Co-founder and CEO of Whiplash, James Marks talks about getting acquired and how successful founders can help early stage startups.

So this is Fundraising Radio and today's guest speaker, we'll have James Marks co-founder and CEO of Whiplash, which was recently acquired by port logistics group. In this episode we're going to talk about this acquisition. How can startups get acquired, how do you get to this stage where you can get acquired, who should expect in the exit and also successful founders as a source of capital.

James let’s kick off by you giving us some background on yourself and on whiplash. Yeah, sure.
Thanks for having me.
my name is James Marks.

I'm the co founding CEO of whiplash merchandising.

that was a company that we started about eight years ago and, we started with some friends, ended up bootstrapping to number four 57 on the inc 5,000, went through 500 startups as a kind of fully grown a company six years in, and then ultimately raised some venture capital and acquired, were acquired about a year later.

it's like a long story with a tight ending that makes it sound real fun and sexy.

Yeah.

It really, that's one of the reasons why you're here today, because the story sounds so sexy.

what I'd hope that we'll talk about is how it's actually not that sexy.

Like going back where it was just like, yep, just build a bit old fashioned way.

Oh gosh.

Yeah.

I actually got plenty of complaints that some of the content that I'm producing is too dark because, I'm not trying to sugar coat anything here.

It's educational.

I'm trying to show people was the real fund raising process looks like and it's not like in Silicon Valley, the show.

And so, yeah.
James let's get to the darker side.
Tell us how rough was it? How for how long were you bootstrapping again?
we bootstrapped, it was about five or six years.
Oh my God.
it was, when I say bootstrapped, we started the company because the, my co founder, Shawn and I, were broke. we needed to make more money than were.
He was at a moment in his life where he was tour managing for modest mouse, which was a huge deal.
I was a fan of modest mouse.

I'm sure there will be some fans, listening to this. it was a huge deal that were a part of this world. like when he was off shore, he needed a job.
that was kind of our founding moment.

starting a company when we are broke, don't have money to invest ourselves. we, I think bootstrapping is a pretty accurate term.
That sounds pretty accurate.

what do you say to bootstrap if you were broke, if you couldn't really invest in your own company, why did you decide to take these paths? Why didn't you try to build a really tiny MPP? Tried to get some traction in that and actually tried to fundraise or even get a loan?

I mean we kind of did.

I mean it's a weird thing when you're building.

I feel like you have to be very micro because you're, you have to have a real problem that you're trying to solve.

You have to repeat what that problem is, but you also have to have a sense that it could be a big business and that you're making decisions that are going to flow into that larger thing.

I think if you are just trying to start a giant company without getting into like the micro problem, then it doesn't work because it doesn't, you don't have something to focus on.

so, our founding moment was, okay, modest miles wants us to run a web store for them and that's our thing. We're going to make that one store run really well.

what we found, like at the time when we started the company, we thought were just going to be like licensing band merge and modest spouse is going to be the first band that were working with and we're going to use them as a market key client for other bands.

it did work to a degree, but once were in there actually servicing their store and building this thing in Shopify and shipping these t-shirts and records, were shocked by how hard it was on just like the actual shipping side.

were, and so we're like, okay, clearly we are missing something here.

we asked our, some friends of ours who were running record labels, like what are you guys doing? Like what are we supposed to be doing here? And they're like, Oh, it's called fulfillment.

there's a bunch of companies do this.
they pretty much all suck, like for a variety of reasons.
Some of it's text, some of it's just like poor operations.
that was one of those moments where you're like, okay, our friends are all saying this is harder than it should be. in fering, Hey, if you want to make a play here, like it can't, our situation can't be much worse.
why don't you, if you want to try to fix it then you're welcome to you.

those, I love when the stakes are low like that and it's already kind of broke good.
it's already been doing a terrible job and I'm like, well, I can do better than a terrible job. That's, that's you.
That's a real entrepreneur.
I can do better than horrible.
You know, the bar is so low.
That's wonderful.
Yeah.
how much in total do you raise throughout the, the layer on rounds,
through all of the rounds, which were mostly in the end it was about 1.2 million.
Nice.
Nice.
why did you decide to raise at the very end? What happened there?

we, I guess through the course of running that company and my transition from being a just like a small and medium business entrepreneur, I think my skills came up and we had gotten a third co-founder involved who was an engineer and my engineering skills kind of came around that time.

it just had this idea that it could be much larger but were also always, as much as were trying to make money, were pretty conservative about what we took out.

we're always investing in growing the business and there's always, one more warehouse or one more engineer or one more whatever hire to kind of solve the days that day's problems.

venture capital is really alluring for that kind of model where you've got growth, you want to grow fast and two banks showing them a six month old or even like a two year old profit and loss statement that just shows you're hemorrhaging money.

No bank is going touch that.

? Right.

Yeah, that's a good point.

let's talk about the fund part, maybe, the exits.

How did it happen? How do you get it? Where do you just, get one, request and you were like, okay, we'll go with this? Or was it like a loan negotiation?

I wish I had a process of how to sell a company, unfortunately, but I can tell you our story and it's one way that a deal could work.

I would say right around the time that were raising money and in the moment that you're raising, you have more of a public profile where you're trying to be seen in the press.

You're trying to, I got a lot of referrals from customers floating around just because you need to kind of demonstrate that traction.

I think it's a focusing moment to raise money.

in that whole process, a friend of a friend had introduced me to the person who would end up being the advocate, at port logistics group who had ended up acquiring us.

so this is years before the acquisition.

He and I met, we actually, met in Michigan kind of far from where either of us were living at that time and took a tour of our warehouse, got this one tiny little scrappy warehouse.

cause I had never seen a port logistics facility at that time.

like these are massive, like 800,000 square foot facilities they run.

Ours was like 15,000 square feet besides of like a four car garage.

Right.

there was just a disconnect and it was so early for us.

at that time it was a, basically it was like a review and they passed and cause it was just too early.

what ended up happening was after we had raised our seed round, we got into trouble with the state of California.

we had didn't have the right insurance in place. There was like a action taken against us.

It got, well I don't want to go into all the details, but weren't compliant on some pretty basic stuff that we should have been.

And it was one of those things.

I think when were really early, we had a vague sense that were to buy this insurance and we didn't, just cause it was too expensive.

we forgot about it for literally years until we had a mass. This huge liability.

There's like this like moment where you look at this letter from the state and you're like, okay, this brought up business as of the moment that I received this letter, we're bankrupt.

because we had just raised venture capital, were actually in like a weird place where maybe we could find a way to thread the needle.

in that moment of it was such a weird place because publicly, the story was that we had just raised and we're going, we had just grown out of 500 startups and we're doing really well.

privately we're dealing with this existential crisis plus all of the problems that high growth, naturally, all your systems are kind of breaking down and everything needs to read it.

in this kind of dark moment, I called, the guy from port logistics group who we had a good relationship but it was at the wrong time and said, Hey, here's our situation.

Would you be interested now that we're grown up and maybe it's a better match, would you be interested in taking another look? And ultimately from there it still took a year and a half to get all of that sorted out and get everyone comfortable.

that is ultimately the kind of the crystallizing two moments, that first meeting where it was a friend of a friend and then that second meeting where our back was against the wall.

And we need to know.

how did you, I'm just curious now, how do you get out of that, action with the California?

We paid them a ton of money.

were able to negotiate it down.

We had to finance some of it through the acquisition.

There was a lot of tap dancing to get it to work and it was, it kind of ruined that year.

were able to turn it into something positive for the founders and for those early employees.

I think the other thing that is happening is you, by the time that moment came about, were on like year eight and wanted out anyway.

I think from that degree waiting all of those tears to raise, even though we had built a nice company, we're building a company that whole time, I think it was probably wrong to raise capital when were ready to sunset the idea, just kind of ready to move on with our lives.

a lot of entrepreneurs talk about it takes 10 years to build a company and so we're on like year eight when we're like recommitting and doubling.

Yeah.
But it's still wonderful story.
I mean, you managed to get out of a lawsuit from a California state and it's great. It's great.
that's what start life is about.

I always say that like, the best part about startup world is that you can screw up on a stage of building your company from the very beginning to the very, very end, ? But do you still count that position was successful? Right.

Yeah.
Yeah.
I think it is a forgiving community in that regard.
Not that anyone is condoning the behavior.
That was certainly never the message we got was a great job.

They're were like done, it was never, it was like, what have you done and how are we going to get out of this? certainly no one is patting us on the back for finding ourselves in that position.

And to be clear, it wasn't oversight.

I can trace it back to a moment where we let it be deprioritized and then it went dormant for years and it just kind of came back to haunt us.

This is exactly why I'm releasing some educational episodes on the legal side of fundraising because sometimes that happens.

Yeah.

Yeah.

I think that there's a fundamental thing that I've tried to correct for myself.

Like as an entrepreneur, you by definition have a high comfort with risk, maybe too high.

people around you who are not risk tolerant like that.

that's where you have bankers and insurers and people like that who forced you to take some of those things seriously, that there's just no reason not to take like a cautious approach on insurance.

Right.

right.

Yeah, definitely.

Absolutely.

That's for sure.

now let's move on probably to even a happier part.

What are you doing now when you sold your company? What's going on now?

Yeah, so we were incentivized to stay, at whiplash for awhile and I'm actually just wrapping that period up and I'm thinking a lot about what I'm going to be doing next.

it could be, it could be venture backed, it could be not, I want to make sure that, whatever I end up doing that venture is the right answer.

Sometimes I find myself, there's all these types of things in the world that venture isn't appropriate for.

Like if you're going to open like a cafe that's not venture, right? Or if you're going to open like a garden center that's not venture and those are great, interesting, valid businesses.

there's all of these things to meet the requirements of venture capital that turn it into a certain kind of idea that gets through.

I'm actually kinda battling that myself if I want to accept those constraints.

the other part of it is that it puts someone else in control of your destiny, right? You're asking permission in a sense from venture capitalists, like may I do this thing? And that is just fundamentally the wrong way for an entrepreneur to look at the world.

Good point.
That's a good point.

here I want to talk about a successful founders speed and source of capital or maybe advisory to younger, earlier stage founders.

do you invest as angel investor in any startups?

I could, review pitches periodically.

I haven't seen anything yet that I'm personally convicted yet.

I have like no deal flow personally.

Maybe a couple, when, in which case I was actually in conflict because my position at whiplash still and so it feels that I might've done, I can't do right now.

I do think especially if you've got entrepreneurs who know the space that you're trying to tackle and can see the problem in a way that other people might, I think that's probably the best way, the best type of founder or to approach.

Cause the other thing about founders is that they know it can work. Sometimes.
They also know how long, how likely it is that you'll fail.
Y up.

Yup yup.
that's exactly why I'm getting so many complaints about, it's about the, I'm producing some dark content. You're the reason for that, so I'll blame it on you.
Okay.
I'm just kidding.
Just kidding.

seriously, do you sometimes, so a lot of founders get advice, like get some experience founder on your board as an advisor, so that's once in like two weeks or once in a month you meet with him or her and you ask for advice, you checking just oversee what's going on in the company and maybe he or she will give you some valuable advice.

Do you do anything like that?
Absolutely.
Absolutely.
I've got a few, some of them are VCs, some of them are just really smart people who I check in with regularly. we have like standing meetings where we just kinda check in and part of is just like friendship.

? Right Was I think an important part of anything that you do.

other parts of it are just like, Hey, I'm thinking about this idea, what are some of the, like, what do you think of? Is there like a huge competitor in this space that I'm not aware of? That's an important thing to know.

just kind of workshop some of those ideas.

It's I think there's some of that's important and then there's some of that where it turns into that thing where you're asking her for permission and you have to make sure that you're not letting their advice take too much weight.

I think as an entrepreneur there is such a difficult blend of belligerents where you have to reject advice because the same thing is not to do whatever it is you're attempting and then also listening really carefully to make sure you are getting advice and that you're not just acting out of some unhelpfully irrational point of view and that you're using some empirical evidence that your decision is based in.

I think that's actually one of the most difficult things.

I've I've been developing that personally for like 20 years and I still don't think I have it nailed right.

When are you a jerk about it and stubborn and when are you just like a rational, Oh, of course.

That's a great point.

I won't do that.

That's, that's something I can never understand.

I think I already just, talk to myself but then I was just like, okay, just accept that fact that you can never understand if you're doing a horrible mistake, not listening to advice or you're actually doing the right thing.

So I was just like, alright, whatever. Wherever my God feels right. Yeah.
some of it I think you do.

I I, I like the idea of taking it back to empirical evidence.

Like I invested in whiplash like for years, little my time and energy because I could see something in the math that worked.

that I was making my conviction based on something that I saw in our numbers and this future place where I'm like, maybe we're not there today, but I can draw this line and show that we're going to get somewhere good.

I like to think that in my best moments, my belligerence is based on that empirical evidence and not just my gut, or some irrational thought that I can't defend it.

if I'm in a position I can't defend, I think I have to do that homework of making it defendable. Like maybe this is a gut, maybe it's right, but then we got to take it back.
We got to find something that is actually driving this.

Maybe you're getting an intuition about something that is true and you got to figure out what that is that intuition is pointing to.

Right, right.

here, let's talk more about some real things that can be measured, not a gut feeling.

let's talk about your advisory work as actual work.

do you get to compensate for your advisory work or do you just, do, because you liked him because he just wants to give back to community?

I just, I just like it.

I don't do a ton, but I do and I enjoy getting to know people and kind of providing my take on what they're experiencing.

That that to me is super satisfying and it could, I think it's appropriate and often for that to be there to be a financial incentive because of my position and these are industry related companies, I'm currently not being compensated because it would be a conflict.

I think, I think fundamentally it's probably a good idea because then you've got alignment and as a generally tried to rely less on altruism than aligned incentives.

Absolutely. Yeah. You're right.

how should founders reach out to you and people like you? What do you think what personally on you work? So I personally follow you on Crunchbase, then I reached out to you on LinkedIn and then followed up with an email and I think you responded to the email.

that the way that founders should reach out to you with a request for a becoming your advisor? I mean for becoming their advisor or is there a better way?

It's tough to say because yours, your path did work.

It's it's less than 1% success rate.

like I delete almost everything out of hand.

I feel really special now and so I can speak to that.

what happened is I, I didn't record the podcast, but I went and looked at some of the former episodes.

Your guests were thoughtful and reasonable people that I was happy to be a peer of and you're a good interviewer.

I was able to say yes and because it aligns with my personal needs to get my name out there and self promotion and all those things, I think it works.

The vast majority of the things you're competing against and are people selling products to CEOs and operations people.

those me, like my inbox has turned into an advertising channel for them.

I would say that fundamentally is broken and almost because I want to demonstrate that it doesn't work. I don't allow it to work.
That's, that's really reasonable actually.
now I'm trying to reach out to more successful founders like yourself.

by the way, you just boosted my ego, like huge weight.

I'm trying to bring more founders like yourself who sold their companies before.

one I reached out to one guy before and she was like, yeah, it sounds good.

I checked out some of your previous episodes.

Look awesome.

I would be happy to talk to you if that was scheduled, an interview, I mean, pre-interview call.

before we jumped on the culture, it was like, wait, you're not going to try to sell me anything.

? Right Yeah.

I'm like, Oh my God.

No.

It, it gets so many requests like that I is horrible at this.

and there's so many.

it's like, it's made my inbox a fairly unpleasant place to be.

To be honest.

I have a personal rejection of advertising.

It just me.

And so, I actually hate my inbox.

I've thought about hiring somebody to manage my inbox just to forward me the 5% of things that are relevant.

I think that problem has gotten really pronounced in the last few years.

obviously I do that at scale for the companies, but I'm considering doing it personally as well, just as a defense mechanism.

Absolutely.
I think it really, everyone who's successful should hire an assistant, part-time boots.

While you don't have an assistant, how should Foundry to reach out to you personally? So as I understood it, I think only warm intros from people work.

that the only way basically to reach out to you?

Yeah.

Warm intros, work, warm indoors, absolutely work.

it's, but it's also the kind of thing you've got to do it.

It's gotta be respectful of everyone's time.

It can't be like a prey and a spray and pay right campaign.

it's gotta be real.

Right.

But I think that is totally effective.

Anyone in my network who thinks it's worth my time, I will usually take the call because I know that they're putting themselves out on the limb and, and I respect that as a signal of potential interest.

Right, right.

now let's talk about something you mentioned earlier and it is the beach deck review.

You've seen plenty of them.

You have analyzed them, you've decided if they're good or not.

What do you think are the three? Must have points on the beach deck.

let's see.

A clearly articulated problem and your solution is a big deal.

I'm going to steal one line from Elizabeth yin.

which is she wants the problem stated in statistics, both why the problem exists and also a quantified way in which you are a product or offering is superior.

you've got to do some kind of study or some kind of user data preferably generated by you rather than looking at, something that you can scrape off the, I think that's a big deal and I think it focuses you to do the work behind that slide to make sure that you're actually speaking about it intelligently.

then, I would say the other thing that I look for is they've very strong distribution plan.

There's a problem that I have that I watch a lot of founders have, which is a focus on product as opposed to distribution.

anyone who's been in the industry for a while will recognize that great products fail all the time.

the mediocre projects do find sometimes, which is kind of a bummer, but the truth, what they have is distribution.

you talk about like what is your unfair advantage or your secret sauce or whatever it is, a big part of that is how you're going to reach customers cost-effectively and how are you going to scale that, right? Like so what is it that you're doing today and what is it that you're gonna be doing differently? Once I write you a check that shows us that, okay, this is really going to dramatically change over the next period of time.

That's a good point.

That's a really good point.

I think here we came up to probably last question of this episode and then we'll wrap it up.

this is something that I'm trying to ask now.

All of my speakers, and it's call to action basically.

once the founder or whoever's listening to this episode is finished listening, what should he or she do like exactly once they're done.

I mean of course they should hit the previous episode and check out fundraising radio.

other than that, should they probably go on LinkedIn and reach out to their old friend from college and like ask what's going on or what was specifically one specific faith thing that they should do?

One specific thing I would say I've been in divisioning right now and so it's a very clearly articulated vision of how you see yourself in the future and like where you see the company and where and just how you picture your entire life and how the whole thing fits together and so the idea of visioning is usually a piece of writing and it's not necessarily going to get shared outside of yourselves, but it's getting a crystal clear vision of yourself.

Like when you walk through your Workday, who are you talking to? Where are you, what problems are you solving? Where do you, is your company like on a marquee somewhere? Is it the signature of some email product that everyone is using? I think that there is probably no replacement for that.

Getting that crystal clear vision in your head and to me that happens through writing. That's great.
That's great advice.
Actually.

I think writing is a great tool.

I mean I write all the time and whenever I'm writing something it just helps me clear out my thoughts, and then I just understand what's going on.

You know better.
Yeah.
Yeah.
You need to know star, you need to know star. Yeah I think writing can provide that.

Right, right.
I think we'll wrap it up here. I ran out of questions.

I was, I came up with a question right before when you were talking about writing, but then I got distracted by that and I forgot the question so I think we'll wrap it up here.

Thanks a lot.
Chains for coming up and for sharing your experience and knowledge in this field.

I think this episode has really a great story, ups and downs, everything that you are supposed to have in a real startup.

thanks a lot and stay safe out there. Thanks.
You too.
Thanks for having me.

Bye bye. Bye.