Garrett Smallwood (CEO of Wag!) joins NFX partner James Currier to share his thoughts on profitable and efficient management of companies, thoughtfully operating before and after COVID-19, and shifting your mental models to adapt to your current situation. Garrett has earned all the badges — having sold his company to Wag!, operating as VP of Product, Partnerships, and Corp Dev, before building the roadmap to CEO. Garrett's current roadmap at Wag! is centered around operational excellence, strategic advantages through services and density, how to navigate through uncertainties, and the importance of thinking deeply about the way you build your company.
James Currier (00:04):
Today we're with Garrett Smallwood, the CEO of Wag! Garrett's somebody who we've known now for five years. He grew up in San Mateo and went to University of Arizona and then went over to Redbeacon where he was a product manager. Then he was over at Pillow and then started a company that we funded at NFX years ago, and it was called Finrise, eventually backed by Mayfield. It was in the consumer space around veterinary loans and whatnot for consumers. Then he became an EIR at NFX and, after the acquisition of Finrise by Wag!, ended up climbing the ranks there and eventually, became the CEO of the company.
James Currier (00:48):
Today we're going to hear from Garrett about profitable and efficient management of companies and thoughtfully operating in this new era of COVID and after COVID and on switching mental models. Garrett's been through it all. He's gotten all the badges of the founder, the entrepreneur, and has great insights that we've shared over the years. We're very pleased to have you on the podcast today, Garrett.
Garrett Smallwood (01:12): Thanks, James. Good to connect.
James Currier (01:14):
Yeah. Good to see you, man. Let's talk about your path with Finrise and then to Wag! and what
happened there, and now you're the CEO. How'd that all come down?
Garrett Smallwood (01:25):
Okay, so I started Finrise, I think, in 2016, and I joined Wag! via the acquisition of Finrise. I joined Wag! basically to launch a northern California office. For those who don't know, Wag! was a LA-based and founded business, one of the few. Wag! is the on-demand dog walking company, most notorious for. I've been at Wag!, most recently, as the head of product and partnerships, and then took over as CEO in November of '19.
James Currier (01:49):
Got it. How did that all take place? Why did they choose you? There was a lot of people. How many
people were there at its peak?
Garrett Smallwood (01:56):
Yeah, Wag! had around 500 employees when I first took over. Just for context, today we're about a little less than 100, pretty huge transformation, I would say. Look, there's a lot of news around Wag! It's been an amazing ride, an amazing adventure. I think it was just a different time for the company. I think you look at Wag!, the history has been, fundamentally, growth at all costs, huge emphasis on quick market expansion, geographic footprint. I think, when you take a step back, there's probably just a new way to build Wag! and one that I firmly believe in, which is really focused on operational excellence, strategic advantages through services and density, and being really smart about the way you build the company going forward.
James Currier (02:35):
Got it. They had a lot of different leaders at that company with 500 employees, and they realized that there was a new time coming for Wag!. This was pre-COVID even, and COVID increases the challenges, the headwinds that a company like Wag! faces, but what do you think it was about your style, about how you think, about your mental models, which let the board know that you were the person to become the CEO even though they brought you in as an acquisition? What I've seen, Garrett, over the years, is there's a certain way you think about operating businesses and I think this is what's going to be interesting to the founders who are listening to this podcast.
Garrett Smallwood (03:12):
Yeah. I would just say I'm really impatient. Actually, I dropped out of college. I just didn't think it was valuable. It's rude, but I leave meetings early. I'm just a really impatient person. I think when you build a startup... I think Wag! is still a startup. You have to be impatient. You have to move really, really quickly. You need to make the right decisions fast. And I think that's... It's a huge skill when you're building a company, is your ability to rapidly make good decisions. I'm not saying I always get it right, but I can tell you that I really don't like being slow. I don't like sitting in place.
James Currier (03:49):
Got it. One thing, for sure, is the speed that they noticed. What else?
Garrett Smallwood (03:53):
I think just a focus on efficiency from top to bottom. I've stared our P&L at them and at end of every month, I go through the Excel spreadsheet with the team for every single department. I listen to customer service calls. I take customer service calls. I help write marketing copy. I think just being part of all the different parts of the business is really important.
Garrett Smallwood (04:12):
Also, I think having a good rapport with the team. We have a pretty tight-knit team now. It's a great culture. I mean, you could talk to the employees, I'm probably biased, but I think there's a really tight- knit group of people. I think that part of my motive is really keeping a really tight ship, making sure that everyone is there that understands why they're there and why they should be there and what they need to do to keep that ship going. This is something I really pride myself on.
James Currier (04:33):
Focus on culture, speed. In order to have speed, what do you need to make, fast decisions or good
decisions?
Garrett Smallwood (04:38):
Obviously, data. I mean, first thing's data. I think the second thing is really foresight, right? I think you have to have an understanding of where you want to be. I think a lot of people go too extreme on one or the other. They go, "Okay, in five years we're going to be X," but I think you forget what you need to accomplish this year. Again, not that we always get it right, but I think you need to have a pretty good blend of, "What do I have to do today that's going to get me to a spot I need to be in two years?"
James Currier (05:00):
Got it, so a balance between overly visionary and overly reactive.
Garrett Smallwood (05:03): Correct.
James Currier (05:03):
All right. Then you were talking about building rapport with your team. That sounds, to me, like human
relationships.
Garrett Smallwood (05:09): Culture.
James Currier (05:09): Culture.
Garrett Smallwood (05:10): Yep.
James Currier (05:11):
Right? Actually getting in the weeds with the product itself, looking at whether those numbers are real,
and maybe not deceiving yourself, maybe being honest.
Garrett Smallwood (05:20):
I mean, it's pretty easy for founders and CEOs and entrepreneurs to get into this, I think especially pre- COVID, this loop of, "I'm amazing. I've raised all this money. Life is great. Nothing can go wrong." I think you have to be really honest with yourself of each scenario, what's actually happening in your company? What's actually happening in your business and have people around you that are holding you just as accountable.
James Currier (05:41):
Got it. It sounds to me like this is the fundamentals. I mean it sounds, to me, what you're preaching is fundamentals, of being an honest person, being a communicative person, being a data-driven decision maker.
Garrett Smallwood (05:53): Yeah.
James Currier (05:53):
What are some of those metrics that you think that people should be looking at?
Garrett Smallwood (05:58):
I really like Alfred Lin's approach, at Sequoia, of a metric that only matters to your business. At Wag!, we have two metrics that really are specific to us. One is our average time to fill a request. We're an on- demand marketplace. It's an expected consumer reaction is how quickly we're filling our requests. The second one is actually specific to the network, which is services within a given neighborhood or density.
We know that, as those increase, that ratio increases. We see more organic installs and business grows faster. Those are Wag! specific.
James Currier (06:27):
Right. Each company is going to have their own metrics, but figuring out what metrics matter to your business is a core thing that founders need to do to give you a unique perspective on how to win in your market. Is that what you're saying?
Garrett Smallwood (06:40):
I think that's right, although to your point earlier, I think it is back to basics, back to fundamentals. Retention is always going to be important. Frequency, CAC, LT, all those things are always going to be important. If you don't know your NPS, you have a bigger problem. I think there are just fundamental metrics that we can't get away from that are more important than ever.
James Currier (06:58):
You had 500 people at Wag! The board says, "Okay, Garrett, we've watched you now for a year, year and a half, working inside our organization. We see that you have the cultural, data-driven, speed, the things that this company really needs to go back to fundamentals, to be thoughtful about the operations, to drive toward profitability, to be efficient. We want you to be the CEO." You said, "Okay, fine," and then you need to do surgery to save the patient. Can you tell us a little bit about the surgery that was required?
Garrett Smallwood (07:26):
Yeah. If you just take a step back, I actually built the plan to say that was the right path forward. I came
to the board and I said, "Look, I think, fundamentally, this is a great business."
James Currier (07:36):
Did they ask you to do that, Garrett, or did you do that on your own and just bring it-
Garrett Smallwood (07:40): I did that proactively.
James Currier (07:41):
Yeah. I think that's an important point to point out to founders is that you, sitting inside of this 500- person company, you were an important person, but you weren't running the company. You proactively created your own plan for what would save this company.
Garrett Smallwood (07:54):
Yeah. I mean, I think it's just a different path, but I had a strong opinion that there was another path for the company that probably was the right path. I was willing to stake my... Obviously, I'm willing to stake my current career on it, but I think, fundamentally, it's the belief that I do believe this is a great company and there's a lot of reasons why it's a great company. We have really high average frequency for our customers. Retention is strong. We have a strong consumer brand. But I do think that it really required you to question every single assumption.
Garrett Smallwood (08:20):
We did things that, I mean to be clear, I've never done before, right? We bought out our largest investor. We parted ways amicably. We decided it wasn't the best path forward for the current business. We fundamentally then restructured the board. We have three amazing firms on our board who are deeply committed to the company, Niko from General Catalyst, Roger Lee for Battery, and Scott Stanford from ACME, previously Sherpa, so still deeply committed board.
Garrett Smallwood (08:43):
We resized the whole company, right? Like I said, we went from 500 to less than a 100 in less than 90 days. It's an unbelievably, humbling experience. These are great people. We moved the headquarters from LA to the Bay Area, so we actually shut down our LA office. It's painful, right? These are great people. They've been deeply committed to the company, but we had a new path, and we had to make some difficult decisions.
Garrett Smallwood (09:05):
We resized the whole leadership team, so new head of finance, new head of marketing, new operations leader, new head of product. Literally overnight, a whole new team, and we fundamentally rethought and rebuilt our whole strategy. We have a whole new way of operating the business. To be totally clear, our business is still great. We're as big, if not bigger than we were. We're still helping tens of thousands of pet parents and we're still helping drive this service across the country.
James Currier (09:31):
This is radical surgery. I mean, for founders who are going through a laying off of 10% or reducing their salaries by 25%, you went through everything. You removed people from the cap table. That never happens. You changed your board. You changed the headquarters location. You had to let go 80% of the employees. You've changed the numbers and the metrics and the dashboards and everything about how the business is perceived and run and communicated internally.
Garrett Smallwood (10:01): 100%. Yeah, absolutely.
James Currier (10:04):
I say that because, right, you're getting all the badges from the founders, and that extreme surgery, I think, it sounds very daunting. I know it was daunting. I know it was difficult, but I also think it's a great example for founders to realize how far you can go and that probably what you're going through isn't as radical as what Garrett's gone through.
Garrett Smallwood (10:21):
I got some great advice early on is, "Look, I don't think you can make extreme enough decisions because I think you'll think they're extreme and you'll look back and be like, "That was the right decision." I mean, to be clear, it's the first time for a lot of us, right? A lot of founders, still first time founders, a lot of them are first time in a big company. A big company could be 50, 100, 150 people, 500 people, and when you think about removing 50 people, you're like, "That's a lot of people." But what's a hundred? What's 200?
Garrett Smallwood (10:43):
When you're going through what the world is going through, and I think there's a fundamental shift happening of we're going back to the fundamentals, people are going to actually look at retention and profit, contribution margin and marketing expenses. What's in marketing expenses? Show me your cohort tables. There's going to be a whole reckoning of how we evaluate these businesses. I don't think you can make extreme enough decisions. I think it's the board's responsibility to tell you if they're too extreme.
James Currier (11:05):
And what mental shifts can you encourage people to make? I mean, isn't that the fundamental problem is that we all have been operating with one mental model, "Grow at all costs," or "Defeat my competitor," or whatever the mental model was. What's that shift that you were able to make more easily, apparently, than others?
Garrett Smallwood (11:22):
Well, I wouldn't say it was more easily. I would say it took some time. It was some heavy weekends and it's very uncomfortable, right? It's an extremely uncomfortable thing to have to question even your own assumptions because you think, "Oh, we're crushing it," right? That's what everyone tells you, "We're crushing it. This is great. This is awesome." And suddenly overnight, you're no longer thinking you're crushing it and you figure out why.
Garrett Smallwood (11:42):
And fundamentally, I think that, as the founders, as the CEOs, we have a fiduciary responsibility to make sure we're maximizing shareholder value. That's the simplest way to put it and shareholder value are your employees, they're your customers, yourself, there's your board. And what's the best way to maximize shareholder value? Well, if you're not able to raise much money anymore, which I think a lot of companies aren't, or they're not going to be able to get great terms, then it's to preserve cash and focus on retaining and acquiring customers. That's the only two things that matter, right?
Garrett Smallwood (12:09):
There was a great Harvard question, and they ask every incoming class of MBAs of, "Why do businesses fail," and hey go through almost everyone in the room and no one says, "Because they don't sell products," and that's the reason. The reason businesses fail is because don't have enough people buying the products. And so, I think that with this new fundamental shift, the founders have to realize that it's not going to be as easy to go raise 50 at 250, right? I had friends literally being like, "Oh yeah, I'm going to go raise 50 to 250 next week. I'm like, "Well, how?" It's crazy to me and it was easy. And I think that 50 at 250 is now going to have a whole different set of expectations with it and a lot more competition.
James Currier (12:43):
Right. I heard somebody said the other day that the best form of financing is revenue.
Garrett Smallwood (12:47): Yes.
James Currier (12:47):
Which again, it goes back to the fundamentals.
Garrett Smallwood (12:50):
I think Buffet and I just think that whole Berkshire model will come back in full swing. People are going to love these profitable, network effect businesses that churn off cash and have great leaders and that's going to be back in full swing. I think you're going to see more tweets on Buffet than we have in the last five years.
James Currier (13:05):
Right. I mean, we've got a generation that just has never seen a downturn, right? It's been 12 years since
things have just been going up. And so, you could be 34 and never haven't seen a downturn.
Garrett Smallwood (13:16):
And I mean, it's sectors too, right? For so long, if you look at these portfolios, real estate has been this driver of returns and it's because real estate's just been, this continue, year over year, beautiful growth, led by the financing of all these companies, and now they're in for reckoning and I think you're just going to see a whole sector. I remember when I started Finrise, when we started Finrise, no one would invest in travel. Travel was the no-no. You weren't supposed to start a travel company. Within 24 months, everyone was starting a travel company, right? Everyone's traveling. Well, I bet you for the next two years, travel is going to be dry.
James Currier (13:50):
When you went through these layoffs before COVID, you learned a lot about those experiences. It's not easy to lay people off. These are good people, hardworking people, that know what they're doing. What then happens later? How did you, first of all, build your culture back up so that... Right now, people have the excuse of COVID. Back then you didn't. How do you build the culture back up to the point where it is now, where it's a good culture again? What are some of the tips and tricks?
Garrett Smallwood (14:13):
Yeah. First things first, as a founder or CEO, whatever you are, I think the most important thing is to cut deep and fast. First off, you can't trust your team to decide who to cut. I think that's incredibly responsible. These people are managing usually their team and they're going to have strong, emotional connections with the people on their team and they're going to fight really hard to keep them. It's going to really tough mentally, for people to get rid of people.
Garrett Smallwood (14:35):
And so, as the founder, CEO, whoever, you need to be in the driver's seat and say, "Let's look at every single person," and I'm sure they're all great. I have no doubt that they're here, they're going to be great. If they're not great, then we have a bigger problem. And you need to go really deep and really fast on who you cut and why. And the thing you need to do with your leadership, which is the most important exercise is say, "Okay, now that we're cutting all this, what's going away? What are we actually sacrificing in the business? Okay. Got it. Okay. We don't have a CRM marketing team anymore. That could be a problem. Is there someone that could take that on? Do we bring on agency? What do we do?"
Garrett Smallwood (15:06):
There's all these roles, right, that you need to now somehow put somewhere and you either need to figure out, are they still important? If they're still important, let's keep doing them. If they're not, what do we move it to? The third thing is, obviously, once you do the riff, and I strongly recommend that you do it. I flew to LA and shut down the office with my, now I call my cofounder, Mazi. I threw up on the plane. It's a nerve wracking thing. I knew I was going to show up in LA. I was going to have to lay off hundreds of people. It was a terrible, terrible thing. It's gut wrenching, but you better do it. It's your decision.
Garrett Smallwood (15:38):
The third thing is to make sure that you are now setting the tone of why we're going to succeed going forward. You've made the decision of fast, deep cuts. You've made sure that everything's being picked up and the things that need to be picked up are going to be picked up, and now you've reset the expectations. Why are we going to win now, right? We just laid off all these people. It's usually the sign of a company in distress. Why is now the time for us to believe? You better have a really thoughtful mission, an incredibly articulate strategy and a really, really well thought out plan of how you're going to get there. And the new KPIs, you need to be oversharing, right? I call it the three Cs. I call it culture, communication and customers. You got to be oversharing what matters going forward.
James Currier (16:16):
Got it. And you had that all prepared in a PowerPoint, in spreadsheets, on the plane as you're flying down to say, "This is the riff. I hate it. I'm throwing up on the plane. But now that we're down to a hundred, a hundred get in a room, let me explain what's going on."
Garrett Smallwood (16:31): 100%. Yep.
James Currier (16:32):
And how long did that take? Was that a two day period? Was that a three day period?
Garrett Smallwood (16:35):
I flew to LA, I think, on a Monday morning and I flew back Tuesday night, and by Wednesday I was back in the other office, making sure everyone felt onboarded and successful and that we were here together and we're going to do this.
James Currier (16:46):
Got it. And how would you describe the culture now?
Garrett Smallwood (16:49):
I think it's move fast. I think people actually now get restless when they're sitting for too long. There's static. People need to be moving and shipping and releasing and learning. Still very data-focused, huge reliance on data. I actually have more people learning SQL than ever before. I mean, we used to have a huge team of analysts. Now PM's are pulling their own data. Engineer's pulling their own data. Scrappy, I think they're questioning their own assumptions. They're not looking for guidance. They're making their own decisions. And still, I think customer-centric. We have people all over the organization, calling
customers when they need help, responding on social media, taking those calls. It's just a huge sense of ownership. I think people feel really deeply committed to the new go forward Wag!
James Currier (17:29):
And how do you create an environment where they feel safe questioning their own assumptions rather
than showing you that they know all the answers or that they're right all the time?
Garrett Smallwood (17:38):
Well, it starts with you, the leadership team. I openly admit when I don't get it right and I do it relatively frequently. I say, "I thought it was going to be X and it was Y, and here's what we did to change." I also think we celebrate the failures. Obviously, you don't want to fail, but we celebrate it. We were like, "Look, this is a thing we did. We probably shouldn't have done it, but we're going to learn from it."
Garrett Smallwood (17:55):
And three is, I think, making sure that people around you, that everyone else looks to, are not just saying, "Yes," not going, "Yes, that's great. Yes, that's awesome." They're questioning just as much as you're questioning and I think it then bleeds down, right?
James Currier (18:06):
It's a delicate balance to have a questioning and a skeptical culture and the communication style, but also have enthusiasm and energy, right? It's like, what Churchill say, "Success is going from failure to failure without a loss of enthusiasm."
Garrett Smallwood (18:20):
And it's on me every day to wake up and have energy and to be excited about being here. And to be clear, I am very excited about being here. I wouldn't have taken the job if I wasn't still passionate about the business of what we're doing. And I think you have to have that same level of passion. You can't go through a riff and then show up at 10:30 the next day on a call, bummed out, depressed, wearing a hoodie. It's on you to rekindle the energy like, "We did it. We're moving forward. Time to go."
James Currier (18:41):
Right. And talk to me about some hard conversations. How do you have hard conversations? I feel this is something that you can learn. It's not just a matter of gritting it out, but it's rather, something that you can realize you're going into what could be a hard conversation, and you have techniques and approaches for both yourself and the person you're talking to about how to not make them hard. How do you approach hard conversations?
Garrett Smallwood (19:01):
Hard conversations, I feel really bad when people don't know they're coming. And so, I really try to set the tone ahead of time. When someone isn't figuring it out, and that's usually the hard conversation, right? "Hey, we're not making progress here. We said we would do X and you told me you would do Y. It doesn't seem to be going forward." I don't want my conversation will be the first time they hear that. They should know along the way that we're not moving forward. We're not figuring out.
Garrett Smallwood (19:24):
And that happens pretty quickly, right? When we figure out that the job someone has isn't the right job for them, which, it's the right way to put it. They're probably a great person. We only want to hire phenomenal people who are excited. When we realize that the jobs were not the right fit for them anymore, they know. When we sit down, they're not like, "Oh my gosh. I wish you'd told me a month ago." They're like, "Yeah, I totally get it. I'm not figuring this out." And I think if you take another step back, I really try to avoid hiring people who I think I have to tell how to do their job, right? I guess it's we should hire smart people to go figure hard problems out. That's it. That's it.
Garrett Smallwood (19:55):
I do think hard conversations are learned. I think there's a lot of language you shouldn't use, things like "You're doing this. You're making it happen." It's like arguing with a spouse. You want to come across it as really non-emotional, really thoughtful. "Hey, we said this would happen. What happened? You told me this, why is this no longer happening?" And another thing I really like is a clear cut agenda ahead of time. "Hey, I'm going to come to you and we're going to talk for 30 minutes and here's exactly what I want to talk about." No surprises. I don't want this meeting to be, "Oh my gosh. I had no idea, Garrett." It's, "Hey, we need to talk about this thing that's supposed to be happening and it's not."
James Currier (20:29):
How do you have hard conversations up because you're talking about hard conversations down, where
an employee isn't doing it, but how do you have hard conversations up?
Garrett Smallwood (20:37):
Part of this is where I actually think founders, especially first time founders, need to have a little bit of ego. You have these VCs, most of the time, right? We're talking about venture capital, VC backed startups in companies, who are on probably six, seven, eight boards. This is what they do for a living. They show up at board meetings. They source companies. They deal with founders. They have probably really strong opinions, but they're going to delay on telling you them, if they're smart, and they're going to want to hear what your opinion is first, and then they're going to provide some feedback. And you probably feel you have to listen.
Garrett Smallwood (21:06):
Well, I can tell founders a couple things. One is, there's no way the VC knows more about your business than you do. There's almost no way. You are the founder of the company. To be clear, you should still own a lot of the company. It is your company. You need to be making the decision. If you disagree with the VC, if you have a different perspective, you need to call that out. I have a general with my board where I give them bad news over the phone beforehand, and I share all good news together. I don't surprise anybody, right?
Garrett Smallwood (21:31):
When I show up at a board meeting, and I have monthly board meetings. I love high board being, especially during this crazy time. They're all on Zoom. I call everyone ahead of time and say, "Hey, we have board meeting Wednesday. I want to talk to all of you by Monday and I want to tell you some things that we needed to get through, one-on-one." They all get to form their opinions. Then when we get together in person, they're not playing the energy off each other. They've already had time to sit, digest, come to the table, and provide thoughtful feedback.
Garrett Smallwood (21:53):
But again, I think it's helpful to have ego here. Too many first time founders think the VCs are these gods, right? They make all the decisions. I need them. They give me all the money. It's your company. You need to tell them honestly and earnestly what's going on, ask for feedback when you want it. I also think it's really important to just be honest. Be really, really honest. Don't hide it. I have too many bad experiences, not mine, but friends who waited six months until they told anybody that they only had six months of runway. People wait too long. It's good to do it early and be open and honest.
James Currier (22:24):
What else can you tell people how to get that confidence because it's confidence in both ways, right? You need to tell your board and your VCs how it's going to be because you know it, but you have to also be confident to be open enough to hear the right advice when it comes along.
Garrett Smallwood (22:37):
Advice is a funny word. I think every single board meeting I've been in, in my life, there has been advice. And I always listen and I always, always write down that advice and I sit on it and I think about it. But honestly, I probably take 10% of the advice I receive, maybe 20%, depends on the person because that's what it is. It's advice. It's an open opinion. What I try to do is I try to get as much advice from as many smart people as I can and then I reach my own consensus.
Garrett Smallwood (23:02):
I think one of the founder failures is only listening to one person. Garrett told me this. I'm sure that's right. Well, if I talk to five more people, do they feel the same way? Maybe, maybe not. I think it's better to have multiple, thoughtful opinions than just one. I also think it's really important that there's a difference between advice and telling you what to do. There are some things the board might tell you you need to do, right? "Hey, we've got to update the cap table. It's been too long. We just need to clean it."
Garrett Smallwood (23:25):
That's not advice. It's your responsibility to clean up the cap table to get something done. Now if they're telling you that you might want to reconsider, your CX vendor tool because they have a portfolio company that happens to do it, I mean, that's a little different, right? I take all of it. I listen. I write it down but I try to balance all of it with other discussions.
James Currier (23:43):
This might be a point to about the venture debt you got at Finrise and the impact that that had on you.
Garrett Smallwood (23:49):
I mean, consumer lending, right? For those who don't know, I started Finrise with two incredible co founders who I'd known for a very long time. And our first brand was called Vettery and it was veterinarian point of sale financing. There's this huge incumbent called Care Credit, process billions of high interest rate loans every year in offices, dental, veterinary, et cetera. And we thought, "We're going to break these guys. We're going to go in. We're going to lend them better terms. We're going to better underwrite. All these people were getting ripped off."
Garrett Smallwood (24:16):
And what we learned was that consumer lending's really hard. Not only do you have to have a proprietary, consumer acquisition channel. You have to get really efficient, low cost customers. You also have to have a proprietary capital channel because you're not selling a service. You're selling a dollar. And so, you had to figure out how to sell these dollars for more expensive than you're getting them. And I can tell you, venture debt did not work for that business. Venture debt is expensive. It's dilutive. It calls pretty quickly. You don't have a lot of time to resolve it.
Garrett Smallwood (24:43):
And so fundamentally, venture debt killed us. We'd raised almost $6 million, deploy a lot of that in consumer loans that were getting repaid, but we just couldn't cycle through it fast enough and we couldn't raise more on good terms. We were actually going to become the one thing we hated, which was a high interest rate lender and so ,we just decided that the best path forward was to sell the company.
James Currier (25:04):
And that venture that really accelerated the demise of the company?
Garrett Smallwood (25:06):
I mean, you don't have time. Venture debt is a ticking time bomb. You sign up for a year or you up for two years, and you're paying it back. And if you haven't cycled that capital quickly enough, it just wrecks you. I think there are certain businesses that could... I don't know if they'd raise venture debt. You might just consider raising debt that has, I don't know, [inaudible 00:25:25] done a great job at this, but there is times to raise debt, Dropbox being the most notable.
Garrett Smallwood (25:30):
I think Dropbox raised a seed and an A from Sequoia and then two, 400 million debt facilities. The only reason I think they could do that is because they cycled so quickly on the ROI on customers that they were able to deploy and return the capital and it just became much more efficient to do that then to raise equity. But if you don't have that, do not raise debt.
James Currier (25:46):
Right, and it seems to me, I bring it up because you said there's a difference between advice and then the board just telling you what to do. And this is an in between example where a board could say, "We should not take on venture debt. We've only raised three and a half million of equity. We don't really have that repeatable of a model. We will not take on venture debt." And that would be a pattern recognition that a VC might have that would be valuable to listen to. Whereas, you might not know as much about it as a first time founders [inaudible 00:26:16].
Garrett Smallwood (26:15):
Look, I think VCs... The three things I lean on VCs for, particularly my board, is understanding sectors and spaces. It's clear they should be excellent at that, right? They should have broad knowledge and specific sectors basis, preferably ones that are relevant to you. Two is, for finances. They understand P&L's and spreadsheets and cohort tables, and how to calculate LTV. They intimately understand that. I really wish more founders relied on their seed investors for that like, "Hey, am I calculating LTV, right? Is this a
marketing expense or not?" They really get that. We don't need that anymore, but it's still fun to bounce ideas off each other.
Garrett Smallwood (26:50):
And the third thing is actually financing, particularly the next round of financing. "Hey, what's what are you guys seeing? Okay. Look, if we're thinking about raising a hundred million, what are you guys seeing in comparable comps? What are public markets telling us?" They should have those things priced out for you. You shouldn't have to do that. Those are three things where I always listen. I'm like, "Okay, cool. They have comparable marketplace comps. We're seeing 6X net. The company's growing 30% year on year with some profitability. Guys, super helpful baseline. Thank you." Those are things that they're experts in.
James Currier (27:18):
You've got a hundred people now. Are you looking forward to raising more capital? Do you think you're
going to go the distance?
Garrett Smallwood (27:23):
I think we'd be opportunistic. I think the market's going to be really interesting in six or 18 months. I think my gut says, and you might strongly disagree with this, that 70 to 75% of companies are bad to okay, meaning they don't have product market fit. Customers are drying up. They're overspending. Too many employees, too big of an office space, there's a lot of signals, but they're backed. They still raise anywhere between a 100K to $10 million. Those companies need to fundamentally pivot quickly and I think very few of them will because they don't have that reflexology. They're not ready.
Garrett Smallwood (27:56):
I think 20% of companies, at best, are good companies, right? Good companies possibly on their path to being great companies, but also maybe going to be okay companies. That's because they have some product market fit, some repeatable acquisition engine, CAC to me that makes sense, some sort of path, maybe to profitability, hopefully, if they make the right decisions. Hopefully, it's not removing marketing expenses or stock-based compensation or anything crazy. And then you have 5% companies that are great. Stripe is great company. Everyone wants to own a piece of Stripe. I think great companies will continue to be able to raise large pools of capital, albeit slightly decompressed valuations because of public market comps.
Garrett Smallwood (28:32):
I think good companies will either figure it out or they'll get super diluted. And what I mean by figure it out is, I mean, I think that they're... All of their businesses mostly have been compressed by 20, 30, 40% through COVID, and they'll either say, "Okay, we need to expend our runway by six months or 12 months, or we don't because we think we can raise another 50 to 250." I think all the good that that'll be. And so, I think for good to great companies, you're going to have an environment that has a lot of capital ready to be deployed on fair terms.
James Currier (29:01):
It's interesting. This is the other side of the sword for Silicon Valley because when you talk to people who don't live here, who move here, they often say, "The biggest thing I learned in Silicon Valley was how to think big and where I come from people just don't think this big." And with the bigger thoughts,
you have bigger ideas about how to grow faster and how to make your product better. And that positive feedback, between thinking big and getting the fundamentals right at scale is a positive feedback loop.
James Currier (29:26):
But it feels to me the last 13 years, we've gotten away from that to where we're just the saccharin or the sugar of growing fast, which is, "I want my metrics to go up, but I'm not going to pay attention to the fundamentals of the business because we need to think big. And if we don't think big, then we can't raise more money. We can't attract the top people. And the top people are still just going to go to Facebook or Google or whatever."
James Currier (29:47):
And so, I think that what we're finding now is to be, this deadly mindset that needs to shift, is one, that it actually took some time to train people in than it would actually produce some of these larger outcomes that get everyone all excited in Silicon Valley and around the world about the incredible garage, the creative cooky garage of Silicon Valley, where these amazing things come out of. Yeah, they're amazing because they're at scale, but they're few and far between. And most of them, companies like LinkedIn and others, have real fundamentals built into them all the way along, and we've just gotten away from that. We've separated the juice of the fast growth from the fundamentals that actually gets you there on a sustainable basis.
Garrett Smallwood (30:25):
I totally agree. These things take time. Building endurance, enduring business takes a lot of time.
James Currier (30:30):
It does and it takes a lot of attention to the details like being on the customer calls and looking really at
the marketing spend.
Garrett Smallwood (30:36):
You have to do everything. You have to do literally everything. I think it's a really hard job. It became glorious. Being a founder, being a CEO, became this glorious, amazing thing everyone wanted to do. Then you realize how exhausting and difficult and time consuming and stressful and anxiety inducing it is and you're like, "Oh, I don't know if I really want to do this anymore." I think there's going to be a whole lot of people who really don't want to do it anymore and go back to Facebook and Google.
James Currier (30:59):
Yeah. No, I agree and I think that when we started to get the blogosphere in 2004, and everyone could read about being a founder and everyone could read about what venture capital is, all this was opaque until 2004. There was no way to learn about it. There weren't really any books. There wasn't any movies. There wasn't Silicon Valley on the TV. There was nothing. And now it's become this lifestyle that people that think they're choosing. It's like a package, but it's very hard to describe the suffering that goes on with it.
Garrett Smallwood (31:25):
Look at Ben at Pinterest. That guy suffered for years, like endured, suffered. Jeff, at Twilio, I'm sure. I think he had a really interesting starting story. These really amazing businesses that we all applaud now,
it took so much time and they went through 2008. They really struggled and they made it and they're doing it and what everyone claps their hands now.
James Currier (31:47):
And given, it's so hard. But given, that in most really interesting markets, you do need venture capital in order to compete these days because if you don't take it, somebody else will, what do you look for in a venture capitalist, because you're going to be with them for seven to 10 years, right? It's a hard journey.
Garrett Smallwood (32:00): You're getting married.
James Currier (32:01):
A lot of suffering. You're going to have all the badges on your chest from the firings and the sufferings and the lawsuits and whatever. You're on a team with someone for seven to 10 years. How do you choose that person?
Garrett Smallwood (32:10):
Personally, and this is no way reflective of the Wag! board, who again, I actually really do admire and have a great relationship with. First thing I do is I look at, "Did this person operate?" I think being an operator is just a whole different mind frame and there's a lot of VCs who have come up being VCs, which is fine. I'm sure they're great. But one of the things that's really important to me, especially early on when you're starting a company, it was for me at Finrise, is, "Has this person operated," because they've had to make some really difficult decisions. They've been in it. They've been in the trenches, right?
Garrett Smallwood (32:38):
Two is, "How long have they been doing this?" I actually think it's really important. And they may not necessarily be a VC, but just investing and advising and working with companies, because at the same time they're going to have seen a lot, right? The bigger their portfolio, the more people they've worked with, the more eyes they have, the better their network, there's all these benefits to that, just the time in the role.
Garrett Smallwood (32:58):
And the third thing is their ability to be authentic. Far too many coffees where I didn't get anything out of it. I almost didn't remember the person's name. And to me, I love when a VC shows up and they've been really thoughtful about the email. They say, "Okay, cool. I got it. Thanks for the intro. Don't send me X." If you could just give them a blurb, they do their own research. They go to the website. They check things out. They have an opinion. They come with thoughtful questions. "Hey, there's this competitor. Hey, there's this thing. Hey, have you thought about this?"
Garrett Smallwood (33:24):
It's not just this learning experience for them. They're actually trying to get to know you and I think that's a huge differentiator. Too many VCs who look at this like a sales pipeline and they're just trying to suck everything like vampires. I think that's just a really awkward experience.
James Currier (33:37):
I'm very proud of what you've done with Wag!, man. It's a testimony to the board that they noticed who you are and what you can bring. And also, I'm very proud of how you executed the whole situation and brought Wag! back to a place where it can be a great company and hopefully, can have 500 people again someday.
Garrett Smallwood (33:55): All right, James. Thank you.
James Currier (33:56): You bet.