gives them an opportunity to apply what they've learned with their past company, and take a company that's doing a million in revenue, grow it to 5 million in revenue, and ideally have a good solid exit on the back end and create life changing wealth for them as well. So early days should be closing our first deal in the next couple of weeks. Here we are using a combination of cash in some cases and also equity. We've got some good structure and. Some creative structure. And in terms of some of what we've done with the companies we're looking at, because it's been a wacky time, right. 2020, 2021. So much venture capital got raised at the seed stage that oftentimes companies have built three, 4 or $5 million businesses but have raised 4 or 5 and $6 million. And so there needs to be a little bit of creativity in how these deals get structured so that hopefully everybody can have a good solid outcome on the back end.

Ken Majmudar: [00:45:26] What's the bigger constraint, finding the companies that want to sell that are worth buying or the operator?

Rob Hunter: [00:45:32] I'm going to give a good MBA answer here and say it depends a little bit. I would say finding the operator is probably the constraint, I would say. There are lots of operators, lots of people that say, hey, I did a LinkedIn post recently, put my hand up, and a million people put their hands up as to like, I want to operate a fintech company. It's like, okay, do you have the expertise? Do you have the experience? Do you have the salary expectations? Do you have the equity expectations? Like does everything fall in line? That's what we're finding, I would say is the tricky part is that optimal matching deal flow has been good. It's been good to get in front of companies. Certainly I think there will be a bit of a long tail there as well. We are not the best option for sellers and I think we're up front about that. The optimal option is find a strategic that's going to pay a premium. That's not always realistic. And I think a lot of sellers are going to realize that's not realistic as they go out to market in the coming months and years. So TBD on how it all plays out, but we think there is going to be a lot of benefit to having kind of a portfolio of companies here whereby they can share resources, they can pay wholesale for stuff rather than retail. We will eventually will have in-house accounting, in-house legal, in-house marketing, in-house, pretty much everything, so that we can be supportive. And then on the other side, on the revenue side, like ideally we're going to assemble some stuff that resembles each other. We'll have a couple of HR tech tools, we'll have a couple of e-commerce tools, and there can be shared synergies there on the revenue side as well. So TBD on what it ultimately turns into. But it's really exciting to be back in business with Derek, who is my CEO at Hire Me for a period of time post my tenure, and Jeff, my original co-founder as well. It's really cool to be back in business with those guys.

Ken Majmudar: [00:47:01] And so you guys are raising a fund to buy these companies.

Rob Hunter: [00:47:06] Yeah. And in some cases in the early days, we're going to be doing it deal by deal here, sort of circulating deals as we get them under contract. We are realizing, though, there are few opportunities where actually like trading equity with these companies' kind of is the more attractive option. It means that we don't necessarily have to go out and raise money. There are a lot of founders that are willing to hand the reins over to us in exchange for material percentage of whatever we're able to turn it into. Our pitch, I suppose, is there are a lot of people, experts at blitzscaling companies and growing them to unicorn status. There are a lot of experts at pure bootstrapping, but that range of growing from 500 K in revenue to a 5 million in revenue without raising any money, that's our sweet spot. That's what we're really good at. We've been there, we've done that with Ayame, and we want to do it with hopefully dozens of other companies eventually.

Ken Majmudar: [00:47:54] But these kind of companies, if they're doing half a million, they're probably losing money, right?

Rob Hunter: [00:47:58] They are right now because they've raised venture capital. And I think that's part of where we come in is like, how do we detox from that? How do we install the right people, potentially in the right geographies? How do we focus in on like, let's get that 500 K up to a million, up to a million and a half so that we can support more salaries and sort of get more resources involved there. Our operators play a big part in that. These are not market salaries that are being paid. Right. Like these are folks that specifically are signing up for a 4 or 5 six year journey where hopefully there is a seven, maybe even eight figure payday on the back end of it for them, and they're willing to do that sort of for below market salary to start.

Ken Majmudar: [00:48:33] So in the current model, what's kind of a salary range of the operator.

Rob Hunter: [00:48:37] Yeah, it depends. For the smaller stuff as low as like 50-75 K. But granted we are looking at like million and $2 million SaaS companies where it's more like 150, 175. So ultimately, depending on the operator and what they need, the last thing we want is somebody that's going to be stressed out about money. So it kind of does depend on their personal circumstances as well.

Ken Majmudar: [00:48:56] And then a significant ownership in that particular SaaS company.

Rob Hunter: [00:49:00] Yeah. And anywhere 20-30 all the way up to 40% in some cases, depending on the size of the company.

Ken Majmudar: [00:49:05] Then your goal is to do like multiple of these and sort of create like a holding company. And then you can use the cash flow from the multiple streams to do more.

Rob Hunter: [00:49:14] That's the thinking. Yeah, that's the thinking. And certainly investor capital is going to play a part in that. But the friction involved with some of these equity deals we're learning is so much lower than raising a whole large amount of money for an individual company. So we'll do both. I think both have their play and certainly the dollars involved get bigger with bigger companies. So both definitely have their place for us. But I do think they are complementary to one another.

Ken Majmudar: [00:49:39] Is there any advantage to just doing it through the YC other than just that you have the network?

Rob Hunter: [00:49:43] I will say the network helps, the deal flow helps, and my sense of traditional search funds is it's a lot of needles and haystacks and a lot of turning over garbage to get to good stuff. Dealing not exclusively, but primarily in the YC world, we don't see much garbage. A lot of it is very, very strong. And so, for what it's worth, that's been a sort of. Prize time saving for us and efficiency. Play, if you will.

Ken Majmudar: [00:50:07] Great. Well, I think we're almost at time, I guess. Any last parting words of wisdom or things that you're interested in, or the types of people that you want to contact you?

Rob Hunter: [00:50:16] Yeah, I offer a whole bunch of parting thoughts to the students that I teach, and we don't have for all like 25 of them. Right? But I would say the one thing people need to do more of is do it now, whatever it is, don't think, hey, I'll be an entrepreneur after I put in a few years of experience, or I'll be an entrepreneur after I've learned this skill or learn that skill. That's not how it works. You learn it all by doing it, so don't delay. Make small, calculated bets. Right? I wouldn't say go swing for the fences and borrow a bunch of money like I did, right? There's ways to fail fast and fail cheaply, but don't delay because you're always going to have an excuse. Your personal burn rate will go up as you get older. Whatever it is, do it now. And the other thing is, lean into who you are and what you like and what you enjoy. Spend time converting the believers. Don't waste time trying to convince the skeptics, whatever that ultimately looks like in your life. There are going to be people that respond to and like what you are doing. Spend time with them. Don't waste time on folks that poo poo your dreams, right?

Ken Majmudar: [00:51:11] And yeah, if people want to reach out to you, what kind of people would you like to reach out to you?

Rob Hunter: [00:51:15] I'm usually very generous with my time, so I will say anybody interested broadly in entrepreneurship, I can try and find time for as it relates to Speaker Ventures, specifically, anybody that runs a venture backed tech company and does not want to operate it anymore. Love to chat. If you have run a venture backed tech company, or even been like an early hire at a tech company and want to now operate your own, we'd love to chat with you as a potential operator. And for those that are interested on the investment side, lots of cool conversations to be had there as well. Nothing's perfectly safe, but these are going entities. These are existing companies. We hope that it's going to be a lot safer of an investment than just pure VC money, with a lot more solid outcome than sort of the spray and pray model that a lot of VCs succumb to in 2020 and 2021.

Ken Majmudar: [00:51:58] Well, it's been a pleasure talking to you. Thanks for doing the podcast.

Rob Hunter: [00:52:02] Thanks so much again. I really appreciate it.

Ken Majmudar: [00:52:05] For more episodes of Compound Ideas, visit our website at compoundideasshow.com. For more insights like these and to contribute to the conversation, go to my firm website at ridgewoodinvestments.com and click on the link to insights at the top of the page. Also, please follow me on social media. I'm under Ken Majumder. On LinkedIn @KenMajmudar, Twitter @KMajmudar, Instagram @KenMajmudar, and on YouTube we have a new YouTube channel Investing with Ken Majmudar.

Narrator: [00:52:48] Ken Majumdar is the founder of Ridgewood Investments and several other affiliated companies. All opinions expressed by Ken and podcast guests are solely their own opinions and do not reflect the opinion of Ridgewood Investments or any of its affiliates. This podcast is for informational purposes only and should not be relied upon as basis for investment decisions. Clients of Ridgewood Investments and its affiliates may maintain positions in the securities discussed in this podcast.