Issue 28: 2014

Insights

In Conversation With Brad Keywell

Company culture, the importance of failure and other lessons learned.

Photograph by Tim Klein

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Brad Keywell is the co-founder and managing partner of Lightbank, a venture fund that invests in disruptive-technology businesses. He is also a co-founder and director of Groupon; co-founder and director of Mediaocean, a company that provides integrated technology platforms and solutions for the advertising and media buying industry; and co-founder and director of Echo Global Logistics, a technology-based enterprise transportation management firm. He is also a client of U.S. Trust.

Along with his many other entrepreneurial activities, his responsibilities as a University of Chicago Business School adjunct professor, and his work as a member of various boards and philanthropic initiatives, Keywell is the founder and chairman of Chicago Ideas Week, an annual gathering that hosts 200 speakers at more than 80 events. U.S. Trust is a proud sponsor of the event, which is emerging as one of the major ideas and innovation conferences and platforms in the country. Recently, Keywell spoke with Capital Acumen to provide some insight into the lessons he’s learned on his unique entrepreneurial journey.

On lessons learned in school

Brad Keywell: If you buy into school simply as advertised, and just check the boxes, you miss an extraordinary opportunity to explore your entrepreneurial spirit. School can be valuable for lots of things other than its primary stated value. For instance, I went to law school with zero intention of being a lawyer. I went to learn, to understand how the law works and to get an entrepreneurial business-creation, business-growth perspective on the law. I’ve never practiced law, but I found law school exceptionally valuable, and I use the knowledge and skills I learned there every day.

All great entrepreneurs fail — the best entrepreneurs fail fast, learn and then start a new (and better) path.

Most people don’t take advantage of the nonacademic entrepreneurial playground that’s presented on university campuses. For people who have any entrepreneurial passion, just spending your college years going to class and doing homework wastes a great opportunity because the environment for taking risks and starting things is never as opportune as it is in college and graduate school — with professors and peers to tap as business partners or potential funders, entrepreneurial courses and organizations to get involved with, and alumni delighted to help current students with connections and ideas.

On entrepreneurship and failure

Keywell: All great entrepreneurs fail — the best entrepreneurs fail fast, learn and then start a new (and better) path. Anticipate that you will fail — and often. At best, only one in thousands of startups ends up being a major breakout success.

In the late ’90s, my partner and I started a company, and less than a year later it sold for nearly a quarter of a billion dollars. Then, a year later, the stock we owned in the company that bought us became worthless when that company went bankrupt. That’s failure. But we kept on going. We started ThePoint, and after nearly 18 months, our company had no revenue and not much of a business. Another failure. But we did not give up. We kept trying variations on the business model and came up with Groupon. And it became one of the fastest-growing companies.

Kill failures early and pivot into new ideas that build on what you learned without causing you to make the same mistakes.

On bad attitudes, underperformers and culture

Keywell: Culture can be a uniquely powerful asset, and one of the hallmarks of great culture to me is a positive attitude. The entrepreneurial path is lined with doubters, detractors and negative attitudes. As human beings, our nature is to look around ourselves for support, but we often do so without understanding that most of those people are not inherently entrepreneurial and often tend to react with fear and doubt when they hear disruptive or innovative ideas. That’s why looking to your family and friends for validation on the entrepreneurial journey is risky, and why a great entrepreneur needs to look inside herself or himself.

The same thing is true within your company. Underperforming employees and negative attitudes can negatively impact an entire business, and decisive action is necessary to preserve and foster a strong culture.

Kill failures early and pivot into new ideas that build on what you learned.

On the importance of focused marketing and “MVPs”

Keywell: When you’re trying to figure out where to initially target your product, focus on a small target audience, learn from their experiences and feedback, and refine it until you win them over. It is best if you can win fans, whose word-of-mouth “marketing” works for you. In technology business, which is my world, it is critical to release a minimum viable product — an MVP — as soon as you can. Gauge client reactions, learn from them, and refine the product until it is valuable and essential for the users. And do all of that as fast as possible.

On funding

Keywell: Technology entrepreneurs often don’t appreciate the oxygen supply that capital represents. Sometimes you see burn rates in young companies that don’t reflect a real appreciation for the value of a finite amount of capital. Money fuels startups, and funding is a necessity for all but the most frugal of startups — and one that’s becoming scarcer as the number of startups multiplies while the number of active venture capital firms shrinks. The ability to optimize available capital is a strength of great entrepreneurs.

For those who turn down funding in favor of bootstrapping, the burden of credit card debt and personal loans can be particularly painful. Remember the maxim of entrepreneurial fund-raising — a smaller part of something big is better than a bigger part of nothing at all.

On vision and valuation

Keywell: Great entrepreneurs have clear vision, and they can both see where they are going and bring others into their vision in remarkable ways. They also tend to be very successful at raising money. Those who are focused on specific valuations too often let their pursuit of the valuation get in the way of their vision to create a truly meaningful and valuable product or service. Anchoring yourself to an arbitrary valuation number in your early days shows poor judgment. Much more important is pursuing a capital partner who believes in your vision and your ability to make it a reality. Make people believe in you, and a fair valuation will follow.

One of the hallmarks of a great entrepreneur is a level of focus similar to an artist’s.

On the search for new ideas

Keywell: Seeking new and diverse ideas is the intellectual recreation of the entrepreneur. A source of vast insight is seeking out disrupters, iconoclasts and provocateurs, hearing their perspectives, and trying to conceptually connect seemingly unconnected dots. The more contrarian or surprising an idea on a given subject, the more interesting it is to me. I think we all need more exposure to disruptive and progressive thinkers — this is what fuels our curiosity. This is why I created Chicago Ideas Week. The conference brings together business, political and social leaders, along with nearly 30,000 individuals from across the world, to connect, collaborate and put innovative ideas into action. Chicago Ideas Week has become the largest city-based ideas platform in the world. It’s exciting — and often revelatory — when a diverse group of experts tackles a topic from all perspectives.

On entrepreneurs and artists

Keywell: One of the hallmarks of a great entrepreneur is a level of focus similar to an artist’s, where, whether money comes or not, the act of creation is a primary driver that keeps the entrepreneur going.

Like entrepreneurs, artists fail more often than they succeed, and yet there are still millions of artists. They do it because they have a desire to create art. It’s who they are, rather than a simple career choice. For entrepreneurs, creating businesses is what they do, rather than a career choice. Creating new enterprises, solving hard problems through innovative solutions — this is what entrepreneurs do, and it’s that passion that defines them. A true entrepreneur can’t fathom the idea of getting a job. And this is the case whether or not they ever become wealthy as a result of their pursuits. In fact, in a sense, the monetary rewards are often secondary. We know this because the odds of creating wealth through entrepreneurial success are so low — fewer than 30% of new enterprises succeed, and a dramatically smaller percentage become billion-dollar businesses.

But what’s interesting is that research from the Kauffman Foundation shows that almost all new jobs in the United States are being created by startups that are under five years old. Older companies hire, fire, hire and then fire — but their overall job bases remain relatively stagnant. New companies started by entrepreneurs are the engines for jobs in the United States. Our country breeds entrepreneurship, and those who find themselves entrepreneurially minded are not making a choice — they’re living out their destinies.

Editor’s note: An edited version of this interview appeared in the print edition of Capital Acumen, Issue 28.

IMPORTANT INFORMATION

Some of the featured participants are not employees of U.S. Trust. The opinions and conclusions expressed are not necessarily those of U.S. Trust or its personnel. Any of their discussions concerning investments should not be considered a solicitation or recommendation by U.S. Trust and may not be profitable.