CEO Answers Startup Questions

[Cameraman] There's a whiteboard,

in case, you want to do some math or something.

No, I'm not gonna do that. [Michael laughs]

I'm Michael Mager, CEO of Precision Neuroscience.

Let's answer your questions from the internet.

This is Startup Support.

[upbeat music]

Noooofun asks, How do you hire the right people?

This is a matter of life and death.

For any startup company,

getting the right people into the organization,

is absolutely critical to success.

Precision Neuroscience is developing,

a brain computer interface.

We need people really

with deep knowledge around a certain technical area,

and a demonstration that they've been successful,

either in academia or in another company.

The X factor is real dedication to the mission.

Any startup company has ups and downs.

There are good times and there are bad times,

and the folks who really stick with it,

who really contribute over the long-term,

are those who have bought into the mission

of why the company exists in the first place.

Here's one from the NoStupidQuestions subreddit.

What does a CEO actually do?

Would regular workers notice

if the company didn't have one?

I hope so.

I think that sometimes,

a CEO's work doesn't maybe look like work,

like, you know, in terms of recruiting the team.

How do you do that?

Well, you gotta get the word out.

Sometimes you get the word out by doing things like this.

My view of leadership is setting a goal

and convincing other people that it's a worthy mission,

and that they want to be involved

in helping to achieve that mission,

and inspiring them to work incredibly hard alongside you

to achieve the mission.

It's really about summoning resources beyond just yourself

or a small group of people in order to do something big.

Exitfund wants to know, I'm 21 years old.

What skills should I start to develop

for becoming a CEO or an entrepreneur in the future?

Those are really two separate questions.

If you wanna become a CEO,

there are a few pretty well-trodden paths.

You can go to business school, and get an MBA.

You can go into a management training program

in a company that offers one.

You can work in a company for a long period of time

that you think you have the prospect of moving up over time

and getting promoted eventually to the top job.

In order to be an entrepreneur,

it's simple, you gotta start a company.

If you start a company,

and you're able to convince investors to fund it,

and you're able to convince people to join the company

and work for you to help realize your vision,

congratulations, you're an entrepreneur.

Fuzzyloulou asks,

What's the fastest way you've seen a CEO ruin a company?

My answer on this is a little bit counterintuitive,

but I've seen a lot of entrepreneurs focused on getting

to good enough and moving on because there's so much to do.

This mindset of just sort of adequate,

is incredibly dangerous for any startup for two reasons.

I think the first is that with any new company

that is pitching a new product or a new service,

you are trying to change people's behavior.

It is hard to get people to spend money on new things.

In order to do so,

you should be shooting in every respect for amazing.

The product that you're offering

or the service has gotta be absolutely fantastic.

And I think the second reason is competition.

This is an incredibly, incredibly competitive world,

and if the company that you are building is operating

in a space that has the potential to be big,

there is the very strong likelihood

that you have several competitors

who are trying to do the same thing.

And if you come out with a product or a service

that is good enough, that is adequate,

there is a very good chance

that one of your competitors usurps you in short order,

or that one of your competitors already has,

and you just don't know about it, because they're in stealth

or because they're in a different geography,

and you haven't heard about it.

Buzz Mightyears asks,

What the helly is a startup mentality?

Is it something you are just born with?

When I think about a startup,

I think about two words, urgency and chaos.

Urgency because, in general,

you know, a startup company needs

to hit a certain amount of milestones

to unlock its next round of funding.

And if it can't hit those milestones,

it's most likely gonna fail.

And so there's a tremendous sense of urgency

to make progress as fast as possible.

Chaos, because the rate of growth of companies,

especially, when they're gaining traction

and being successful, is really unlike anything

that people are used to.

When you think about a school or a religious institution

or other organizations that you're part of,

they tend to grow a few percent a year, maybe 10% a year.

Startups will often grow 100, 150, 200% in a year,

and that puts a strain on everything, all of the processes,

all of the systems in a company.

Fundamentally, startups often are operating

in a state of chaos,

and people who are comfortable with that, I think,

really thrive in the environment

because you get opportunity to do all sorts of things.

Startups, like any company,

inevitably make a ton of mistakes.

I think you have to get more right,

than you get wrong ideally.

But I do think it's an opportunity to be really creative.

You know, most startups are trying to sell a product

or a service that either doesn't exist yet

or to do it really differently from what's been done before.

And I think it gives people a tremendous opportunity

to really think outside of the box.

And I think some amount of that thinking,

is really necessary for success.

And then also, you know,

startups have a culture of shared ownership.

Every employee is actually a shareholder in the company.

And so I think that that really helps people feel bought

into the mission.

Ultimately, you know that if the company's successful

that you're gonna do really well.

Toocynicaltocare wants to know.

Why does HR exist?

I think it's a typical mistake to actually discount HR.

You know, you're building a new product,

you're building a new service, you want all the money,

you want all the resources to go into building

that new product or service.

And HR is viewed as something that is a nice to have,

but not a need to have.

And as a result, it's often neglected for far too long.

If you think about what a startup is,

what does it require?

It needs capital and it needs people.

And HR is all about people.

How do you attract the best people?

How do you retain the best people?

It's about creating and disseminating

and supporting the culture of the company.

It's about allowing people at the company

to be well taken care of in terms of the benefits,

administering those benefits,

and making sure the benefits are appropriate.

Bringing great people into the company,

is really one of the absolute most important things

to do on day one,

and building an awesome HR function is critical to that.

It's important to have some part

of the HR function in-house,

given how core is to a company's operations.

That said, there are a lot of aspects

of HR which are best partnered and outsourced.

Healthcare is a great example of that, generally,

sort of benefits management and administration.

Often it's helpful to partner with an organization

that really specializes,

and so you can benefit from pricing that's only available,

otherwise to larger companies even as a smaller company.

Try to take some of the administrative burden off

of the team's plate,

and put it onto a specialized outsourcing partner.

MonetaryWonk wants to know,

Why is it that Silicon Valley is a startup incubator?

On the capital side,

Silicon Valley is still home to most of the best

and deepest-pocketed investment firms

that fund early stage companies, venture capital firms.

So there's the famous Sandhill Road,

a very famous road in Silicon Valley, in the Bay Area,

where so many of the best firms are based.

There are other areas that have emerged,

there's New York, there's Miami,

there's Austin, there's Europe.

Parts of the Middle East are also developing funding

for startup companies, but still the most capital

and the most famous firms are based in Silicon Valley.

So many of the most successful companies,

the products that we love using in technology were created

in Silicon Valley to raise capital from great firms.

And you need to hire fantastic people,

not just in the United States,

but globally to help realize your vision.

There's still a tremendous amount of pull

to that specific area.

@Abbas_fkhrdine asks,

Why do you think most startups fail?

Starting something new is hard.

Getting people to part with their hard-earned cash

or an organization to do so is difficult.

You also need to change people's behavior on some level.

The number of startups that actually succeed are

in the single digits in terms of percentages.

Most startups fail

because they can't sustainably generate a profit.

You might ask then why people start companies,

and I think that there's some aspect

of hope over common sense that inspires entrepreneurs

to do what they do.

JiN88reddit asks, What's the difference

in job description among CEO, CFO, COO and VP,

compared to an owner of a company?

CEO, CFO, COO,

those are all functional roles within a company.

They have some management responsibilities,

around finance, around operations.

The people who fulfill those roles,

could themselves be owners of the company.

They could own 100% of the company,

they could own a share in a company,

but those roles really describe

what somebody does functionally at a company.

The owner of a company is someone who owns the equity

of that business.

Theoretically, an owner of a business,

can do absolutely nothing in that business.

Theoretically, an owner can lie on the beach

and eat bonbons all day,

and watch the dividend checks roll in.

In practice, in my experience,

especially with smaller companies,

they tend to be more fragile.

You know, owners of businesses tend to be very involved

in overseeing them either as one of the functional roles,

CEO, COO, CFO, or as just a very active owner.

But if you think about it like anyone who owns shares

in a publicly traded company is an owner,

and there's no expectation of any functional involvement

in the business,

CEO is in charge of the entire enterprise

to make sure that the company is on the right track,

that's executing on its deliverables,

has adequate funding, the buck stops with the CEO.

The CFO is in charge of all of the finances of the company.

If the company has any debt,

making sure that it gets serviced,

cashflow issues really spin up to the the CFO.

And the COO is the chief operating officer.

It's an operating role,

making sure that the company is executing on its plan,

and projections efficiently.

BobFredIII is asking, How does A CEO get fired,

who fires the boss?

The board fires the boss.

The board's job is fundamentally oversight.

The board makes sure that the company is executing

on its broad strategic goals.

The board also can make decisions

on major questions of strategy,

you know, financings, acquisitions, divestitures,

if the company's considering selling itself.

But in terms of actual day-to-day impact in the business,

the board's influence is actually really limited,

and it's by far its most important function,

is overseeing the CEO.

And when the CEO is not executing,

replacing him or her with someone who will.

I think this is actually something

that doesn't happen enough.

I think some of the most high profile bus stops

in Silicon Valley, in startups,

we work and Theranos,

these are examples of the board really getting overwhelmed

by the CEO and not exercising their oversight responsibility

and doing what had to get done,

which is ultimately replacing a CEO

who wasn't acting appropriately.

Catflap10 asks, What does it mean

to take a company public?

Certain startup companies require more capital than others,

but most require some amount of capital.

For a company like ours

that's developing a brain computer interface,

you know, we have to fund the company

for many years before revenue.

You have to go through the product development stage,

you have to go through the regulatory process,

that's true for any pharmaceutical product,

it's true for any medical device.

Generally, the way the companies like ours raise money is

from private funds, primarily from venture capital.

But at a certain point, you can go public,

which really means offering shares to the public

through an IPO.

That can be a really great way

to access large amounts of capital.

But it does come with administrative burdens,

certain regulatory burdens,

and so it can be actually quite expensive

and resource-intensive, which is why generally,

companies do it at a later stage,

when they can afford the administrative overheads

that it requires.

That said, it can impose,

a really healthy discipline on companies.

In general, companies are more successful going public,

when they have demonstrated revenues which are growing,

and where they can predict what they're going to generate

in terms of revenues and earnings

for the next quarter and the next 12 months.

For us at Precision, I think our ambition is

to go public when we're commercial.

Houseplantshustle wants to know,

What is my startup worth?

25 million runrate, 58% gross margins.

I wish it were that simple

that you could just plug in a few numbers

to an Excel spreadsheet,

and it would spit out a business value.

There's a lot more that goes into valuing a business.

You know, think about how defensive is the business,

what are the growth prospects of the company?

Are the margins sustainable?

How subject to disruption is the industry?

If you look at the stock market,

you can see that people's perception of value

in companies is a lot more volatile,

than the actual earning streams of the companies themselves.

And that just gives you a sense that valuing a company,

there is a science to it, there is math associated with it,

but there's also a lot of judgment, and you know,

a lot of volatility around people's expectations.

Run rate is, generally,

if you sort of take the last month or last three months,

that's the run rate at which revenue is right now

if it stays at that same rate over time.

So hopefully, the revenue run rate is going up over time.

It's a way of basically looking at revenue,

not for the trailing 12 months,

which is often, how much revenue do you generate in 2024,

or how much are you gonna generate in 2025?

This is a way

of doing a sort of more up-to-date approximation

of what the company is generating.

Gross margins are the revenue, less the cost of goods sold.

So it gives you a sense of what the unit economics are,

but there's a lot not explained by the gross margins.

Like, did you have to build a $500 million factory

in order to generate $24 million of revenue

in 58% gross margins?

Or did you start a software company,

and you only needed to invest a million bucks

to get to 25 million of revenue and 58% gross margins?

Those two questions really helped determine

what the company is worth,

and what the future value is likely to be,

which unfortunately, Houseplantshustle,

has not given us insight into.

Glittering_Flan1049 wants to know,

How do I raise pre-seed funding for my startup?

Pre-seed funding really meaning,

how do I raise the initial capital to get off the ground

for a company?

It really depends on the business.

So if you want to start something like a restaurant

or a storefront,

there are ways of raising either a loan from a bank

or through the SBA, the small business administration,

for money in the sort of tens of thousands of dollars

to get off the ground.

If you have an idea for a business

that has the potential to be big,

and that requires significant amounts of capital,

then you're likely a good candidate for venture capital.

So you know, I'm the CEO

of a company developing a brain computer interface,

that will likely cost somewhere between four

and $500 million from start to finish.

That is way more money than friends or family could fund,

or anybody can fund out of their own savings.

So we have gone to the venture capital community

to fund the business,

going to investors and convincing them

that the idea that you have is worth funding,

and that the team around you have the capability

of executing on that.

And if you can do that, you know,

you can raise capital and get going.

Codemon_ wants to know how does startup funding,

such as Series A, B, C, et cetera, work?

We're developing a brain computer interface.

It will cost somewhere between four and $500 million

to develop from start to finish.

If we tried to raise all of that money all at once,

investors would've laughed us outta the room.

We were a couple of guys

and a PowerPoint presentation pitching a dream.

The way that investors tend to look at a company,

is over the long-term to make sure

that it's hitting its milestones.

And if companies are making progress,

then they are able to generally raise money

in different rounds,

and at subsequently higher and higher valuations.

So we raised an initial round of $12 million,

we hit a bunch of milestones,

the value of the company increased,

and then we did another round, our Series B round,

in this case, at a higher valuation.

And when that works,

when you're able to raise subsequent rounds

at higher valuations,

what that means is that the existing owners of the business,

the employees and the existing investors,

have to give away less and less ownership

in order to raise capital.

Had we tried to raise all $500 million at once,

we would've had to give investors 90% plus

of the business right off the bat

if investors had been willing to do it.

And so that would've been bad for us,

and it would've been bad for the investors.

AVGuy42 says, Screw your success.

Tell us your greatest failure!

Starting a company is never a straight line.

You hope that the successes outweigh the failures,

but there are inevitably gonna be a bunch of both.

One of the core assumptions

that we made when we started the company,

Precision Neuroscience, was that the array

that we're developing,

which is actually the part of the system

that sits on the brain,

that we would be able to manufacture it

in the United States.

It turned out that the supply chain

that we had expected to be there, didn't exist.

We had finite resources, an early stage company,

we spent over a million dollars working with a supplier

that said they could do it, that had made some progress

in validating that they could do it.

After spending seven figures, they delivered six arrays,

which on average, about 30% of the electrodes or sensors,

in our case, actually worked.

That is not the basis of a successful company.

Without a path to manufacturing at commercial scale,

you know, hundreds and thousands a month

in a sustainable way,

there was no way to continue to build the technology.

There was a facility in Texas, we moved really quickly,

we ended up acquiring it.

In a process that usually would take six months,

we were able to do it in six weeks.

And in the end,

this facility has become a really important strategic source

of strength for the company and competitive differentiation.

But staring into the gun barrel of no clear supply solution,

we had no idea that that was gonna be possible.

So if everybody knew all the things they didn't know,

when starting a company, no one would ever do it.

I think at a certain point,

you just have to have the courage to jump off the cliff,

and figure it out On the way down.

Blackdognick82 wants to know,

But the gap between top earners and lower earners,

has got wildly out of control.

The percentage difference between CEOs

and workers is higher than it's ever been.

How do you address that imbalance?

It's true that the gap between CEOs

and the median worker has expanded enormously

on the order of 10X in the past 40 years.

Being in a startup company,

it's actually quite a different dynamic.

Startups are generally cash-starved,

and so you have to be incredibly careful

about where finite resources are allocated.

Cash salaries being in the millions of dollars,

is absolutely not the rule.

I also think it depends a little bit on the industry.

The technology that we're developing,

a brain computer interface,

requires an incredible amount of scientific

and medical expertise.

We have a lot of PhDs on staff.

For us, having a very wide discrepancy between pay

of the average worker and the pay of the seam suite,

has the potential to be very corrosive

to the culture of the company.

For a company like Precision,

every employee is an owner in the business.

And I think that's incredibly important

in terms of alignment around a common mission,

but it also means that if we as a company,

end up being very successful,

every employee in the company is also gonna share

in that success.

Our ambition is to make a lot of people millionaires,

and I think that that would feel wonderful

in addition to doing something good in medicine

and in science to actually make sure

that the people who really build the company,

end up benefiting from it.

I think that that really is the Silicon Valley model,

and I think it's one that we're really excited to pursue.

Thejanaymichele wants to know,

How tf do stock options work for a company?

And equity stock options the option,

but not the obligation to buy stock in the company,

generally, the exercise price,

so the price at which you have to pay

to acquire the stock is set at a low value

so that if the company ends up being enormously valuable,

you can pay a relatively small amount.

For equity in the company,

that ideally should be worth a great deal more.

If a company ends up being acquired,

which actually happens more frequently,

than a company going public,

employees typically exercise their options,

right before the acquisition,

and so get their pro-rata proceeds from the acquisition,

or if the company goes public,

and you exercise your options before the IPO,

and then there's a liquid market

in which you can sell your equity,

hopefully, at a much higher price than the exercise price.

Skyballads says, Looking at the KPI sheet,

and what the actual hell is this?

KPIs are determined by management teams

to gauge the health of the company,

the trajectory of the company, the prospects of a company,

and those actually even within a company,

can change over time.

There are some that I think are pretty universal,

like, you know, burn very important.

You need to look at the amount of cash you have on hand,

and the amount of cash that is being depleted,

and the rate at which it's being depleted,

and keep a very close eye on that.

I think that's true for virtually any business,

but I think KPIs otherwise really depend on the business

and the industry that you're in.

If you have a software company,

you might be looking at retention.

What percent of the people who sign up

for your product continue to pay

for it 12 months afterwards?

If you have a media company,

you're probably focused on how many people view your video

or listen to your podcast.

For a company like ours,

which is developing a medical device,

we have regulatory milestones,

we have product functionality milestones,

the ability to measure the things that really matter is one

of the most important judgment calls

that a management team can make.

Kkw16 wants to know,

Can someone help me understand the different phases

of FDA approval process?

Well, the FDA approval process really depends on

whether you're developing a drug,

like a pharmaceutical product,

something that's in digital health,

so like a software program.

They all have slightly different regulatory pathways,

but they all generally are intended really

to gauge two things, that the product is safe,

and that the product is effective.

In a series of tests,

first, in the lab, and eventually,

when the system has demonstrated a significant amount

of reliability and underlying safety, you implant patients.

I think the FDA provides an incredibly,

important regulatory regime in which to operate.

But ultimately, I think,

you know, any company that's developing technology

and they're trying to do it the right way,

also has those same goals in mind.

They want to develop something

that's gonna make a positive impact on human health.

And in order to do that, you gotta do something that's safe,

and it's gotta actually fulfill what's on the label.

Iggy says, Acronyms used to mean something, man.

WTF is EBITDA or EBITDA.

EBITDA stands for earnings before interest,

taxes, depreciation, and amortization.

Sort of a quick and dirty calculation

for a cashflow that a company is generating,

irrespective of its capital structure.

So if it has lots of debt,

if it has no debt, you're not focused on that,

and you're not focused on non-cash charges,

like depreciation and amortization.

In some cases, it can make sense.

So if you think about building a building,

if the accounting rules force you

to depreciate the entire building in 15 years,

but actually, the building's gonna last for 75 years,

depreciation can overstate the charges,

and really understate the underlying cashflow of a business

or of a project.

And so it can make sense to either adjust

or even eliminate certain charges.

I think this is often used by the private equity industry,

but it has some pretty obvious flaws.

You build a factory, it does depreciate,

things break, you gotta replace the widgets.

I often look at operating cashflow,

less capital expenditure,

because capital expenditure is often really required

in order to maintain and grow a business.

Right-Juice-6079 wants to know,

If you had to start your business again from scratch today,

what would you do differently?

I'm not sure I would do a lot differently,

but I think my perspective has changed in some regards.

I think when you start a company,

everything seems like it's life and death,

and in a startup, there is a lot that's life and death.

You really need to move with urgency in the day to day.

And yet, you know,

I think knowing what I know now,

it's really about perseverance over a long period of time.

This is very much a marathon, not a sprint.

Trying to focus on the things that really matter,

and focusing a little bit less on putting out every fire

as quickly as possible is something

that will help sustain people over longer periods of time,

and really avoid burnout.

In the first few years of precision,

I felt that I could never be the bottleneck for anything.

And so anytime an investor reached out,

anytime a prospective partner reached out,

anytime a prospective employee reached out,

I was the first to respond.

I never left the office with any in my inbox.

I felt a tremendous sense of urgency

to move the organization forward in every way

that I possibly could.

And in retrospect, some of those things were important,

and a lot of them really weren't.

They could wait a day,

they could even wait two or three days.

So those are all the questions for today.

Thanks for watching Startup Support.

[bright upbeat music]