Jeffery: Okay we’ll get started right away. we’re right into this. So let’s make it happen. so welcome to the Supporters Fund Ask An Angel. i’m your host, Jeffery Potvin and let’s welcome our investor for today which is Daniel Marcos. Welcome.
Daniel: Hey, how are you, Joffrey?
Jeffery: happy. very good. Thank you very much for joining us today. Well, I’m going to say that I’m pretty excited about our conversation. I know we’ve chatted in the past but the reason I’m excited is because, man, you’ve got a lot of great content that you’ve put out and I think we could actually talk for days, maybe even weeks on how much stuff you’ve done. all the great content that you have out there. And I know we’re gonna talk about something that’s probably really special and dear to your heart that you’re getting ready to launch, which is your book and all this time is kind of pent up for this excitement. but before we dive into that, why don’t we start off by, if you could share a little bit about yourself, kind of some of your past. all the way from your mba to the companies that you’ve worked in. just a little bit of a touch point on it and then we’ll drive in a few other things after that. but while you’re talking about your history, can you also share one thing about you that nobody would know?
Daniel: So I’ll start with that. So, recently there’s a race called the world toughest race, the eco challenge. So I participated in the first eco challenge 1996 British Columbia and I was disqualified from the race because one of my team members broke a rule. and Let me just tell the backstory because it’s important. The guy, the producer of the series, is called Mark Brunell, australian producer. He produced trump: the apprentice and he’s the one that came with your fire thing with trump. so i was fired by him like three years before the apprentice or four years before the apprentice in national tv.
Jeffery: That’s awesome. That’s very unique. That’s pretty cool.
Daniel: if you go to the discovery channel or on youtube, you can see when I was fired.
Jeffery: Well I’m sure there was a lot of good learning from that and I will look that up. I did see him speak at a conference back in 2005. he came to toronto and did a big talk and it was pretty fascinating. He is a brilliant producer.
Daniel: Yes, he’s very, very good. pretty amazing.
Jeffery: Well, let’s circle back. so maybe we can share a little bit again about your past because it’s pretty exciting on the things you’ve done but at least touch base on some from the schooling all the way through because you’ve done a lot of great things. So I worked for three or four small companies when I was a kid. indeed my first one when i was like eight or nine. I built an aquarium, and broke my parents’ garage in half and half of it was an aquarium, half of it was storage. So I started pretty early because I realized very early the difference between being an entrepreneur, a business owner, and an employee. Let me tell you a quick story because it’s really important. one day i was in christmas with all my cousins and nephews and we’re all together in a ranch in san benito texas of an uncle and christmas morning like 9 10 a.m. we’re opening the presents and having all the fun and i see my father coming out of the room dressed in a suit and i was like, why are you dressing the suit? and said, well i got called by my boss and they need to go to work and then he had to fly to mexico city. and i was like what do you mean you have to go to work, it’s Christmas. i said, well there’s this emergency my father was a high government official at that moment. Mexico had that evaluation and it got tough so he had to fly back and I remember I was crying and having a tough time with my mom. i was probably seven or eight and i told my mom, hey why my father has to go and all my uncles are here? and my mom said, well your uncles are entrepreneurs. they’re business owners and they have their own time and rules. your father has a boss that has to go back and i was like, what do you mean like for me, all that’s going to work right? That was it. No, it was very different and that was the first time I understood. So I started doing companies and it was a disaster because I did not have any discipline. And then during college, I did four and a half year college in Mexico and after a year and a half, I wanted to start another company. and my father was worried that I was going to be losing track. so he called my older brother and said, hey get your little brother a job if not he’s gonna open the company. it’s gonna be bad. So my brother helped me get a job in a brokerage house and I worked three years in the brokerage house and the issue of having to go to a desk every day and help me with my homework and all that did bearing on college. but i had three years of trading experience, i was on the desk trading stocks all morning for three years. So by the time I finished college, I had a huge experience of understanding how the world moved in stocks and IPOs and all these kinds of things and it really gave me a huge view on understanding companies even before I left college and not just putting roofs or working in the restaurant. I was really into analyst calls and doing analysis of balance sheets and stuff so after that, I got a job in the Mexican consulate in Hong Kong as a financial attache. in exactly that year, Hong Kong was going from England to China and I was there to do the liaison between the Mexican and Chinese governments as part of that. So I lived in Hong Kong for a couple of years and one day, I was done. I said dad, I called my parents.. Hey just to let you know, I just got assigned to my job and I was probably 24. I was making like five to six thousand dollars after taxes in Hong Kong .So living alone, I was making a good income on that and I told my parents. i just resigned and they were like, what do you think you just resigned? i’m going back and i went back indeed. I went back to my parent’s house and started my first company and I knew back then it was stocks. That’s what I knew the best and at that moment e-trade was already a huge boom in the u.s. so i said, hey i’m going to bring it right to mexico and i tried to bring it to mexico and i got a meeting with their business development guy in the u.s. in new york and the guy said, hey, Mexico, it’s on the list but it’s got it’s country number 30. so we’re going to open Mexico in 10 years, not today. Then I went back to Mexico and tried to get a brokerage license to have my own brokerage house. At that moment, all brokerage licenses were national and there were like 14 or 15 in the whole country. and they said you’re 24 years old. you’re never going to get a brokerage license. So I said okay, what can I do ? This was a discussion with my father and a friend. What can I do with my resources and my knowledge? So when e-trade wanted to come to Mexico, they needed to acquire me and the solution was they needed two things, a group of employees or a team that could run that. and by the way, imagine in mexico in 1999, who could program stock trading and platforms like that in mexico online? no one there had experience of that. and the second is a group of potential clients that want to buy and sell stocks online. So we built that and very soon after, we built it, less than a year later, we sold it to an argentinian company. and the argentinian company had gone to jpmorgan new york saying, hey, want to be the leaders in latin America? help us raise all this really big round. and jp morgan said, if you don’t have Mexico in Brazil, you don’t have anything in Latin America. Mexico and Brazil are really big economies compared to the rest of the countries. so JP Morgan said bring me operations in Mexico and Brazil, and we’ll help you raise a big round of financing. so he acquired me, the best entrepreneur in brazil. Next week, we flew to New York and said, okay he had Argentina and Venezuela. this guy had brazil. I went to Mexico. altogether now let’s raise the financing. We raised 53 million dollars from Goldman, JP, Telmix, Intel and Microsoft. amazing investors. Raised 53. and we took the company in eight months from 100 employees that we were at that time to 1200 employees in nine countries. We opened three banks, seven brokerage houses and off to the races. so i saw a really big scale at a very young age indeed. I left after we even sold it to Santander for 705 million dollars and I stayed working for them for two years. So when I was like 28 or 29, I left and went to do my MBA because I thought I needed to go back to school and learn the real stuff. but, by the way, that will be a different story. But when I was in my 20s, we were able to see how to scale a company to a valuation of 700,000. so say a hundred million dollars. so it was a great view on how to scale companies fast. and all the drama that it creates. like i was working 18 hours a day for like three years. It was really tough. and all the issues that it creates with your team, with your partner, your kids and everything around. So, that’s kind of where I learned my MBA in Bobson. Before that, I took like a year and a half off and I traveled the world. I went to Australia for six months and just ran the world ticket and then landed in Bobson with my MBA. I really wanted to have a space to design my next company and there were two big trends in the world at that moment in the us hispanic market. The census of 2000 was the first time that the u.s corporate world realized how powerful the hispanic market could be. It was the first time that they really showed the size of the market in 2000. and the second one was home ownership. At that moment Bill Clinton wanted to raise home ownership by like three percent or whatever and that’s why they were giving so many loans and mortgages on the subprime thing. so we opened a mortgage bank to finance Hispanics. mostly undocumented through a friend. We got a line of credit with Goldman Sachs. 500 million dollars to give loans to undocumented hispanics and we started doing loans like crazy, 60 – 80 loans a month. and one day, when the subprime was beginning to crack down, I got a call from Goldman and said no more, I was like, what do you mean no more? and they said, no more. We tried to flip the portfolio. it’s unflappable. so no more. indeed the guy that you put on the house yesterday, go and get him out. I have to go and get one guy out of his house after we close. After time, we’ll have to go and get him out because we couldn’t. After that, I became a coach, a CEO coach. I began coaching entrepreneurs in Latin America. and some months after that, that’s when Vernon and I connected again. i talk about the growth institute and that’s when we build the growth issue. That’s the company we have today. In the process, I’ve done probably 20 angel investments or so. and we’ll talk about that later. I honestly am so enthralled. I could have just sat here and you could have just kept talking for another half hour like you had me totally entranced in this whole movement. But you have to understand, I’ve been in business 23 years. So I have been generating my payroll every two weeks for 23 years.
Jeffery: Wow, that’s awesome. So I have to ask that when this whole component worked with the subprime area and they locked that down, what was the dollar amount of the entire amount that you had out and did this contribute to them to this subprime problem? Because obviously you guys were doing loans. but did this cause or was this just a blip in the whole massive system?
Daniel: it was just a blip, no. so, the loan, the line of credit was acquired or negotiated by a mexican friend of mine that lived in San Diego. and through him, all the distributed partners, i was one of them, got to 480 million dollars of loans of undocumented, more or less, very close to the 500 million. That’s why they started going to the market to flip it. and there was no market for it and that’s when they got scared .So we were less than half a million less than 500 million dollars in loans. for the size of the subprime, it was a drop in the bucket. it was nothing. and by the way, i heard of that portfolio, two or three years after, and it was still performing very well. because if you give a loan to a hispanic that has been undocumented, they know they won’t be able to get a loan. so their family members move with them. they pitch in to help pay for the mortgage and they still perform very high. I’ve read a lot of that. It’s respect and it’s a huge thing for Latin America, really anybody but specifically the Latin American community that takes a lot of pride in making sure that they pay back and they gain their place and build right. So, I’ll give you an example. so at that moment, we had a decision. I had investors and partners and we said we have a decision. We have to shut this down because the hispanic market and non-documented is going to be dead. or we flip the company to be a full typical mortgage company serving the typical american market. and the decision was, we were here precisely to do the undocumented and give an opportunity to Hispanics, then we have no purpose of being in the market. so let’s shut it down. so we said okay. Great. So I said, okay, if we want to shut it down, it will cost us today around a million dollars to shut everything down. and all the investors said, that’s not my problem. I put my money. I lost my money but we will not cover a dollar of that million. So I came back and I had two options. I had to declare bankruptcy and go back to Mexico. I’m not even a u.s city so I could go back and that was it. and i decided not to do that. i called my father and uncle and said i need a million dollars to pay all that, and can you wire the money, and i’ll pay you whenever i can. and both my father and my uncle, between both, wired me a million dollars and i paid every dime back. I’ve never been late in a credit card payment in the US ever in history and I paid it all back.
Jeffery: amazing. that makes you a very good man standing behind your word and pushing things forward. so that’s awesome. yeah and that’s just mexican culture. we in the u.s, its very easy to say well, it’s a bankruptcy. you go forth. you don’t pay like 20 of that. I couldn’t do it. I like it. No, that’s a good way to run your business and it speaks highly of the things that you’re doing and building today. So in all of this process, and I know there’s lots of stories and you’ve got lots of scars, we’ll say and a lot of pats on the backs, you’ve done a lot of great things. but you’ve also had a lot of things that have kind of taken you back a little bit, can you share maybe in this process, we’ve talked about some great wins some, overcoming some barriers, has there been something that kind of troubled you along the way that you just got stuck behind and said, you know what, this doesn’t make sense. How can I fix this? What was that problem that you really got behind?
Daniel: So for me, no one really prepares you to be a CEO and really you never build a company because you want to be a CEO. you build a company because you see a problem in the market or you want to offer a solution. and one day you wake up and you realize you’re a CEO. you have employees. you have all these things and one day it’s like, oh my god, i’m CEO, like i have to decide as a CEO. I’m in charge of payroll. like those kinds of things are really big. The other day I was talking with a client that I was coaching and he had his Christmas vacation. He used to do all these christmas dinners and one day, they did this christmas dinner and it was like 3000 people in the room and he entered the room and saw all these huge people. imagine a place to get three thousand people and call his head of operation and say, i told you without partners, it was just employees. and the guy said, it’s just an employee sir. and that’s like he realized three thousand families depend on him. and he called me the next day. He said, i had a really tough night yesterday because I went home. and I said if I go under, if I don’t perform well, there’s three thousand families that depend on it and you don’t realize what three thousand people are until you see them, everyone sitting down in the room waiting for dinner. I’m getting goosebumps. I totally understand what that goes through. That is reality. By the way, I’ll tell you a quick story about this guy today. he has 12,000 employees, call centers all over Latin America. He got a big offer to sell his company. But I had 12,000 employees and the guy said, i have enough money, like I’m going to sell it. they’re going to treat my 12 employees badly. so i will keep it and he kept it. He did not sell that. That’s making a decision. That’s how you run the company. but okay, so that’s the kind of thing that no one really prepares you to be a CEO and we have systems and procedures for everything. We do everything except how to be a better CEO. no one really teaches you. we don’t have systems. We don’t have procedures, like no one tells you a book of what you have to do to be a CEO. and you have to take a course here and a course there, and talk with an uncle and a mentor and an investor and try to figure this out. and that’s for me a big issue that no one has really figured out. and there’s a lot of coaches that do that but without a certain process or their own main thing, but without really putting together all these great practices out there of how to be a better CEO. and that’s why you have CEOs paying big bucks to be coached by really good coaches that guide you on the process of how to be a CEO and not feeling lonely. It’s a really lonely position to be up there and uptake all decisions. You can’t imagine how many nights I’ve been trying to go to bed, and cannot go to bed because I have no idea how I’m going to pay payroll the next morning. I know I have to pay payroll the next morning and I have no idea how the money is going to come out to the account and you just cannot go to bed. That’s a big thing about entrepreneurship, like you’re responsible for your team, you’re responsible to pay payroll. One of the things that I’m most proud of is that I’ve never missed payroll in 23 years. I’ve had to get loans. i had to sell things i had to put from my money like whatever but i’ve never missed payroll in 23 years. i want to tell a quick story like four years ago, i was reading this article about an entrepreneur that went public and i think the stock went like 16 or 17 public and that day the stock was like at 80. and everyone went crazy. All the employees had stock options and everyone went crazy and would get drinks and get drunk that night. and the CEO of the company went back to work the night of the IPO and the employees went to look for him. and the guy, they text him, hey come here to the bar. and the guy said, no i can’t, i’m working so this group of employees go through the office. and said, what do you mean you’re working, like you’re four times richer, like you have all the money in the world that you want, why are you working and the guy said, you guys don’t get it when we went to the IPO. We value the company and what we believe is a fair price around 16 or 17. Now the company is worth 80. the stock, my business plan and the structure that we have support a company of 17, not a company of 80. Now it’s our responsibility to build a company of 80. so i need to redo the business plan to figure out how to get the company to a valuation. So I’m going to stay at work now. and today, i see these kids getting billion dollar valuations. they don’t get the responsibility and this is really important for people raising money and i’ve heard this from many investors today. They said we will accept almost any valuation that the entrepreneur asks for, but we put the terms and when we put the terms, we always have preferred returns and drag along and tag along. and all these rights that if you do not get to your numbers, we start plugging back our stock and gaining more stock from you. so if you put a really big valuation and you give us 20 and you don’t perform, we’re probably gonna end up having eighty percent of the cup because of all the clawbacks, and if you don’t do it right, if you don’t execute a business plan to the valuation you tell them you’re done, you’re under and they really don’t see that. and that’s a story i want to tell and that’s the story i told you on the injury. So I’ve had really good angel investors that we’ve gotten 10 times our money or whatever and I have some really bad ones. but i’ll tell you one that i think is very important. so one day, i’m in my office and i get a call from this guy a friend of mine from college. he was the head of the programmer developer association or whatever of cisco in Mexico, really good programmer like top quality programmer and the guy said, hey i built this company with my brother. We got these investors. We screwed up. we’re thinking of walking away because the deal is not the right thing and these guys have been very unfair. we think we’re going to walk away. Can you help us rebuild the company and we want to build this other idea? so i put like a hundred thousand and they walked away and we funded another couple. We started building the business and my job was to bring the first investors into the company. So I got Intel in Darby. It is a company from Nicolas Brady. It used to be a federal reserve chair like in the 80s and the guy that invented the Brady Bonds. The brave ones were very important in Latin America. When Latin America went into a financial crisis in the 80s, we were saved because of the very bonds invented by Nicolas Brady in the U.S. so everyone in Latin America knows the radio bonds because that’s what kept us alive. and so I brought these two funds. they put like five million dollars and we’re off to the races. We started growing the company and doing all these things and they said, hey we have these opportunities in the u.s. why don’t we bring the company to a yes. so my two friends moved to the us. they run it and then we start selling to the pentagon. and because they’re beginning to use our technology for defense. and if you have a mexican ceo, you could not sell to the pentagon. So one day the pentagon in a very nice way said, hey we would like to buy from you, but we can’t because you have a mexican CEO. if you change your CEO, put an american guy who will buy from you. they could not tell you that openly. so immediately we changed the CEO. we told the co-founder, hey sorry, this is for the company and the guy said, of course. so we put an american CEO and the pentagon started doing really good with technology selling to the US government. We had to do two teams, one team full of Americans, there were no other nationalities. and then another group selling to business, and that we could have people from all over the world. and then we got round c and d and f and all these rounds and then our revenue kind of plateaued and we plateaued for like three or four years. and the guys of the last round, because of all their controls and rates one day they said, hey you know what we need to get out our fund. it’s seven years, we need to close our fund. so we’re going to sell the company and they went through a process of selling it and they got a valuation of 65 or 85 million. It was a pretty big valuation. and I said okay. I’m ready for my check. I was an angel investor. I had like 10 of the company. so i was ready for my check and they sent me the accounting, got their money and they preferred the d round their money under preferred the c round their money. and they preferred they be around. they got their money without preference. they got zero angels, zero founders, zero. now like even the founders had zero. all the preferred return goes to the last investors. so imagine this. and this is a. If you’re from outside of the US, imagine being a Mexican entrepreneur. you move your company to the US. you get all these investments from the US. you sell to the US government. they use your technology for defense. they sell your company for millions of dollars and you come back with your bags, zero cash. that blows my mind. I got really mad. I sent emails and I complained and the guy said the numbers are the numbers, the preferred return every round. if you don’t catch up on the rounds, you’ll lose your preferred return. that’s it. That was it. It’s really neat to stay on top of it.
Jeffery: so what, in this context what becomes the solution and what do you recommend for angel investors or even earlier series a b investors on how to protect themselves through this process? Daniel: So, the first thing that happened was, I did not understand the terms of the next round that I would have thought of. I did not understand. I just accepted the typical terms of the VC and then the private equities and then I didn’t realize this until the end. but if you continue to invest your percentage, then you have the rights of the next investors, and you keep the rights of your round close, the new round. and I did not do that. I just made a big investment at the beginning and they did not make a reserve for follow-on rounds. if you talk to any of the real VCs and private equities, they said, hey, i have a 100 million dollar fund. I’m going to invest 50 in the first round and I’m going to keep 50 for continuous rounds precisely because of that. because that helps them or allows them to continue keeping their preferred returns and being on the table to decide if they sell and when to sell at what price. and as an angel investor, i never thought about that. that’s nothing. I should have gotten out in the previous rounds. But because I didn’t need the money, I was doing okay at work. I said well, let’s let it go and I went with all the rounds without doing my continued investment and I lost my preferred rounds. so i was out.
Jeffery: Well I guess in that case, I’m sure you learned a lot and that’s protected yourself on all the previous or the next rounds of investments that you would make.
Daniel: Yes, I invest very differently than I used to invest before. It usually takes a big force to help you learn a little bit to make sure that going forward you don’t get stung twice. I learned more about how to be a CEO from the company that went under the mortgage bank than from the company we sold in Mexico before. really the entrepreneurs and people really learned more from mistakes. They said they were two or three times more focused or engaged to move away from pain than to move towards a goal. So when you have pain, that’s when you really learn and start doing things.
Jeffery: So yeah , lots of good learning. and just to kind of go back to this the CEO part and the things that you were talking about, i really i liked one of the analogies that you gave and maybe you can talk to a little bit about this because in a way this is kind of talking to what you just mentioned which was the crisis state. you mentioned that when you go through a crisis state, it’s like a forest fire. and it was a mentor that shared this with you. So maybe you can talk a little bit about that analogy because I think it really shaped up nicely on how a CEO really needs to be acting and moving forward.
Daniel: So you heard that in other podcasts that I share. So for me, we have a crisis every often. and by the way as human beings, we could not stay in the middle and be violent. We go to extremes all the time. we’re like a pendulum and we’re always moving to extremes. so we get to an extreme of craziness and valuations and things like, i think we’re very close to where we are today and then we’re going to go all the way to the other side. a crisis is like a fire burning a forest and the forest you have really big trees strong trees and then there’s a lot of wheats that take a lot of the water and the nutrients for the big trees and when the fire comes it takes all the weeds out and some of the trees that were weak or a little bit dry or something and the fire takes them. But the fire usually leaves some strong trees and those come back with more water and way more nutrients because all the ashes of the rest become nutrients to this land and the trees that stay cape all the nutrients. so that happens a lot in business. I believe today we’ve heard of it. there’s a lot of zombie companies because of all the money that is out there, giving all these crazy loans. The same thing happened in the mortgage business. I remember having people that, when they walked to my office to get a loan, said I will never leave you alone like you just don’t qualify and I put that information on the system, clicked a button that approved. and i was like, okay i will approve it if there’s a buyer that’s gonna buy it. I’ll get the commission but I will never give them the loan. and I had a discussion with the banks and said, hey are you giving a loan to this person, i will never give them a loan and they say well, Daniel, you’re going to get a commission. I’m going to get a commission. I’m going to sell it to the market in three days so they’re not even going to have the first payment in the next three days. So for me, I don’t have an issue and I’ll make a lot of money. In the process, it became a cash cow versus an ethical process and then people just ran rampant with the loss of the crisis that occurred. The way banks used to work before is they kept all their loans in their own portfolio and they cared about who paid the loan and really made a relationship with the banker and the rest because they wanted to know their client. today they don’t care because they’re going to sell it on the market. That’s exactly what happened in 2008 and we’re making the same mistake too. and by the way, that’s exactly what’s happening with all the loans out there. The guys giving the loans are not their money. did you make a commission to do the loan and they’re putting all these loans in portfolios. they don’t care if the portfolio underperforms. so it’s just awareness. so the crisis is like a fire that burns some forest. some things stay and the ones that stay really come out with some bruises and stuff but they come out much much stronger. I really believe prices are very important to clean out all the wheat in the market and really bring the market back to balance and to the right people that are really adding value in the market. you see that now happening because of COVID.
Jeffery: you see that as being a crisis that is going to clean up or do you think that we’ve kind of just plowed by that and we’re avoiding all of this crisis because it’s kind of seemed like nobody really even paid attention to the impact of COVID and they’re just dumping money in and pushing the markets forward?
Daniel: For me, it feels very similar to 2000. and I’ll give you a quick analogy. back in 2000, every crisis started with a volatility in their weakest asset. We had a huge crisis. some of the internet companies came out strong like amazon like google and they bring amazing value to the world. they survived and today they’re hugely valuable and important. I think the same is happening with cryptocurrencies. I am one of those that believe bitcoin is going to be zero or a million and I think it’s going to be a million. but I’ve had cryptocurrencies for the last couple of years. I don’t have any more. I sold them a couple weeks ago because I’m waiting. i think it’s the volatility in cryptocurrencies on the dodge coins and all that. it feels exactly and smells exactly the same as the internet stocks in 2000. I’m seeing the movie again. so i think we’re up for something. and by the way what’s going to happen or when, i have no idea. I really have no idea but it smells very similar to the dutch coin to pets.com and all the crazy things we had in 2000 and I don’t believe the market will allow that. a country like the US prints seven trillion dollars or Canada prints almost two trillion and he’s not going to come to buy you back like you could. The market is the amount of service and the amount of products we produce and the amount of money in them in the world. if you have more money than assets, you get inflation and you get this disaster. That’s what we’re having. We produce less with COVID and we give them more cash. they’re going to come to buyers back. How? I have no idea. When? I have no idea. but i know that the market always looks for balance and we are completely out of balance.
Jeffery: i second that and there is a lot of change that’s gonna happen and to kind of circle us back a little bit to some of the things around the book and around how you’re educating and coaching CEOs, can you give us maybe four or five points on things that when you’re looking at a company or you’re looking at helping a coach, what are the things that you want to educate them on? because coaching can and mentoring can be such a broad spectrum and i know that you’ve been talking about inside of your book that you’re going to be releasing. I believe that’s going to be in October to November. so there are four or five areas that you would say look like you’re a CEO, this is the state you’re coming in, this is where i’m gonna see you. Here’s five things that I’m gonna make sure that by the time you’re done working with me these are the five things we’re gonna knock off and they could be around the execution team whatever those things are. Can you give us a good idea of what those would look like?
Daniel: So first companies like human beings grow in stages. I believe there’s four stages in every scale up. startups grow up, scale up and stage three and then you start dominating your industry. and i really believe they all have similar problems like hey we call the kids in when they’re two years. they’re terrible twos because the kid realizes they could tell you no. The kid thinks they’re part of you until they’re two. When they’re two, they realize they’re a different human being and now they understand they could tell you no. They could have their own way before they cannot have their own way. it’s just their you and we call it terrible twos because it’s the first time that your kid is kind of rebelling against you. and then when your kids are teenagers, how many people say yeah my kid’s a teenager, we know between the hormones and they’re figuring out what kind of vital they want to be they’re different. it’s just the products that they come through same happens with companies and it’s very funny that i have conversations with entrepreneurs and they say you don’t understand my case is different and i was like no you don’t understand every company goes through more than the same issues like you when you were a kid and a baby and that all said, the same thing. so you have to understand the stage and understand that companies in your stage are having similar issues. and by the way i’ve had talks with entrepreneurs and they tell me how many employees they have and a couple of other things and i’m like great. so you’re having casual issues and your biggest problem is marketing and then the leadership they’re like how do you know that. i didn’t give you my business plan and i was like, i just don’t i know you guys won’t go through these years. so really understand that depending on your stage is the different issues and then the second thing that entrepreneurs make a big mistake is they believe a pill could be taken at any time and the same pill, they come and said hey Daniel, what’s the most important book i need to read or what’s the most important methodology i need to implement to my business, and i was like, that’s like going to the doctor and ask him hey give me the most strong the strongest medicine today right. No, it’s like the doctor is going to ask all these questions to understand what you are sick of and then give you the right medicine and the right amount or dose based on your age, your weight and all. So it’s really important that you understand where you are on stage, your leadership and all that and then understand what’s the right medicine for your company. and then going back to no one really prepares you to be a CEO. I really believe the best companies in the world are very good at building systems and procedures and then running those systems are procedures and hey that’s McDonald’s. They build the easiest and simplest system to build a burger that tastes exactly the same. and the burger could be built by a 10 year old here in Thailand, in China and Malaysia, New York, exactly the same and the burger will taste exactly the same. McDonald’s is McDonald’s. The same thing happens with companies. We build all these seasons. our procedures and then we hire and train our team to follow systems and procedures to really run our companies and when i go to a company, i ask them, hey show me your systems and they show me their accounting system production system, customer support system and the rest and then i say okay, show me your CEO system. How do you run the company as the CEO? How do you make decisions? How do you delegate? How do you do all these things? and they just go blank. So I strongly encourage you to really build their system and I am proposing in the book a system that’s been based on my experience and the thousands of entrepreneurs I’ve helped. but what i tell them is, hey this is i believe 80. You have to adjust your system to what works for you but I will try to give a model of four stages of growth and the 12 things you have to do. and here i’ll do a little bit of a breakdown on the three things. I believe you have to do three things at every stage. People say I want to build a great company. I was like, you won’t be able to build a great company, you have to focus on building a great team. If you build a great team, that great team is going to build a great company. I believe teams have to be intelligent and healthy. you have to bring great. Imagine you’re playing football. you want a great defense and a great goalie and a great friend or whatever and you have to help them play as a team and that’s the health of a team. I could have a great goalie but he doesn’t play well with the rest of the team. He’s gonna be a disaster. So I have to bring a very intelligent team and keep them intelligent and then align them and help them work as a team and be healthy. so before you build or focus on building a great company, you have to build a great team and for you to build a great team, you have to be a better leader, a great leader and this i’ve discussed it with many employees of my clients and they said you know what, i could not work for anyone else. I admire my CEO so much and he’s just a role model not just in business. in life like i could not be working for someone that is stealing or doing all these things. i just can’t do that so if you want to build a great team you have to first be a better leader or be a great leader and this is, i’ll tell you, a really bad story. The other day I was working with a company talking about core values and we’re trying to discuss core values and all the reports of the core values and all that and we’re talking about a core value of integrity and the team was not accepting the core value of integrity. I was like, guys , integrity is like the base of the pyramid. like how can we not even talk about integrity. they didn’t want to talk about integrity now. like guys doesn’t make sense like how come it does happen and we were like two or three hours having a discussion around this and there was nothing. and then of course everyone began getting more nervous and the stress in the table began getting nervous and one of the team members said I’m sorry, I just can’t do it. and I ask him directly, why not tell me exactly why you cannot talk about integrity and put a core value of integrity in the company. and the guy said because my boss is sleeping with her. At the table, both of them were sitting down and I knew my boss’s wife and kids and everything. If my boss is not an integral person and it’s living with the secretary, I could not talk about integrity and put it as a core value of the company. So until that doesn’t stop, I could not put integrity on the table. Damn, that was bad. I’ve had a couple of those but it’s true. i promote integrity if you’re sleeping with someone in the office and you have a family and kids, like you want to talk about integrity. you have to always go through and do it right. So what I’m trying to tell CEOs is to build a system. there’s a lot of great tools out there that work for you and adapt to your culture. I’m proposing a model in the four stages and the three things focus on you folks and your team functioning company. and i will give you the 48 things and by the way if someone wants to follow this, can you put a link to the description. there’s gonna be some slides they could download. I have a lot of books. I’ll be happy to give them away to your audience if they really want to get deeper and understand how to really build a CEO system for them to help them scale the company.
Jeffery: That would be brilliant and I think everybody would love to get access to that. so you take this integrity that you’re talking about with this CEO and i think a lot of people don’t look at them as being the mantle piece for this business. The people look up to that CEO and if he or she takes any actions they take the time they put into the business, how they get to work, where they live, how they treat people, that is so big and important to that company’s success. how much they pay themselves compared to the rest of the team. All those kinds of things are extremely important to the company. for sure and i think learning what you’re putting together and how you’re putting this emphasis on how the CEO has to structure themselves, i think it puts a lot of people to start to think about it at an early stage. When they start this early stage company grind is that you know I might only have a team of five and that team’s going to grow and it’s going to change over time. but it all falls back to the principles uh and how like you said the integrity of how that CEO starts. if they start going down the wrong path, they’ll never get off that wrong path. it will just create a destructive company. but if they learn from the beginning and work their way up, that principle can guide their business all the way through and you could not tell people. hey you have to be in the office 8 a.m early and don’t come late and you’re coming at 10: 30 in the morning. that doesn’t work. you have to be congruent in everything you do in business and as congruent you’re with your team. your team is going to be congruent with your clients and the rules of the company so that congruence is really important to make things work. and i think if you take the analogy you gave of children as a kid and they fight against the grain until they figure out what the line is that they won’t cross. and your team will do the same if they see you not aligning up. So I think using your analogy is the perfect situation for being a great parent or being a great CEO is that your team and your staff are going to push you to get to that line. but once you hit that line, that’s where your business is going to start to grow and see that success because they see how you act. they see how you’re driving it and you become that staple in the business. And before we finish, I would like to talk about just one more subject that I think is really important. You and I talked about this before the interview but I see one of the biggest mistakes I see entrepreneurs doing is scaling the company because they believe they have to scale it and they don’t. And I really believe this is a very important point. In the US, there’s 28 million companies. 96 of the companies in the US make less than a million dollars in revenue. just four percent go above a million points. four go above 10 million and just 17 000 companies do go over 50 million in the US. So that’s the size of the market and that’s the complexity of the market and here’s the biggest mistake I see entrepreneurs making. they believe they have to scale the company and i probably convince more entrepreneurs to stay in stage two than going to stage three. or i mean stage three is a scale-up and stage two. It’s what I call a grown up or it could be called a lifestyle business. i really believe the best combination of you having a great lifestyle and cash flow to you, it’s 10 to 12 employees that’s a maximum. if you pass that then you’re a scale up. you have to put a first level of managers and complexity just goes through the roof and entrepreneurs. they said, hey if i’m making ten dollars when i’m on stage two, i’m gonna make a hundred dollars when you’re on stage three. no way the amount of money you make goes down significantly. you have to go through the value of death. Between stage two and stage three, it takes you from 15 employees to 60 or 70. that value of death and it’s horrible you work more you have less cash coming to you. but you’re really building an asset and that has an intrinsic value that people are going to buy from you. So if you go past the 15 employees, it’s because you’re going to build something that is going to run without you and entrepreneurs don’t get that. They still want to be the center. They want you to take decisions and run it in stage three like it was stage two or run the scale up like they were running a family business. and it just doesn’t work with the amount of entrepreneurs that I’ve seen. They go to stage three and then they have to implode their company and come back to stage two. its crazy
Daniel: I have several stories that I’ve been giving. this presentation indeed i gave a ted talk nine years ago or 10 years ago about stages. it’s in spanish so very few people have been able to see it in english but uh it’s in spanish and i talked about this ten years ago about the stages and the rest of course. We’ve improved the model significantly but I started talking about the amount of entrepreneurs that have come to me after and said I had to implode my company. I was on stage three and I hated it. I had no idea what I was doing and I had to come back to stage two and just stay in stage two. I’m never gonna go back to the stage. so i strongly recommend entrepreneurs when they’re in stage two, to really decide what kind of company they want. I want to build an asset that has intrinsic value and whatever gets investors and then blows it up. but you know the process until you get to 150 employees is going to be more drama, less cash, more work, less margins until you pass that value of death. and now you have a company that is worth it and that’s why private equity. It’s very clear they come in the company at 10 million dollars of revenue because that’s when you finish the second value of death and you’re past the tough part of stage three and now it’s worth it to scale it.
Jeffery: i love that you’re right and there’s that value of death can kill so many companies and i think your statistics 100 prove that and i think that’s from lack of planning or understanding of your business but also understanding where you’re trying to go and what it’s going to take to get your company and your team to get through that valley and get to that next stage um but that’s that’s well shared. Um, one last question before we move on to the rapid fire questions is while you’re working with these companies and these CEOs and you’ve gone through these different stages and helping them better understand it are you also focused with educating that CEO on how to help their teams and pick the right people because i think that that team is so important like you stated so how do they learn what is the right need and how to delegate but how do you delegate to the right people. So how do you get those right key players? Do you have to spend a lot of money? Is that what it’s all about or is there a culture that comes into this and people just want to join because you’ve built this amazing culture? But what is it that really drives that entrepreneur to find the right people?
Daniel: a big thing with millennials and younger generations, they have to be aligned with the purpose of the company and the core values of the company, the culture, if they are aligned mentally, they will stay for long. If they’re not, they’re there for the money. They’ll be there if the money is good and they’ll leave when the money is not good or when the drama in the company is too high. The employees that stay are because they’re there because of something that is above the money and is usually the purpose of the company um and here’s why we build the growth precisely for what you’re saying. I’ve been an entrepreneur for 23 years and I’ve read a lot of books. i’ve probably read a thousand, two thousand business books and i’ve attended course of whatever you want and my biggest problem is i go to a course it takes me two days to go through a program and then i have to teach it to my team with kind of half the knowledge and try to help teach them how to execute without having the auto execute and that’s pretty much why we build the growth into the way we build it. We usually, whenever we sell a program, we sell it for three or four people. We don’t sell it for one and people said no but I just want one seat and I’m like we’ll sell you a seat but you won’t get the value. I want you to buy three or four seats. you come with your team and you implement together. So I’ll tell you the story of scaling up for me. By the way, I am a scaling up coach from bios but I think it’s a must to be able to implement in your business schedule your business. I took scaling up for what was called Rockefeller habits in MIT with Fred Harness in 2000 and I came back to Mexico and told my team. This is the best thing since sliced spread. It’s like we have to do this and I tried to explain. they didn’t get it. So I got really mad and I said okay, I’m going to pay for it . Let’s go take a course from Antonio with Vern so you can see how good this is. and they said no we don’t have the money, we’re a startup and it was gonna be like five thousand dollars and we didn’t have the money. So I opened my checkbook, wrote a check of five thousand dollars and put it on TV and said I’m paying for it if we go to the workshop. and you guys don’t believe it was good for us, it’s my check. if you believe it was the best thing after a slice spread then the company will pay it. and my team said okay, we’re in because there was no risk going a weekend to San Antonio, going shopping or whatever good. so we did that. We came to the workshop at lunch time on the first day. They looked at me like this is amazing. Why did you even tell us and I was like why do you think I wrote a check to tell you. like i was trying to explain it to you. you didn’t get it. it’s not the same if your boss tells you something. if you hear it from someone else, it’s going to be a completely different message and the implementation is going to be through the roof in results if you hear it directly from the source. So the way we build a growth institute is we sell a seed for three or four people like in a class and you come mostly the CEO with the head of operations CFO whatever they come through a class together. and then the team said we understand this is the agreement we’re going to implement without you and they implement it without the CEO. So the CEOs love to come through our programs because they said it’s the only program I did not have to implement on my own. After I had all the weight of the implementation, my team is so excited that they implement without and they know exactly what I’m talking about. We have the same wording, the same words, knowledge of what we have to do, we have an agreement of what we have to implement and they implement without.
Jeffery: I love that. That’s brilliant. you’re enabling the entire team to understand the principles so that they can implement it together versus the CEO trying to push something that he vaguely knows but is excited about and they’re looking at them thinking he’s nuts or she’s nuts. So I think that that makes a big difference. so i love that and being an enabler is the key word for today. alright we’re going to jump into the rapid fire questions. I think that we’ve been learning a ton. so that’s awesome. Alright. so there’s some business questions and then we’re gonna get into some personal ones. okay so the business questions are gonna be related specifically to investing. Okay? founder or co-founder?
Jeffery: unicorn or four-year ten times exit four?
Daniel: four years.
Jeffery: exit tech or cpg brand or tech ai or blockchain?
Daniel: oh that’s a hard question. I think both are gonna go down. I think both are all right.
Jeffery: first time founder or a second and third time founder?
Daniel: first time founders. they don’t know what they don’t know.
Jeffery: Okay, seriously angel or VCU?
Daniel: I like angels but in the series a.
Jeffery: okay board seat or observer board?
Daniel: safe for convertible note safe lead or follow, i like to lead. I want to make a personal relationship with the CEO equity or interest payments. I’m more of an equity guy but the money that I invest is not money that I need in the long term.
Jeffery: favorite part of investing?
Daniel: helping an entrepreneur be successful. it’s not that it’s not about the money. It’s all about the coaching and everything that happens behind the money to have success.
Jeffery: I love it. number of companies you invest in per year?
Daniel: today, i’m not doing investments, but i’ve done, let’s say 20. in the last 20 years, one per year average.
Jeffery: Okay, any preferred terms?
Daniel: Usually I prefer to return. if the entrepreneur doesn’t come, doesn’t get to their business plan, if they tell you they’re going to grow 30 percent and they just grow five, no, it’s gonna cost. I love tech and tech in education and health education and health. both are deeply in fact impacted by tech and both have really software margins in non-software.
Jeffery: Okay, all right, personal questions. book or movie?
Jeffery: Superman or batman?
Jeffery: pizza pop or ice cream bar?
Daniel: ice cream.
Jeffery: five minutes with Bezos or oprah?
Jeffery: Arsenal or Manchester united?
Daniel: I’m not a soccer fan, even though I’m from Mexico but Manchester. I’m trying to find Arsenal fans.
Jeffery: bike or rollerblades?
Jeffery: trophy or money?
Daniel: oh that’s a tough question because at the beginning, it’s money and then it’s a trophy but until you don’t get your numbers, and you’re not financially comfortable, money.
Jeffery: Okay beer or wine?
Jeffery: alarm clock or mobile phone?
Daniel: mobile phone.
Jeffery: hotel or hostel?
Jeffery: Who’s gonna win the uh euro cup?
Daniel: So I guess you can pick between England and Denmark? I haven’t. I’m not sure who won so far but who’s gonna win. I think Italy has pretty good chances. They beat Spain and it was really tough.
Jeffery: alright political question. For all the stuff that Trump’s done, is he gonna go to jail for this tax issue, yes or no?
Daniel: i’ve been surprised how he’s able to get out of trouble, in the worst trouble ever. i’ve said like this is gonna get him. so he’s never gonna go to jail. any other person in the world would have gone to jail. six years ago, totally 10 years ago, 20 years ago, not Trump. He’s never going to go to jail.
Jeffery: Okay, favorite sports team?
Daniel: maple leaves. I live in Toronto. I’m not that much of a sports person on TV. I’m more of a bike person. I got a bike this morning with my wife. I’m more of an adventure outside. So if you said your favorite team, not the typical football, whatever the kiwis, the new zealand team of the eco challenge, i think they’re the best sports team ever. I like the All Blacks of New Zealand in rugby. J Jeffery: Okay, favorite movie and what character would you play in the movie?
Daniel: oh wow there’s a lot of movies. so the one that i saw with my daughter recently that i got very identified with, The Greatest Showman. this guy that makes his show with his weird people and he goes through all the roller coaster of entrepreneur. It was an interesting movie that I never thought was going to be about entrepreneurship and it’s all about entrepreneurship. Jason Bourne, that’s like when I see Jason Bourne. like i would love to have been born to be Jason Bourne. That’s the series I just watched.
Jeffery: Last question, what’s your superpower?
Daniel: I’m stubborn as hell. When I have something in my mind, I don’t stop until I get it. So in entrepreneurship, I’m not the most intelligent or the most read or the most whatever. But I’m stubborn as hell whenever I set a goal. I don’t let the goal go until I complete it and accomplish it. I love it.
Jeffery: Well Daniel, thank you very much for joining us today. I believe not only myself but everybody that listens today is going to learn a tremendous amount as I always do. I’ve created lots of notes on that but lots of great material there. Just before we end, we like to give you the last word. so anything that you want to say to a startup or to an investor we leave it to you. but again thank you for joining us and we wish all the success on your book launch. We’d love to get your thoughts and share on anything you can share back to the community.
Daniel: So the last thing everyone does is a company because they want some freedom. understand what’s the freedom that you’re looking for because i’ve seen a lot of entrepreneurs that they build a company and they become slaves of the company. exactly what they’re trying to go away from and a lot of scale-ups lose that freedom. so just have clarity of why you build your company and build a company that will give you that freedom.
Jeffery: I love it. i’m trying to write this down as fast as i can but uh that’s brilliant. Thank you very much for your time today. fantastic job. Daniel Marcos really shared a lot of great insights and a ton of things that we can talk about a lot of great answers in the rapid fire side of things as well. but i think some of the great things that we talked about is certainly identifying yourself, understanding what you’re trying to achieve. He talked about how in crisis mode things are going to get burnt down. The great businesses will stay there, grow, take the nutrients from the ashes and grow their business back up, looking for businesses and founders that have integrity. I think that is key to anything around culture, looking for a fantastic CEO that wants to learn, coach and be mentored. I think that comes up quite a bit in all the things that we talk about and I think the last thing that he said was to build clarity on why you built your company. make sure that you don’t become stressed inside of that business and doing something that you don’t like. figure out what you’re trying to achieve. go after it with integrity. get your team to love what they’re doing and be behind you the whole time using that culture side of managing your business and again at the end of the day, it’s all about clarity. Why are you doing this? make sure you’re doing it for all the right reasons that’ll keep the fuel going and the energy alert in your business. So thank you for joining us today. If you enjoyed this conversation, please subscribe to our YouTube channel or follow us on spotify, apple podcast or stitcher. You can also check us out at supportersfund.com or for the startup events, visit opn.ninja. Thank you very much and have a great day.