MFV Webinar - Leading in an Economic Downturn (with Tom Gardner)

Filmed on May 26, 2020

As a response to Covid-19, Tom Gardner, CEO and co-founder of The Motley Fool, along with Ollen Douglass, Managing Director of Motley Fool Ventures, hosted a webinar for Motley Fool Ventures’ portfolio company founders. In this webinar, Tom shared his heartfelt experiences being a leader during challenging financial environments, including six lessons he learned navigating the 2000-2001 dot-com bubble and the 2008-2009 recession:

1. Always be in negotiation with your sources of capital
2. Always search for new sources of distribution
3. Expand relationships with the customers that love you most
4. Find the person who is your company’s “ear”
5. Strive for a remote workplace
6. Give extended severance

Tom’s insight will help leaders and leadership teams navigate the current complexities and ripple effects of the Covid-19 pandemic on businesses for years to come.

We invite you to watch the video or read the lightly edited transcript below.

Ollen Douglass:

Welcome, everyone to Leading in an Economic Downturn with Tom Gardner and Ollen Douglass. We will start momentarily, as in right now.

Tom Gardner:

Love it, Ollen. I’m so happy to be here and hopefully, can share some personal stories of things that we’ve both been through without doing too much damage to your portfolio of companies in the process.

Ollen Douglass:

I think this is going to very exciting. And welcome, everyone. Really appreciate you joining us. I’m going to stop sharing my screen at this point so that you can see all of us. Am I no longer sharing, Tom, or am I still sharing?

Tom Gardner:

I think you’re still sharing, although maybe that’s just how you’re-

Ollen Douglass:

No, no, no.

Tom Gardner:

Rendering to me. Obviously, anyone can note something in the Q and A or in the chat, it would be helpful to know if the sound quality is good enough and-

Ollen Douglass:

Oh, there we are.

Tom Gardner:

Yeah.

Ollen Douglass:

There we are. Okay. Very good. Perfect. Then want to get rid of that-

Tom Gardner:

Awesome.

Ollen Douglass:

Get rid of that. All right. Very good.

Tom Gardner:

So I think what we’re going to do … I don’t know, Ollen, do you want to provide a little intro?

Ollen Douglass:

Yeah. So what we want to do here is … So we have with us Tom Gardner, he’s the CFO of The Motley Fool.

Tom Gardner:

CFO. Oh, I love it. Finally.

Ollen Douglass:

Finally.

Tom Gardner:

I’ve been coveting this moment. Allocation unlimited.

Ollen Douglass:

Oh my God. Uh oh, Kierra’s going to be not very happy with me when he finds out about this. Tom is a CEO of The Motley Fool. The company has been around for 27 years and through that, we’ve been through several up and down cycles. And as we sit here in the midst of the coronavirus pandemic, we thought it would be very helpful to have Tom join us to talk about some of the lessons that he’s learned over the years going through a crisis. One thing I want to add is that while it may seem like we’re past the shock of the COVID-19, what we found, historically, is that these types of events have ripple effects that can really shape a company forever and going forward. And it’s really important to be thoughtful about the lessons learned and just really making sure that you position yourself to address not only the most immediate issues, but the long-term impacts.

Ollen Douglass:

Tom is a great person to have to come to this, he’s joined us. The format we’re going to use is … I think Tom has a few points that he wants to lay out, five or six of them, which I think are great. We’ll have him talk about those, maybe that takes 15 minutes or so, plus or minus. And then what we want to do is open it up for Q and A with the group, so that everyone has a chance to ask their questions, we’ll respond to them. You can put your questions into the Q and A, which I will monitor and read. We also will be checking chat to see what’s in there, but the Q and A will be the best place to … The Q and A is the best place to put it. And then I just heard … And if someone could tell me that I’m breaking up a little bit, if that’s true, let me know and I will see what I can do to fix it. But as we wait for that, Tom.

Tom Gardner:

Sure.

Ollen Douglass:

Welcome. Welcome.

Tom Gardner:

Thank you, Ollen.

Ollen Douglass:

Thank you for joining us. Thank you. I’m going to turn it over to you and give us some … Open up your box and some thoughts that can help spur the discussion.

Tom Gardner:

Cool. So same thing for me, if I start breaking up. My internet seems to be mostly good, but occasionally bad. If that happens, I’ll just remove the video, which would be a benefit to everyone, and I’ll just be on audio. I’m going to make six points to start. Ollen and I went through them right before getting together here, so Ollen will jump in with some thoughts at any point as well. And mostly, we’re excited to take your questions and hear any specific, detailed things you’re trying to solve and any way that we can be helpful. I’m so thankful to you that you decided to be a part of Motley Fool Ventures and that you’re out there doing your best to run a great organization that has a positive impact on the world and, possibly, that never-endingly grows and innovates. So, that’s the spirit of The Motley Fool and I’m thankful that we have this time together. Now what we’re going to try and do is be done with this by 2:20, let’s say, east coast time. That would leave us 40 minutes for Q and A, and that would require me to be succinct, so let me see how I can do at that.

Tom Gardner:

So my six points. My dream is that one of these points is beneficial to you, so I’m just trying to bat 160-ish, which is kind of my Little League. Sorry to bring baseball and numbers in there, but kind of how I did it in the Little League at a certain point. So I’m just trying to go one for six, maybe two, three for six, and maybe there’s something relevant in other points for you as well, but I’ll just rattle through them pretty quickly. So I think the first one, let’s start with on the financial side of getting through a crisis. I think it’s a good idea to always be in negotiation with your sources of capital. That would include Motley Fool Ventures and Ollen, all the way through to whoever you’re banking with to your suppliers. There are many ways to pull capital into your organization. For us, in 2001, when we were just brutalized as a company, we were poorly prepared, we didn’t have great business model thinking. And we were devastated, we had mass layoffs, three separate layoffs. Ollen arrived and a week after he arrived, he was asked to be a part of helping us figure out the cost structure of our company.

Tom Gardner:

And so one of the things that we did very well in 2001, and thankfully, we didn’t really have to call on it much in 2008, 2009, and thankfully, we haven’t had to very much now, but to always be in conservation with our venture capitalists, with our bankers. In the case of The Motley Fool, we had the benefit of our dad being very interested in the subject of the business that we started. How fortunate are we for that? And Dad said, “As a private company, you should always be banking. Always be reaching back out.” In our case, Silicon Valley Bank. Always be asking what is the cost of capital now? How much could we borrow? At what rate? What would the covenance be? And just have somebody checking in. That strengthens the relationship. When you go through a crisis, it makes them trust you more because you’ve been in constant contact. It also is just true, there will be moments when you have leverage over your sources of capital, and there will be moments when they have leverage over you. And don’t hide from that reality. In fact, I mean, I know, Ollen, that in your interactions with Silicon Valley Bank, that was a frequent reality for you. I mean, you expressed it well beforehand. How would you express always being in contact with your sources of capital?

Ollen Douglass:

Yeah, yeah. And people know I did have a very good relationship with the folks at Silicon Valley Bank, but when we go out for deals, we do a competitive pricing analysis. We look at other banks to see what they can offer us and when we have the strength, we make sure we do that. There are other times when we’re not as strong and so, as I said, when we have strength, we really squeeze for the best terms we can get. And when we know we’re not in a strong position, sometimes it’s … You got to, like, please don’t … Please don’t rake me over the coals. But in a strong relationship, there’s room for movement and you can kind of make it work. But it is being realistic and letting people know where you are is really important, especially if you want to negotiate with Motley Fool Ventures. I mean, we were always willing to tell you where you are and what would happen if you came to us to raise capital today. We’d be happy to have that conversation with you, so.

Tom Gardner:

And I think at The Motley Fool, we ran into a little bit of a speed bump in 2016, where there was a moment there for a couple months where it looked like we might trip a covenant. Now this was at a time when we had debt at a three and a half percent interest rate. For those of us who had been around a long time, we had had debt at north of 20% interest rates. So at three and a half percent interest rate, tripping a covenant was probably going to trigger a few … Maybe a four percent interest rate. However, we took it very seriously and we don’t want to trip a covenant, we don’t want that in our disclosures for years forward with our source of capital.

Tom Gardner:

But what was interesting about it was when I met with Silicon Valley Bank with Ollen during that time as we were having a little struggle, and it was one of the most … It was a coffee break. I think our company was very worried, and I can understand that, you don’t have full information where you’re sitting out there, it’s not easy to get everyone into that meeting with Silicon Valley Bank. But I went into the meeting and Silicon Valley Bank was laughing. They were like, “You are so ahead of the game in talking to us about troubles that you’re having. We’re not worried at all. And yeah, it is true, we will raise the interest rate a little bit, but we’re not concerned about this.” And I think a lot of that … I’ll say half of that came from Ollen just having an ongoing relationship with them, where he’s talking to them, explaining where we are, explaining what problems we’re facing, et cetera. So, that’s point number one.

Tom Gardner:

Point number two is … I’ll tell a little story. I have a friend who has a pretty unique product and is a supplier to a major retail chain, and that retail chain owns 20% of this person’s business. So from one year to the next as I’ve spoken with this person about his business, I probably talk once a year to him, his frustration mounts about his relationship with this distributor. His questions are why am I not getting any kind of favorable treatment? They own 20% of my company. What am I doing wrong that I’m not at the shelf space area that I want to be? I’m the unique brand that started this category. And then as the years passed, they’re launching their own product, private label, to compete with me. I’m getting even worse shelf space and they own 20% of me. And I will say I’ve been consistent in my conversation with him and I know the process he’s going through because we went through it multiple times, first with America Online, second with Yahoo.

Tom Gardner:

And that is that when it comes to distribution, seek many sources. Always be on the search for new sources of distribution. Hopefully, your business allows you to sell a lot or all of your solutions direct to your customer. But if you need other sources of distribution, and we all should, not everyone’s organically going to come to our site or find what it is that we have to offer, so we need distribution partners. But never anchor on a single partner because it is actually the correct business play in the game of cards called business for that distributor to take leverage on you if they have it. It’s not wrong of a distributor who owns 20% of you to ultimately create a private level solution that competes with you, even though it seems outrageous and a violation of trust. From a simple business strategy standpoint, if you’re anchored on one source or two sources, either their system doesn’t care enough about you to try and make exceptions for you that would make other suppliers unhappy, or you’ve created a big enough market that they actually should create a solution in that area themselves.

Tom Gardner:

So, we definitely got nudged out by America Online by their partnership with Forbes and other financial magazines that were like hey, we’re willing to come on AOL. We’re willing to pay you 10 million dollars a year to be on AOL. But not if The Motley Fool’s getting all this promotion, we want them off the shelf on AOL. And we were so shocked by that. We were constantly negotiating with AOL. Then we had similar dynamics with Yahoo, when we finally woke up to the reality of hey, it’s actually not their fault that this is an unhappy relationship. We need to control our distribution, we need many, many sources of it. So, I would encourage you to constantly be on the lookout for new places to distribute your solutions and not be surprised over a multi-year relationship if one of your distributors is coming back with less favorable terms year after year. I don’t know, Ollen, if you have a reflection?

Ollen Douglass:

Yeah, Tom, I agree with that. And I think the general idea is no company wants to be over-reliant on another company, and so there’s always going to be pressures, whether it’s them, your distributors, the way they look at you, or you, the way that you look at your suppliers. As you can see in this day and age, it really does become a mounting risk to be more and more dependent on any single source that’s critical to your business. So there’s always a pressure above you and below you to diversify, and you just have to lean into that.

Tom Gardner:

Love it. Point number three. Particularly in a crisis, but really at any point along the way, we should be checking back with the customers that love us most, our largest customers, our most loyal customers, and trying to create solutions for them and expand those relationships. We all have a purpose statement that moves us to do whatever we can to make this aspect of individuals or organization’s lives better, but there are different levels of customer engagement and customer spend. And obviously, particularly through a crisis where there is a lot that’s unknown. I mean, none of us know what a second wave could look like. I don’t think, from whatever reading I’ve done, as a lay person out here, that this is like the Spanish flu three waves, where it gets progressive. Second wave of Spanish flu was the Spanish flu that devastated the world, it wasn’t the first wave. So, there’s a lot of unknown and really anchoring close to your largest customers and your most loyal customers and trying to find solutions that will either lengthen their relationship with our companies, or cause them to increase their spend.

Tom Gardner:

We have a lot of people right now at The Motley Fool that are increasing their spend with us in the middle of a set of circumstances where all of our financial models suggested that our numbers would be in decline. Market was down 30% at one point. The VIX, the measurement of volatility of the market hit an all time high north of 75. It’s never been that high in history. So, the market was just collapsing, there were actually no firm prices for stocks. Where was Wayfair supposed to be priced, at 30 or at 160? Just look at Wayfair’s stock chart, the distributor of furniture online, and you’ll see there’s no floor on the price. So there was a lot of unknown. Now as we get more information, there’s less that’s uncertain, but we also don’t know when other macro or external circumstances could hit us and it’s really important to be real close with your largest customers, those who spend most with you. It is that group that will allow you to expand your purpose and allow you to seek new customers who may not be able to spend as much, who may not be familiar with your brand, who may need a lot of tests and trial before they’re willing to spend and stay with you.

Tom Gardner:

So, I think that there’s probably 10%, Pareto principle, let’s go 80/20. But the reality is let’s look at the stock market. Since 1995, of all the IPOs since 1995, only four percent have driven 100% of the returns. It’s an incredible thing. We think about all the publicity around IPOs, et cetera, et cetera. Four percent have driven 100% of returns. That’s a little bit how we should look at our customers. I think a company like Whole Foods has found that a very small portion of their customers were driving virtually all of their profit. John Mackey, was on our board, I think he said to me, “Gosh, maybe we should’ve embraced whole paycheck”, and created another brand instead of just saying oh no, we’re supposed to be mass market, it’s all supposed to work out. There’s actually a business reality there. And I think through a crisis, really understanding what your best customers need is important. So, Ollen, a reflection on that?

Ollen Douglass:

I think I agree with you. The customers that are the most loyal are probably the ones that are using your products and services the most. Those are the ones that can be great sources for product ideas and probably the ones most willing to pay an increased price for those ideas. And so I think what Tom is saying is staying close to them, understanding the relationship, listening to what they like about your product, even if it’s not what you think they should like about your product, they are giving you the answer to higher sales and sometimes higher margins. And I agree, Tom, to listen to them.

Tom Gardner:

Awesome. In the interest of hitting of our 2:20 deadline, I’m going to march through the last three very quickly. I love Aneile’s question and I think we’re going to have a … You’ve got a great person to answer that question in Ollen. So, you can start letting your questions fly in. Again, they don’t have to be related in any way to the points that I’m making. We’re just here to hear what you’re going through and how we can be most helpful to you. So, last few points. Ultimately, we’re going to win as companies because we’re innovating. What’s the Dylan quote? I could probably get it word for word if I googled it, but I can’t get it word for word off the top of my head. But it’s like, you’re either busy being born or you’re busy dying. So you’re either creating some new things … And I think the place to innovate is around those large and loyal customers.

Tom Gardner:

And if you can create an innovation, and even a small feature that makes their world better in the middle of a crisis, you’re indicating something very powerful to them, that you care about them, that you want that relationship to continue. Again, it could be a very small feature. We’ve had a couple innovations at The Motley Fool over the last 100 days, over the last six weeks, that are indicating to our largest customers how much they matter to us, and the feedback we’re getting is overwhelmingly positive. And again, that’s the stable foundation for the business reality of the business that gives you the cash to continue to expand your audience and find new audiences and new solutions for them. So, I really encourage you to find something innovative for your largest, most loyal customer. No matter how small it is, it’s communicating to them that you’re … Make a priority of them and that you’re thinking about the problems and opportunities they’re trying to figure out and you’re their partner. And I’m going to bundle these three together.

Tom Gardner:

I guess, number five. I think it’s a very good idea to have somebody in your organization who’s really spending a lot of time, and maybe reporting back to you each week, with just some thoughts about where the world’s going as relates to your company. So we were talking beforehand to Ayanna, who’s out here somewhere, was talking about how much she enjoyed watching some reggae live concerts this weekend. And that’s one of the benefits of being in lockdown, that we find different ways to engage with the things we love. And I was telling her how much I love the movie, Marley, which I highly recommend everyone. I’m sure many of us have already seen that documentary. But in that documentary, there’s one person that Bob Marley begins to rely upon who can’t write music and can’t play any instrument. Can’t sing. Doesn’t perform at all. He’s just the ear. He’s behind the glass on the production team and he’s just listening and coming forward and saying, “I don’t like the sound of that.” And does he have any evidence or any credibility in the music world? No. But Bob Marley came to rely upon him because he actually had something that most people don’t have and that’s almost an intuitive seer, listener for what’s right.

Tom Gardner:

And I’d encourage you to find that person. We get very operational in a crisis, and we should, but thinking about where the world’s going is going to give you an idea of something new that you can do. And I’ll just say something that I’ve been thinking about a lot, that it will prove true for you and your business, but looking at all the public companies and how can the market be going up through this? Why is this happening? Is this just a bubble? Is this insane? If you actually look, there’s a bifurcation in the market. And I believe that the side that’s winning big are the businesses that don’t need employees to go to a physical place to do work and don’t need customers to go to a physical place to make a transaction.

Tom Gardner:

So, if you can get both of those things together, find opportunities where nobody has to come to a place, a store, a physical office to do great work, and no-one has to go to a physical place, a store, a venue to have a transaction with your company, that combination, I see, is creating a lot of value out there. Companies like Shopify, et cetera, are showing that. And Zoom are proving that out. I think Shopify has said that they don’t expect the majority of their workers to ever come back to an office. They don’t believe they’ll have an office-centric world at Shopify after this. So, just have somebody and be thinking about where the world’s going and how your company plays into that.

Tom Gardner:

I see it’s 2:23, so I will say the sixth and final point, which is kind of a sad or a negative point. But crises can turn up where you don’t have alignment with members of your team. Ultimately, you want a lot of ideas, you want great debate, but you do need teamwork. If there are alignment issues, if it’s like, “We’re going off and we’re doing our own thing out here, I don’t agree with that”, you really, particularly in a crisis, want to be one company. And when you see areas where that isn’t the case and you have some troubled situations, we learned from a public market CEO to really give extended severance and have it be an open conversation. Not a shock, not a deeply documented and a 360 degree feedback system where people are typing in tremendous number of words. I still remember in delight in the moment when we stopped doing that at The Motley Fool many years ago. Make it an open conversation.

Tom Gardner:

Somebody very close to me got severance from their company and, actually, they initiated it. They were like, “This isn’t working out, right? We don’t work very well together.” And this person, at a company outside The Motley Fool, initiated that conversation and it ended up leading to a very productive conversation, they got an extended severance package, everyone agreed it wasn’t working out. If you have somebody in your organization right now where that isn’t working out, in a crisis, that’s probably telling you something, that they want more autonomy in their work life, they have different goals or different aims than your organization, or they just can’t really work very well with the leaders at your company. And extended severance and an open conversation has been a very good thing for us at The Motley Fool and it’s been going for about 10 years that we’ve been operating that way. And so those are my six points. And Ollen, any more enlightened reflections from you, and then we’ll just take questions throughout the rest of this.

Ollen Douglass:

No, Tom. Those are awesome questions. I have some [inaudible 00:23:28] has some other ones. That’s interesting. So a question, before we dive into the Q and A, for you, do you have any thoughts on how long it will take us to … To take businesses, not the stock market, businesses to recover from COVID, and what do you define as recover?

Tom Gardner:

Wow. I think you’re going to give a better answer than I am because you’re connected with many more companies more directly in an operating way than I am. I guess I’ll just say maybe two thoughts. One, you’ve probably seen the research that says that something like 40% of the jobs that have been lost won’t come back in the form that those jobs took before this. So if it’s anywhere near there and if we have 16 million jobs lost, it means that, let’s say, seven million jobs will never come back. If that’s true, it took us 10 years to get about eight million jobs back after the financial crisis, so we’re saying that seven of them will never come back. So, that’s a very concerning reality. Obviously, some of that is because automation, delivery for restaurants rather than … What will it be? Will Major League Baseball mostly be about watching it at home with your subscription package, and they’re going to start layering a lot of online ways to connect with your team than actually trying to get 47,000 people come back in their stadiums and be a big source of revenue going forward? So there’s that first reality.

Tom Gardner:

And then the second one is because of that, I don’t think we’re going to return to normal, I think we’re going to go forward into a new place. And I think that there are tremendous opportunities to start new companies right now and I think that there will be ways to get financing that could emerge as new sources of capital. So, I guess I would say for our company, the way I’m thinking about it is I’m not looking for us to try and find our way back to where things were eight months ago. I’m really pushing us to see, and being pushed myself by other people, to see what’s going to change and what does our company have to do differently to be a part of that future? And what other companies are going to need to be developed? And what companies should we partner with? I probably think certain companies should be getting relief packages right now, but certain companies probably aren’t going to be right for where the world is going.

Ollen Douglass:

I agree with you, Tom. It’s hard to put a timeline on it, but when you were saying it, I was writing down something that really kind of encapsulates what I think will happen. I don’t know how long it’s going to take to play out, but you’re going to see three themes that just become part of the company’s DNA that have gone through this. One is productivity and its revenue efficiency, how do I get more dollars for costs? How can I deliver my product more efficiently, more effectively? The other one is going to be operating efficiency. I think it’s going to be hard to convince people to hire tons of people, build up huge infrastructure in the hopes that one day, the revenue will come. People are going to be too concerned about what happens when the revenue doesn’t come and having this experience is going to [inaudible 00:26:57].

Ollen Douglass:

But I think for us, Tom, it took us, I think … 19 years later, we’re just back to the headcount we were in 2000. 2001. So it took us 20 years to get back to the headcount. And we were growing the whole time, but we were growing with a focus on revenue efficiency, revenue productivity with an eye to operating efficiency. And that’s the last point. So it’s productively, efficiency and transformation. Like Tom said, things are not going back to the way they were. Things can grow larger than they were and so it’s not that … We are multiple the size we were back when we had the number of employees that we have now. So the business has definitely grown, it’s just grown in different ways and you’re going to see that again. Your business may not return to the trajectory that it was on beforehand, but it can be turned and it can be even greater.

Ollen Douglass:

So let’s jump into some questions, Tom. And the first one we have someone who just recently signed a lot of credit with SVB right before COVID-19 hit, and just say with their bankers. And since then, interest rates have dropped, but they’ve locked into pre-COVID rates. And are lenders making exceptions in renegotiating rates? And that’s just a great question to ask. The thing that I would suggest there is your bankers … This goes back to Tom’s point about always be banking. Your bankers are operating in a competitive market and so the best thing that you can do to have a friendly negotiation is go out and talk to another bank and see if the rates that your bank has are actually favorable. One of the things that I would say, and this is, I would say, Silicon Valley’s Bank, their trick, they got to keep us as a customer and it works with our style.

Ollen Douglass:

For every deal, it’s important to look at the rate, the fees and the terms, and for almost any deal you do. And make sure that you understand how those play out and which ones are most important to you. If low fees are important, I won’t say the bank can get you lower fees, they’re going to charge you a higher rate. If low rates are important to you, then you can get a bank that gives you lower rates, but it’s probably going to come up higher fees. So, you really have to run that matrix and to see if you get the lowest overall cost. Because what you also find is that there are some costs that the bank doesn’t care about that much, and so it really is just a matter of trying to figure out what it is you’re trying to drive. And the best way to renegotiate your rates is to ensure that you are already at the top of the market.

Tom Gardner:

Let me ask you this, Ollen. Is it possible for Aneile to contact Silicon Valley Bank and see if there are ways to expand the size of his line of credit, or create another commercial opportunity between the two and as part of that process, have the rates-

Ollen Douglass:

Oh, sure.

Tom Gardner:

Adjusted?

Ollen Douglass:

Yeah, absolutely. To the extent that they find a good credit risk and I’m sure that they do. Expanding the relationship is always a great way to lower the cost, looking at the services they provide for you, what other services do they have, and is there some way to bundle things that you get an overall lower rate is also a very good way.

Tom Gardner:

So, so far, we have one question that … Aneile, thank you for that. Please, anyone else, feel free to jump in. Nobody has to as well. I’m going to ask a question of Ollen right now, and then we’ll go to Kevin’s question. Thanks for asking it. Ollen, what are a few patterns that you’re seeing across companies in the venture portfolio? Maybe one pattern of a common challenge that organizations are facing, and then one … A particularly productive or innovative thing that companies are doing that’s a pattern that you’re observing.

Ollen Douglass:

One of the things I think that we’re all seeing in this crisis is that it has exposed certain weaknesses in the businesses. I mean, I think kind of across the portfolio. Some of them were known weaknesses that this has just exacerbated it, some of them were unknown. As we talked about portfolio, we did our survey and it was interesting that … We delayed it a couple times because as this crisis worked its way through the system, different risks showed up at different times. I think that some of the conversations we’ve had with multiple companies is looking at their supply chain and really a couple of levels deeper than you normally would have. There’s a person that you get your products from, but who do they get their products and services from, and who do they get their products and services from?

Ollen Douglass:

And you do that analysis and [inaudible 00:31:59] we found where early on, people were maybe getting their products partly from a US manufacturer, but that manufacturer was sourcing … Could’ve got parts from China, which was, at that point, [inaudible 00:32:14]. So they were starting to feel those supply chain issues several places we moved. And that’s always an opportunity, once you expose those, to really think about how to either expand those relationships, like you were saying, Tom, or to build those backup plans, so that in the case that something comes up, you can quickly switch to keep your supply chain going. So I think that was one of the big ones, is just really having that … Going multiple layers deep into your supply chain and that’s for all these risks that the businesses expose. How can you be creative to address those and how to mitigate those weaknesses? Some of them, you can’t eliminate, but we’ve had a lot of creativity in the portfolio for people addressing things that came up by surprise.

Tom Gardner:

One of the things I’ll say along that point, and then take Kevin’s question, is I think it’s a good idea to always find some ways to expand your external network. In many cases, you’ll be able to get the advice of somebody either in your category or just in an area that you have a need in another category. By virtue of being a company that studies public businesses for the most part over 27 years, we’ve ended up making a tremendous number of connections that we’ve … I, personally, I can’t think of a time where I’ve been going through situations in our company where I haven’t had external CEOs gone, “Yeah, seen this before. Here’s what you need to do.” And you’re taking their advice. You can choose to modify it, to act on it, or to ignore it. But I think having some good external advisors who’ve been there, done that, take a shot, have somebody in your company call an executive at a business you admire or a head of HR at Netflix and just ask them a problem you’re trying to solve.

Tom Gardner:

We have the benefit of our bizarre, unique, wonderful, beautiful brand name and we have the benefit of studying these companies, so they know about us when we contact them. But in general, we’ve found that people are more willing to talk and help than any of us might think and that’s been a very important thing for us at The Fool. So Kevin asked, “How do you think about when to play offense versus defense in times of market uncertainty?” I’m looking forward to answering this question, but Ollen got his oar in first and has clicked Ollen Douglass would like to answer this question live. Please go. No, no-

Ollen Douglass:

I was-

Tom Gardner:

That’s what I want.

Ollen Douglass:

I was clicking on behalf of you, Tom.

Tom Gardner:

I know that. No, no, I love that. But I know you’re going to have some good insights, and then I’ll fill in after. So just how do you think about offense versus defense?

Ollen Douglass:

Yeah. I think at this time … I would love to get your thoughts on it, Tom. But for us, when there’s a sudden shock like this, I think everyone is inclined to play defense first and foremost. I think often times, that is the right thing to do. You want to make sure that you’re on level footing and to make sure that there’s some stability underneath of you. But what I also find is that most people are in the game of business to grow, and that’s what excites us, that’s what motivates us. And I think that there’s always an opportunity to find something that you’re rooting for. We can all vote against things, but what we really want to do is vote for something. So even in a time of crisis, is there something that we can find, some tangible symbol that we can use to play offense to help?

Ollen Douglass:

For us, in height of our crisis back when we were at Pitt Street, Tom, where we kept the full floor. Real estate wasn’t like it is now, you had long-term leases and we had to shrink everything. And we kept one floor more than we needed and it was piled up with furniture and all kinds of stuff. We just used it as storage. But we kept it because we were hopeful that one day, we would grow out of this and in the middle of that grew, which we knew would be young and just starting and somewhat fragile, we didn’t want the disruption of a full office move. So we kept that, it wasn’t super expensive, but it certainly cost because [inaudible 00:36:37]. But we kept that floor for us to grow into and it kind of, at least for me, became a symbol of what we were fighting for. We were fighting for the point where we would grow into that space. And it did happen and we really appreciate it and we’re very fortunate to have that. But just something that you can think of for your company and something that you’re fighting for and not just fighting against. And Tom?

Tom Gardner:

I like that a lot. I think I’ll just add, let’s say … Let’s go in this sequence. Let’s start by making sure we know where we want to go as an organization. Is this something you want to do for the rest of your life? Are you a serial entrepreneur who’s going to start three more companies in the next five years? What’s your game plan for the company? If it’s never-ending-like, as has proven true at The Motley Fool, then I think you want to look at your ownership structure and you want to look at your balance sheet and you want to start there. So I do think a nice, maybe we’re in a video simulation, way to think about the lives that we’re living is to really ask if you could go back in time, what would you do differently? And allow yourself to play the 2020 hindsight life of regret game and rewind.

Tom Gardner:

And I can tell you, if I look back 27 years, to me, there’s absolutely no question that we could’ve gotten where we are as a business today at least 10 years earlier. And that hurts in a way, some 10 years older than I want to be. But in another way, that’s fine, let’s learn that and let’s go forward with those insights. But definitely, I think one of the things Ollen and I probably would’ve done, looking back 20 years, is to even be more aggressive in some of the repurchasing of our shares from venture capitalists, from the vultures out there, like Ollen and his team that are just barking at you for-

Ollen Douglass:

[inaudible 00:38:44].

Tom Gardner:

Quickly. But I think we would’ve been more aggressive. We repurchased all of our outside investors and a lot of our former employees, and if we could go back in time, we would’ve been a little bit more aggressive. And I think we could’ve seen it. I don’t think it’s like well, now we look … Okay, now we see that things worked out, but would we have taken that risk in that situation? I do think we would’ve taken a little bit more risks. Knowing where we were going never-ending, I probably would’ve played more offense on our ownership structure. That’d be an example.

Tom Gardner:

Number two, balance sheet. Sequence. Know where you want to go. Okay, there’s an example of where we wanted to go and a place we would’ve played offense. Number two, balance sheet. That’s the place to play defense in these situations, I think. That’s the holy grail, that’s your oxygen for all the dreams that you have going forward, and you need to nail that down. It’s one of the reasons I love founder-run companies in the public markets is that, in general, they’re nailing that piece down. And I think that we’ve always nailed that piece down. It’s been a little bit murky or unclear, depending on when you joined The Motley Fool.

Tom Gardner:

For example, you might’ve seen we had 100 million dollars to pay off. What was leadership thinking? These bums taking on all that debt, they’re lame. The reality is that was all inherited from 1999 and 2000. So by the time we’re going into the financial crisis, we have debt that has nothing to do with operations, we’re actually incredibly cashflow positive. The use of every dollar at our company is a beautiful thing for our company. We have something like 50% rate of return on invested capital now, which is almost unmatched anywhere I look, anywhere in the public markets. And I’m not gloating about that, I’m saying that that really starts by looking at the balance sheet and saying we’re not going to compromise this, we’re not going to compromise this. So, I see a good question from Jeff that we’ll go to in a second, but I’d say balance sheet is defense.

Tom Gardner:

Then you start number three. Where do we start playing some offense? We start playing some offense in renewals and upsells, and going to those larger customers and making sure we’re really serving them. Would they like to buy more from us? Would they like to pre-pay, if we need the capital, if our balance sheet is weak? What dynamics can we work on with our largest, most loyal customers to innovate for them, delight them, make them love us even more? They’ll come back even bigger when they can afford to spend more with us. Or maybe they’re so much larger that an extra spend from them is nothing to them, but would be a glass of water to our soul in the situation we’re in. So each of the organizations in a different position, but I think that innovating and playing offense on renewals and upsells, that’s just likely pretty cash-generating, pretty long-term business affirming, and a great way to innovate.

Tom Gardner:

The last place to play offense if your balance sheet is in great position is to go out for new customers because, obviously, the ad spends online are declines of 10, 15, 20, 25, 30%. So it’s easier to acquire a customer less expensively now. But that would be the last place I would play. I would only play offense there if I had Fort Knox on the balance sheet. And we are actually in that situation at The Motley Fool and I’m not doing a tap dance and gloating and giving us props, it took us 27 years to get here. And as I said before, I think we could’ve gotten to where we are now 10 years ago. So we could’ve time-compressed some things, but overall, when you have Fort Knox, then you want to go out and play offense on finding new customers as well. That’d be a little bit of the sequence I’d go.

Tom Gardner:

Okay, Jeff Myers has, “With our recent reforecast, we’re projecting 21 months of cash runway. However, with the continued uncertainty in the market, we’re thinking of pursuing a low interest loan to add to the war chest without causing dilution. Do you recommend we pursue debt in this environment?” Ollen Douglass.

Ollen Douglass:

Thanks, Tom. So yeah, so ask the venture capital, should you not take VC money or … No. I would say absolutely. And Tom mentioned this before, I’ll just go back a little bit, but he talked about 100 million dollars in debt. And I’d say kind of a mental transformation that I think all founders probably need to think about at some point. And it’s okay if your goal is to do this, but if your goal is to not sell your company, if your goal is to run it for an extended period of time, then venture capital is just another form of debt. And like all debt, you want to manage it. If you’re growing and you want to sell your company in a couple of years or whatever and you’re bringing on capital and you’re bringing on people who you can view as a partner, that when your company is sold, there’s a rev share that happens. And that’s a very happy situation and could work. But The Motley Fool doesn’t have plans to sell itself, at least not that I know of. And in that situation, all the money you take on is debt and you have every responsibility … Do share responsibility to manage your debt.

Ollen Douglass:

So when we invest in companies … I mean, being on the other side of it, we want to win by you growing the value of your company and I want to do that to an appropriate level. So if you have access to low interest debt, I would love to have a conversation with you about it just to make sure that you understand some of the nuances that Tom talked about, convenance and other things. No money is without risk or cost. Dilution can be replaced with other kinds of [inaudible 00:44:18]. But yeah, from a purely financial perspective, venture capital has the highest interest rate of any debt you can take, and low interest bank debt has the lowest. So if your primary objective is managing your interest rate risk and the other types of risk are acceptable, then yes, you should load yourself up with as much debt as you can effectively manage.

Tom Gardner:

I’d like to execute the screen share here on Zoom and bring up a book with a very cheesy title, but that is an outstanding book. I recommend that somebody in your organization read it. It is entitled Double Your Profits in Six Months or Less. 78 Ways to Cut Costs, Increase Sales and Dramatically Improve Your Bottom Line by Bob Fifer. If you read about Bob Fifer’s background, he’s pretty credible and it’s a wonderful book. You can see 130 reviews, 4.3 out of five. There are a few people that just downright thought it was a mistake to have read even a portion of the book. What I’ll tell you at the highest level that you can take from this book, if you didn’t want to read it and you just wanted a quick cliffs-notes on a way to think about business, it is try make every single costs an investment. So they aren’t costs, they’re investments. And make every one of those investments strategic. So costs to investment, investment to strategy.

Tom Gardner:

So an example would be, and I think this may be a specific example that the author provides in the book, an example would be you would actually never have a happy hour for the sake of a happy hour. You would have a happy hour to make sure that people met each other, so you would actually structure it around that if that’s what you wanted. Or you would have a happy hour to debate how can we get our renewal rates higher? You would never just have a happy hour for the sake of having a happy hour, you would have intention behind it. And you don’t want to become so insane with that that … It’s just you can’t even have a relaxed 10 minutes without it becoming strategic. But actually, I think a lot of companies do a lot of things that aren’t really strategic in nature. And what you want to do is turn the costs into investments and turn those investments into something strategic.

Tom Gardner:

I think it’s a wonderful book. And I say that, Jeff, because as you’re trying to decide whether to take on that loan, it’s a strategic question. And two reflections that came to me about Motley Fool history in that area are one, I think, until recently, last couple of years, maybe last 18 months, I think I take responsibility, did a pretty poor job of communicating our strategy and our capital allocation methodology. Playing the game, hindsight, I would go back and massively increase investment in communication because otherwise, it’s left open to interpretation. We took on this debt, or wait, what are we doing here? Why is this happening now?

Tom Gardner:

So it’s important to decide what type of company you want to be. Are you going to be transparent, open with everyone who’s working there and trying to consistently get people on the same page, or are you going to have a leadership team that’s making those decisions? It can actually work in different ways in different industries in different times in different ways. So I don’t mean to mandate that you should be transparent and have … No company is run as a democracy and succeeds, right? There has to be a decision-making methodology and decision-making hierarchy that goes with it. But for us, I would’ve over-invested in explaining it. That’d be number one about your question.

Tom Gardner:

Then number two. I’ve learned from a few external CEOs that financing can take many forms and we should rank order the most attractive money to the least attractive money. We should do that as early as possible in the creation of our company. Because, of course, there are some businesses that raise 75 million dollars in Series B and that is a great headline and it looks unbelievable, but Ollen knows better than anyone that I know, way better than I know, that 75 million could be real expensive. You don’t know what is on page 21 of the documentation of that Series B round. So, look out to not think that I have a huge amount of capital raised is a validation, it’s a cheap shot to say of we work, right? But I don’t mean to cheap shot that. I just mean there’s a rank order for the circumstances that you’re in on capital raising and it may be that you could raise more capital from your largest customers, through some upsell, renewal, pre-pay in some way.

Tom Gardner:

Now that’s one, that has its own costs that goes with it, but you have to evaluate that versus the interest rate on debt versus a convertible versus equity versus a large strategic investment, let’s say, that’s going to have controls put on how you operate your company, right? So, rank order those and I think you’re going to find something before that low interest debt. I think you’re going to find something that allows you to grow your business and generate cash from doing that. I think so. Start there. And if not, I do think low interest debt, obviously, if the convenance aren’t [inaudible 00:49:48], it’s a pretty attractive time to be sourcing some capital and solidifying your situation.

Tom Gardner:

Probably to close an overlong answer for me, sorry. Probably the best indirect advice I got about this came from two individuals who asked me the same question. They knew each other quite well. Arthur Levitt, who was the former chairman of the SEC, and Jack Bogle, the founder and former CEO, no longer living, of Vanguard. And they both asked me this question and an example of having awesome outside people that I can talk to all the way through in different ways. They said, “If I could raise 50 million dollars for your company right now and you tell me how much you’d be willing to sell of equity right now for 50 million.” I gave them the number. They said, “If I could raise that 50 million for you, would you do it?”

Tom Gardner:

And I sat and thought about it and had a little conversation and then I just finally realized to ask … The very first person to have asked this of me was Arthur Levitt, so when Jack Bogle did, I was a little bit more prepared. And I stopped in the middle of my answer and I said, “Arthur …” SEC chair, he’s looking over thousands of companies, he knows so much about the business world. I said, “Arthur, what’s the right answer to that question?” And he said, “The right answer is should only take the money if you know exactly what you’re going to do with it.” So obviously, if what you’re going to do with it is play defense, because you need to make sure and you know exactly that that’s what you’re doing. But if you’re taking capital for the sake of taking capital, your company’s not going to get more efficient for having done that.

Tom Gardner:

So, I do like that answer as well and I hope that these thoughts are useful to you, Jeff. But again, they were like, “50 million dollars, would you take it?” Only if you know exactly what you do with it. “Helpful insight, thank you. Ollen, I’ll give you a call later this week to discuss. P.s. Very nice garden background setting you have there, Ollen.” Hey, Jeff, slightly offended you haven’t commented on my background, but I’ll let that one pass.

Ollen Douglass:

And I will say that I-

Tom Gardner:

I’ll let that one pass.

Ollen Douglass:

I said one hour a day working in, 12 hours a day out tending the virtual garden.

Tom Gardner:

It does look very Versailles-like.

Ollen Douglass:

Yes.

Tom Gardner:

Having never been to Versailles.

Ollen Douglass:

It helps keep me calm, but thank you for that.

Tom Gardner:

Ollen, I think we’ve got seven minutes left, so why don’t I ask you a question and then you ask me a question to end? Or how would you like to end?

Ollen Douglass:

How about if you ask me a question, Tom, and then I’ll ask you a question to end, I think.

Tom Gardner:

Okay.

Ollen Douglass:

Hold on, wait a minute.

Tom Gardner:

Is there another question?

Ollen Douglass:

Lawrence Greenberg is raising his hand.

Tom Gardner:

Lawrence G.

Ollen Douglass:

I didn’t know how to-

Tom Gardner:

Can we bring him up on stage?

Ollen Douglass:

I would love to bring him up on stage. If I see-

Tom Gardner:

He’s going to tell us that we are not certified, qualified or registered to provide advice in an environment like this. And that we are to cease and desist.

Ollen Douglass:

Exactly. And everything we said is basically going to send us straight to jail or other places which we won’t call out. I do not see the hand raised icon on my screen, Lawrence.

Lawrence Greenberg:

It was an accident.

Ollen Douglass:

Oh.

Tom Gardner:

It was an accident?

Ollen Douglass:

Well, then you got to show yourself.

Lawrence Greenberg:

I don’t think I can.

Ollen Douglass:

Oh.

Tom Gardner:

I would like to-

Ollen Douglass:

Yeah, I don’t think he can.

Tom Gardner:

Provide my question. I would like to provide my question in the form of a note that I sent out on LinkedIn.

Ollen Douglass:

Okay.

Tom Gardner:

And I would like you to comment, Ollen, on what you think about this in the world that we’re in now.

Ollen Douglass:

Got it.

Tom Gardner:

So move these out of the way. So I sent this tweet-like comment on LinkedIn to my followers. “Failure isn’t about trying things that didn’t work, it’s about maintaining things that barely do.” Any thoughts or reflections on that from you? “Failure isn’t about trying things that didn’t work, it’s about maintaining things that barely do.” Agree or disagree?

Ollen Douglass:

Huh? Oh, I agree. That’s very thought-provoking. It is an interesting dynamic. It’s very easy when you’re in a business and you’re fighting day-to-day until you succeed and you have a solution that is good enough, it’s very easy to convince yourself to deal with that later. You don’t really see the harm and so you allow this marginal activity to continue as you continue to work for what you feel like are more important issues. I think what people lose sight of how that mediocrity can build. The other risk of it is that often, while you as a CEO can rationalize that, you have other high-performing workers that see that and they can actually be demotivated and inadvertently, get the signal that okay, it’s good enough. If they see marginal performance and you accept it, you send the message that marginal performance is acceptable. And so I think that’s the risk of it.

Ollen Douglass:

But those are some of the hardest conversations of all to have, Tom, I think we all know that in that it would be a lot easier if someone was performing poorly and you could point it out. But when the common is that I just need something different, it requires a lot more thought and a lot more care and it’s a difficult conversation for people to have. But I do agree with that.

Tom Gardner:

Cool. Do you have a final question for me? You don’t have to.

Ollen Douglass:

No, I do. You know I have a final question for you, Tom. So your journey to being an [inaudible 00:56:18] and CEO, if there was a … One of many pieces of advice, but what’s one piece of broad advice that you could give to our founders to help them? Generally speaking, they’re probably like The Motley Fool was, many of them … After we came out of the crisis, they have clarity around what they’re doing, they have great ideas. In the performance and potential scale, they have had performance, they all have so much potential in front of them. What’s the guiding message you can give to them to help them to really deliver on the promise of their companies right now?

Tom Gardner:

Wow. That’s a great question. I’ll say that I think first obvious point is to really evaluate your purpose. I mean, of course our venture fund wants you to flourish commercially to the greatest extent possible, that’s what the funders of our fund are hoping for. But what we’re really hoping for, all of us, and I really think this extends to the funders of our fund, are a purpose-driven win. Something that maybe a little bit in the Peter Thiel world is taking the world from zero to one in something that didn’t exist before and also, something that you can look at every stakeholder group. You can look at your employees, you can look at your customers, you can look at your shareholders, you can look at the suppliers, you can look at the communities you operate in, you can look at non-buyers. You can look across all of your stakeholders and say I see a way to make their life better.

Tom Gardner:

And what I’ll say about that is I think maybe we take for granted that business achieves that just by winning as a business when we know it doesn’t. I mean, there are certain businesses that are offering products that are very well-known that are essentially just packaging type-two diabetes for people in an enjoyable way. It’s a highly enjoyable short-term experience, but we know the long-term outcome is not going to be something likely that 30 years from now, when there’s a lot more data on nutrition, that those are going to be favored products out in the marketplace. There’s going to be some better alternative to them, some improvement. So, it’s a game of continual improvement to see whether your employee is better off working with you than going off starting their own thing or going and working at another company. Whether your customer is actually really winning because they’re with you. Whether your shareholder is going to get a long-term win. I don’t think any of us owes our shareholders awesomeness over the next seven days or a single quarter, 90 days of earnings report.

Tom Gardner:

But to really look at the long-term view of all of stakeholders and ask yourself, and have your team ask, where are we really beneficial to the world? Where are we just okay? And where are we actually a problem? And those things, 27 years into The Motley Fool, they still exist. I do not look at our company without a self-critical eye. I see things that we’re doing that need to change and get better. In fact, I think everything that we’re doing needs to change and get better. And a lot of things that I’m doing need to change and get better, so I include myself in that. But I think that stakeholder-centric view is a good idea, I’d really recommend reading about conscious capitalism. I do think it ultimately creates more sustainable, awesome business opportunities and great commercial outcomes for you and also, things that you and your team will really be proud of. So I’d look at the purpose statement, make sure we have it and we’re aligned around it, and then I’d look at our stakeholders and make sure that each of those groups can benefit from what it is we’re trying to achieve. So yeah.

Ollen Douglass:

Very good. Well, I think we’re-

Tom Gardner:

Ollen.

Ollen Douglass:

We’re at our time top. This has been amazing, I really appreciate you doing this with us. I hope everyone enjoyed it. Thank you very much. And with that, we will end the session.

Tom Gardner:

I kind of feel like … I might want to do one thing before we end the session, even though we’re past two.

Ollen Douglass:

That’s okay.

Tom Gardner:

I just want to screen share, you know? I want to screen share to end.

Ollen Douglass:

Tom, can we … Oh my God.

Tom Gardner:

I pass on the daily insight so that I can get this insight.

Ollen Douglass:

Oh my god. Whatever you do-

Tom Gardner:

And there we-

Ollen Douglass:

Go ahead, Tom.

Tom Gardner:

There we are, finishing with our purpose statement, smarter, happier and richer. Our desire for all of our stakeholders. And there’s Ollen at the center of it, making it happen for … How many years, Ollen, have you been at the full?

Ollen Douglass:

19 years, Tom.

Tom Gardner:

So you’re almost upon your fifth undergraduate degree with us … together.

Ollen Douglass:

Yes.

Tom Gardner:

So thank you for all you’ve done.

Ollen Douglass:

It seems like five years, so. Anyway, thank you very much for that, Tom. Really appreciate it.

Tom Gardner:

Thanks for everything, Ollen.

Ollen Douglass:

Thank you everyone for joining.

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