David Stone has lived the big-company corporate life and the startup life. There’s no contest. He prefers the latter.
“I just get tremendous satisfaction out of creating something out of the ether and seeing it come to life,” Stone says in his Founder Forum interview.
Stone has been involved in eight or nine startups in senior roles, though he only founded or co-founded three of those—Sports Rewards Systems in 2002; CashStar in 2008; and his latest venture, Forager, which emerged from stealth mode last week. He’s also worked as an intrapreneur within big companies like American Express and Unum; a job at the latter is how he ended up moving from Massachusetts to Maine.
Stone is well know in Maine’s startup community for co-founding CashStar and growing it as CEO into one of the state’s most successful startups. The company, which works with major retailers to develop digital gift card campaigns, had $15.8 million in revenue in 2013, the year Stone left the company. The company has since continued growing. It claimed to hit record revenue in 2016, but declined to disclose its revenue.
Forager, his latest startup, aims to improve the local-food supply chain with software that provides a platform for farmers and grocers to better communicate and manage their business interactions.
In our conversation, Stone speaks candidly about the challenges—both universal and personal—of being an entrepreneur, mistakes he’s made, and why it’s not necessarily a bad idea if a young entrepreneur decides to move his or her startup out of Maine. There’s even an obscure M*A*S*H reference. As always, this conversation has been edited for clarity and length. Enjoy.
Maine Startups Insider: What was your first entrepreneurial experience?
David Stone: I started a school canteen when I was 17 years old in my high school. I also ran ice cream trucks where you basically pay for the truck for the day and sell as much ice cream as you can when I was a freshamn in college to make a few bucks.
Tell me about the canteen.
It was a long time ago, it was in Worcester. There was no place other than the regular cafeteria to eat, so a lot of the kids were walking a mile away to a little convenience store. So I petitioned the powers that be at the school to create a little school canteen here and promised to donate 10 or 20 percent—I can’t remember—of the revenue to the school for activities. And they gave me the green light. So I started this canteen in the janitorial area. Some friends and I painted these murals on the wall to make it look good and I cut some deals with some wholesalers to give us discounted products or seconds, and the thing became a huge success. It became such a success the school actually closed it down in its second year of operation because there were lines out the door and parents were getting concerned that the kids were getting junk food or whatever. So they closed it down, but it was enormous success. I think we did like literally $70,000 in sales, which doesn’t sound like a lot, but for a small school canteen it was huge.
Your first brush with entrepreneurial success. Since then, you’ve started several companies. What’s the largest common challenge you’ve faced in every startup? And how have you overcome that challenge?
I don’t really want to spew pablum. I mean all the obvious things that you’ve written about, whether it’s raising money or getting your first customers—those are all part and parcel of any startup. So I don’t need to regale your audience about those challenges. I certainly wouldn’t minimize them in any way, shape or form. But I think for me personally, especially early on, it’s getting people to see and share my vision of what the future can be in the face of enormous challenges and barriers. I just always seem to pick—at least in the recent 10 or 15 years—markets or areas that are really early in the adoption curve and getting people to follow or connect the dots with me can be a real challenge.
Having realized that’s been a challenge for you, especially when you’re in a nascent market, do you approach things differently now with Forager than maybe you did with your first startup, Sports Rewards Systems? Have you learned how to cope with that or somehow handle it better?
Well, I think the best remedy for this sort of thing is to actually get some success and get customers to actually use your product. That’s the very best thing you can do and it becomes a proof point. Then you start to get people on board. Am I better at it? That’s a really good question. I’m so self critical it’s hard to know if I’m better at it. … Did you ever see the program M*A*S*H? Do you remember Radar? It’s trying to find people like that. That’s a bit of a metaphor, but it’s trying to find someone on your team who can help you translate what is in your gut and in your long line of sight into tangible steps to get there. I think that’s really important for me. And I have to watch to be very careful to not get too far ahead of myself. I think I’m much better at that than I was early on, kind of breaking things down and looking at what we need to do in the next six months and not going off in too many different directions. Because I have so many ideas all the time and I have to sublimate, stifle a lot of them to stay true and focused on the execution.
Tell me about a failure you’ve experienced with one of your startups and what you learned from that experience.
Let me give you two things. I did run a company called Personal Health Management for a venture capitalist. I took it over. This was a good lesson. It was a company in 2000 that was trying to build health and fitness monitoring wearable computing devices. That was in 2000 and there were no mobile phones and no Bluetooth. I had to go to the investors and say, unless you’re prepared to wait a long time and invest $50 million, it’s time to close shop. So I sold the assets and returned a bunch of capital to the investors. So knowing when to pull the plug and stop is certainly a very important lesson and a lot of entrepreneurs don’t realize that unless it’s too late.
I think a mistake I made at CashStar was expanding internationally. Again, part of my vision was that digital gifting could become international, so I took investor money to build out a UK office and a UK business and it was too early, and it was a mistake. So guard against overly expanding and stretching yourself geographically, too extensively. That would be a lesson I learned.
Have you benefited from mentors? If yes, what impact has mentorship meant to your career?
I spent the first 16 years of my career in big corporations, so in the corporate world I had some mentors over the years and they were helpful to me. But in the startup world I really haven’t had mentors. I guess I wish I had. Part of it was I was up here in Maine and there weren’t a lot of mentors around when I started my first company, which I think was in 2002. I had a lot of people I reached out to for advice, but they weren’t mentors. I’ve had individuals along the way help me out, but a pure mentor in a mentor-mentee relationship, haven’t seen that except when I was in the corporate world.
You’ve told me you enjoy building businesses, but not necessarily leading the businesses once they’re mature. So, when you start a company, do you get into it with an exit strategy in mind?
I think with experience and maturity, I’m clearer about it now. I wasn’t clear about it when i was younger. I was forced to exit a company that I helped get off the ground in Cambridge when they wanted to bring in a more experienced CEO.
I always say there are basically—and I’m simplifying—three stages of a startup and there really are three different skill sets and mindsets that are required. There’s the zero to $1 million—I’m talking about revenue—and only five to 10 percent of all startups, depending on where you are geographically located, will get to $1 million in revenue, and that requires a certain type of skillset, and mindset, and approach. Then there’s the $1 million to $10 million range, which one to two percent of companies get to, and then there’s $10 million plus, and each of those requires a different set of skills. Now, of course, there are entrepreneurs, like Mark Zuckerberg, and many others, who have shepherded their companies from zero to billions, so it can certainly be done. But they do require different skillsets and mindsets. For me, clearly at CashStar, probably around year four I started thinking about it. It was a lot less fun for me personally, just the day-to-day nitty gritty and grind of running an 80-person company and having 200 top retail customers. I was just pulled in a thousand directions and couldn’t spend the time doing what I loved to do most, which is create and innovate. I did start looking for a COO and if I had found the right person, perhaps I would have stayed longer, but it didn’t eventuate for whatever reason and it just wasn’t the right environment for me… I mean, the company was doing really well, but it just wasn’t the right environment, it just wasn’t in my sweet spot and it was frustrating. It began to feel like a bigger, slow-moving machine and less personable kind of place. So it wasn’t ideal for me in terms of my skillset. Could I have done it and been more successful? Yes, I could have; I probably would have done some things differently.
I see entrepreneurs around the state and other places where their companies are growing and they won’t let go. As a mentor it’s hard to tell them, “You need to look at yourself in the mirror and ask yourself: ‘Are you the right person to be leading this company at this stage? Are you the actual best person?’” It’s very hard for the entrepreneur to look in the mirror or step back from himself or herself and really do that both gut and skill assessment and decide what’s best for the company in the long run.
If you’re just doing it to make a million bucks, or for personal fame, those are fine reasons, but I’m not sure those will carry you through when the going gets tough or when you have to look investors or your team in the face during difficult times. I think there has to be deeper meaning to it. This isn’t a job; it’s a life.
How does an entrepreneur know if they’re the right fit for different phases of their company? As you said, some entrepreneurs have led their companies through all those stages. How does an entrepreneur know whether they should give up the reins or should try to pull a Zuckerberg?
The thing is you don’t necessarily know it. The signs may be there. You don’t sleep as well, you have a lot of stress. In my case, I was working 90 hours a week. It’s like anything; you start to feel less good, less healthy. I know for myself that within a couple years I don’t want to be running this company. I’m wiser about it and smarter and I just know it’s not what I want to do. And there are people that will be better at it than I will be. I think there’s an ego aspect. I mean, what drives entrepreneurs? At the heart of it, why does someone want to be an entrepreneur? I would encourage any entrepreneur to ask themselves that question. What is your motivation for wanting to be an entrepreneur?
What’s your motivation for wanting to be an entrepreneur?
Well, I just get tremendous satisfaction out of creating something out of the ether and seeing it come to life, and have people use it and have it effect changes. It’s not really about making a gazillion dollars for me—sure, that’s important, but maybe it’s number three or four on my list. So it’s really been about change. Each of the startups, as I’ve gotten more seasoned and gone to battle more and more times, each of them has become clearer for me. With a degree of hubris, CashStar was a personal mission of trying to build the next great company in Maine and prove to all the naysayers who knew me that I could actually do it in Maine, and to all the investors and my co-founder in Silicon Valley who wanted me to move the company there, that we could do it here. So I was on a mission there to do that. The entrepreneur really needs to know the reason they’re doing this and is it something you’ve just told yourself or is it really pure and something that resonates deeply with that individual. If you’re just doing it to make a million bucks, or for personal fame, those are fine reasons, but I’m not sure those will carry you through when the going gets tough or when you have to look investors or your team in the face during difficult times. I think there has to be deeper meaning to it. This isn’t a job; it’s a life.
So, tell me about Forager and what your long-term goals are for this company.
I think with Forger there really are three long-term goals. It’s about making locally sourced food truly more available to everyone for all the reasons that are obvious. The second is to build something with lasting social impact that goes beyond me personally and the work I’m doing presently. And three is try to put Maine on the national map as a leader and innovator in the local food sector. We did that to a certain extent with CashStar, but put us on the national map as leaders in this sector.
So, in both cases—CashStar and now Forager–one of your stated motivations has been to put Maine on the map and, at least with CashStar, prove to naysayers that you could build a successful startup in Maine. What makes you so confident that you could succeed?
Part of it is force of will. Obviously luck plays into it, but if you’re going to be an entrepreneur you have to have enormous will power. I mean unrelenting commitment and willpower. There are definitely good days, but there are a lot of dark ones, too, and you have to pull yourself up and rally the troops and have faith.
I came to Maine because Unum brought me in to be an intrapreneur, and after the merger I tried to get a startup off the ground in Maine and every single person here in the state said it will never happen, David. There isn’t enough critical mass. There isn’t enough capital. Blah blah blah. And I worked away for eight years, and goddamint I’m going to … what makes someome become a leader or a great this or great that—not that I’m so wonderful, I have my own flaws—but it’s a drive or a mission. You take it on that you can do something. That’s kind of what… I want to be humble. It’s … What are those things that make that person succeed and make a difference? What is it? It’s a calling. It’s a commitment. It’s unrelenting drive. It’s intangible. You need some adversarial forces sometimes …
What about the temptation to move the company elsewhere? I speak to startup founders who may have some momentum and are attracting some interest from VCs, but the VCs will make moving to Boston or San Francisco a requirement to receive an investment. If an entrepreneur in Maine came to you with this scenario, what would you tell them to do? Do they take the money and move their company? Or stay in Maine and rely on their force of will?
Well, I mean there are pros and cons. If you’re a young entrepreneur and you want to learn and you can do it and it’s your first time out, it may be the best thing for you to leave. It’s like the gold rush; go where the gold is. If you want to be in the logging industry, go where the forests are. If you want to round up cattle, you need to be where the cattle are. So I would say go, because you’re going to learn, you’re going to make the connections. The odds of succeeding in Maine are better than they were 10 years ago, so it’s a little easier, but the odds are longer here, there’s no question about it. There isn’t as much capital, there aren’t as many mentors, there aren’t as many successful entrepreneurs. So I would say if you’re a young entrepreneur and you can get in bed with a good VC—getting in bed with the right VC is a whole other discussion for another day—it’s probably a really good idea. I had the good fortune of working for a venture capitalist in Boston running two startups. I had the good fortune of working in the early days of the internet with some really good founders. I had the good fortune of working with Intel Capital and innovating in their intraventure group, so I had a lot of training along the way before coming to Maine. So if you’ve never done it and you’re a first-time entrepreneur and you have the opportunity to go to Silicon Valley or New York or Austin or Denver, yeah, go—and then come back. Bring that network and funnel back to Maine.
You want to hire the best people you can, but that doesn’t necessarily mean the most talented.
Besides that advice, if someone who wants to start their own company came to you for advice, what are two pieces of advice that have helped you along the way that you’d pass along?
I think you have to have enormous and unrelenting faith in the solution you’re trying to solve and the project you’re trying to build, because if you don’t, you’re not going to succeed. You have to have a lot of body armor and resilience. I’ve seen too many team members and entrepreneurs give up because they’re just not cut out for it. So that’s the first thing. On those days when no one is returning your calls or emails and you think you’ll never get a customer, you got to believe.
The second one is a little more subtle. You want to hire the best people you can, but that doesn’t necessarily mean the most talented. It’s really not just about the talent; it’s about hiring good people who are both passionate in their own ways about what you’re doing and who are also going to be good to each other. You’re trying to build a culture and a working environment and everybody is going to have to wear a lot of hats, and so they’ve got to get along. You don’t necessarily want to hire the smartest person in the room, and you also don’t want to hire specialists early on. You need people who can do a lot of things. I like to quote Elon Musk. He said: “My biggest mistake is probably weighing too much on someone’s talent and not someone’s personality. I think it matters whether someone has a good heart.” I love that quote. They have to come to the table with skills and be solid, but the other softer skills go a lot further. That’s kind of why we call it software. Soft is hard. Hard skills are actually easier.
And obviously, this is really important, and I saw this sometimes when I was Entrepreneur in Residence at MTI, if you’re going to be a CEO and founder, you have to be a good sales person. Unless you have a co-founder who is doing that, you’re selling. You’re the chief sales officer in your company and you’re selling to investors and you’re selling to customers, you’re selling to influencers. So don’t go into it on your own if you don’t know how to sell. If you don’t like selling, don’t do it. But that’s kind of obvious.
I don’t know. Maybe it’s obvious to some, but I think sometimes entrepreneurs don’t want to accept that. If I just think I’m an ideas guys or a super talented software developer and I create something that’s going to be so great that customers are going to flock to it, I won’t even have to sell it it’s going to be so great. I think there are probably some entrepreneurs out there like that.
That’s correct. So, if you’re going into it like that, then get someone else who loves to sell. Picking the right co-founder is the subject of a book some day. No one is going to call you. You’re going to be in your office and no one is going to call you. If you’re an introvert—and introverts are fine people, don’t get me wrong—you better have someone around you that’s going to be able to fill that role. But at the same time, you can’t just be a salesperson selling snake oil. You have to have something. This is why it’s hard to be an entrepreneur.