The smartest entrepreneurs don't only look ahead--they also check the rearview mirror. "Tech founders tend to assume that everybody in the past has done things badly. I think that's a fatal flaw," says Matthew Gross, founder of Newsela, an edtech startup. Whether they're investors or board members, you can profit from former execs in the very industries you are taking on.
In 2014, Kaz Nejatian persuaded former Visa CEO Joseph Saunders to invest in and become the chairman of the board of his credit card payments startup: "Joe kept telling us to worry about scale--to worry about how this would work when we're running hundreds of thousands of transactions per second as opposed to one or two. At the time, it was a big investment for us to design a system that could work at scale. But he was absolutely right. There's a difference between building a payments system that works once and building one that works over and over again simultaneously across many retailers. The early work we put in based on his advice has paid dividends."
Monica Nassif is the founder and former CEO of homekeeping products company Caldrea, maker of Mrs. Meyer's. Mat Franken founded cleaning products company Aunt Fannie's in 2013. In 2015, Nassif--who sold her company to S.C. Johnson in 2008--invested in Aunt Fannie's and joined its board.
Nassif: Mat kept sending me all these messages on LinkedIn, and I was like, this guy is driving me crazy. He totally stalked me, and it was for several months. Finally, he asked if I would take a call, and I said, I have to get this jerk off my back. So I took it, and it was so persuasive that I said, you know, why not meet with him? I did, and I have to say I was really inspired.
Franken: As an entrepreneur, your board is the only entity that can fire you from your own company. The people you choose have to be a great business fit but also a great character fit. I wanted an entrepreneur on our board who had built something and also exited, and Monica had entirely reinvented the cleaning aisle.
We weren't willing to grab Monica and have her just as someone we were going to parade around but never really talk to. We wanted someone who'd be willing to get their hands dirty and be deeply engaged with the business.
Nassif: He has an ego, but an ego that lets him seek advice. He embraces it when you say, "Hey, Mat. Wait a minute. Have you thought about this?" That's a key quality in an entrepreneur, especially from an adviser's standpoint. If you offer advice, are they gonna like the news? I've stepped on a lot of land mines, and I can work on helping you avoid them.
Lori Greeley was CEO of Victoria's Secret from 2007 to 2013. Heidi Zak co-founded e-commerce bra startup ThirdLove in 2012. In 2015, Greeley invested in ThirdLove's $8 million Series A round and joined its board.
Zak: It was fortuitous timing, because Lori was based in Charleston, and we [Zak and her co-founder husband, David Spector] were about to go to my college reunion at Duke. We said we'd be in North Carolina and offered to come down to meet her. She said, "I'll drive to Durham and we can meet over dinner."
Greeley: ThirdLove hit me at the right time, when I was in a transitional phase. After leaving Victoria's Secret, I did a lot of recharging my batteries by studying smaller businesses, more for my own intellectual curiosity and health. I was kind of test-driving my skills. I had been wondering how my more than two decades of experience building a globally recognized brand is applicable to a startup.
I was well aware of ThirdLove. They were trying to get a piece of the pie as Victoria's Secret was sort of leaving some doors open.
Zak: We ended up having a dinner that went for four hours. Lori had a billion questions: Did we consider ourselves a product company or a technology company or a brand? There's always the question of whether you like one another and your personalities jibe. It was important for us to have somebody who wasn't afraid to tell us we were making the wrong decision about something. She's very honest and doesn't beat around the bush, which I really appreciate. It was definitely a personality fit.
Greeley: I was immediately impressed. They're tenacious. They're like a dog on a pant leg. They were also extremely curious, in an aggressive way, about trying to complement what they knew and about what they didn't know.
The dinner was low key and organic. It wasn't like, "Hey, will you be an investor?" I didn't want to be used as a way for them to raise money or attention. I saw it as an opportunity to be a mentor.
In 2012, Matthew Gross founded Newsela, a platform that uses artificial intelligence to convert news articles into K-12 curricula. Two years later, Will Ethridge, former CEO of textbook maker Pearson, invested in Newsela's seed round.
Ethridge: I stepped away as Pearson's CEO in 2013, but I didn't want to just go and play golf. In any early-stage company, I think about: What is the total available market? Is it enough to get excited about? Is it solving a real problem?
Gross: I was introduced to Will by Josh Lewis, who is on the board at Pearson. Josh brought together a group of his colleagues and friends. Will was one of the first folks he brought to the table, and I instantly clicked with him. He was incredibly down to earth--very no-nonsense and congenial.
Ethridge: Newsela really checked that first box--there's nothing more important in education than reading. It solved something that was a very big problem to me when I was at Pearson--how do you personalize education?
You also have to believe in the entrepreneur. There's obviously a lot of risk at that stage--you don't know how the person is going to be as a CEO. But Matt had a very strong background in education. He had done Teach for America and had a lot of experience with children's literacy.
I also don't think Matt's goal is to disrupt Pearson. His goal is to help kids learn to read. If Newsela takes down Pearson, that means Pearson wasn't keeping up.
Last year, former J.Crew CEO Mickey Drexler invested in and became the chairman of the board of the four-year-old athletic apparel retailer. Says founder Tyler Haney: "He's 73 and has more energy than anyone else I know. I can pick up the phone five times a day and ask him, 'How would you handle this situation?' 'How can we motivate employees even more?' He has 50-plus years of leadership experience and has really helped me have confidence in what I do as a young leader."
In 2013, Andrei Cherny co-founded Aspiration, an online checking account startup. Two years later, Frank Yeary, Citigroup's former global head of mergers and acquisitions, invested in the company's Series A round and joined its board.
Yeary: I was introduced to Andrei and his co-founder, Joseph Sanberg, by a mutual professional acquaintance. Andrei flew to San Francisco and we had breakfast. Half an hour in, I was intrigued.
Cherny: Frank is a board member at PayPal and Intel, so it was really a question of whether he had the time and energy and passion to devote to our startup. We had an honest conversation about it, and he immediately said he did.
Yeary: They've taught me that there are a lot of people who want an emotional connection with their bank. Money turns out to be an emotional thing, and there's this latent interest in having a real relationship with somebody you trust. That part of the equation I didn't know.
Cherny: Our conversations run the full gamut--from how to build a team to how to think about constructing financial products that are built to actually help customers.
Frank brought an understanding of the big banks' perspective: Here's why they construct these accounts this way in the first place. Once we understood that, it was easier to build our product the way we wanted.
Don Thompson, formerly of McDonald's, joined the board of Beyond Meat in 2015, and then his VC firm, Cleveland Avenue, led its $55 million investment round in 2017.
Brown: I met Don and his wife, Liz, in early 2015. I started pitching him on our company and bragged about how we have great scientists from all over world. His wife stopped me and said, "Innovation is good for my iPhone, but I don't want to put it in my mouth." That had a big impact on me, and I've repeated it many times since.
Thompson: I tried some of Ethan's products in various dishes. It was the best meat alternative I've tasted--and I'm a guy who loves meat.
Brown: Guidance in the food service market is what I was after--understanding how to really penetrate the big four of McDonald's, Wendy's, Burger King, and Sonic. We went into our relationship with Don thinking more about how to pitch those places properly, and how to set up our operations to serve them.
Thompson: I invest in entrepreneurs whose concepts I believe will positively disrupt consumer experience. The product or service, however, is only one factor driving our investment decision. I am truly investing even more in the people behind the concept. It's essential that they are passionate about their mission and willing to accept feedback and coaching.
Brown: We talk frequently about strategy, products, and growth. We plan to go public and he's mentored me on what it's like to lead a public company. Mostly, how frickin' hard it is.