#112: Daniel Isenberg & Dan Hampu (Burton D. Morgan Foundation & Scalerator NEO)

Daniel Isenberg [00:00:00]:
If the problem that you're solving for, and this is very important, you have to decide what you're trying to accomplish. And if what you're trying to accomplish is a virtuous cycle of growth, then it's most efficient and most effective to start in the middle, so to speak, and not start at the ends. It's most efficient and effective to work with companies that have already passed the market test, some market test. And the only reason for that is that you can show very quickly that they can grow.

Jeffrey Stern [00:00:35]:
Let's discover the Cleveland entrepreneurial ecosystem. We are telling the stories of its entrepreneurs and those supporting them. Welcome to the Lay of the Land podcast, where we are exploring what people are building in Cleveland. I am your host Jeffrey Stern and today, I had the real pleasure of speaking with Dan Hampu and Daniel Eisenberg about their collective work at the Burton d Morgan Foundation and Scalarator Northeast Ohio. Dan Hambu joined the Burton d Morgan Foundation in 2022 as its president and CEO. Previously, he served in a number of roles within the entrepreneurial landscape throughout Northeast Ohio. Most recently, having served as the executive director of the Northeast Ohio Student Venture Fund, as a venture partner at Interstate Fusion Ventures, and as the chief operating officer and board member of the Akron based software startup company, Fontis Blue. Joining Dan, Daniel Eisenberg is an entrepreneur, teacher of entrepreneurship, and venture capitalist in Israel who has made investments in many dozens of start ups across the world.

Jeffrey Stern [00:01:40]:
He was a professor at Harvard Business School for 11 years, where he pioneered education in international entrepreneurship and since 2010 has been teaching at Columbia Business School through all of which he has written over 35 articles on entrepreneurship and authored his book, Worthless, Impossible and Stupid, How Contrarian Entrepreneurs Create and Capture Extraordinary Value, where he's been featured on the Harvard Business Review, The Economist, Forbes, Bloomberg, Wall Street Journal, Financial Times, and many other publications. Outside of the academic world, he's put it all into practice through Scalarator NEO, which we'll spend a lot of our time on today, in addition to ScaleUpMilwaukee, ScaleUp Rio, ScaleUp Atlanta Canada, ScaleUp Trinidad and Tobago, all of which he has founded. Tying these 2 organizations together, Scalarator NEO is made possible by the support of the Burton d Morgan Foundation, whose mission is to foster free enterprise through grant making, ecosystem building, and knowledge sharing and whose efforts are built around fostering youth, collegiate, and adult entrepreneurship in our region. Scalarator NEO is a program for scaling companies in Northeast Ohio with annual revenues in the range of 3,000,000 to 15,000,000 with the potential for further growth from there. Companies from all sectors partake in a 6 month, 7 workshop curriculum to help founders and owners realize that growth. For example, the first Scalarator NEO cohort collectively experienced a growth in earnings of 40% over the year. In our conversation today, we cover everything from why it is important to focus on companies at scale relative to start ups when thinking about the overall prosperity of an entrepreneurial ecosystem. We talk about the state and trajectory of Northeast Ohio's entrepreneurial ecosystem, and we explore what are the kinds of challenges that scaling companies experience and how the burden De Morgan Foundation and Scalarator and EO can help.

Jeffrey Stern [00:03:36]:
Please enjoy my conversation with Dan Hampu and Daniel Eisenberg. Given today, we'll be exploring entrepreneurship through the lens of the Bryn d Morgan Foundation and and Scalarator Northeast Ohio. I I think it will make the most sense to to start our conversation today, you know, going around the horn and and hearing from both of you respectively about your own, you know, personal journeys and and where they began to to intersect. And and as we do so, knowing that, you know, there are 2 of you and both of your names are are Dan to introduce yourselves and in the in the Dan and Daniel show today, which we'll refer to you respectively by to kick us off.

Daniel Isenberg [00:04:22]:
I'm Daniel.

Dan Hampu [00:04:24]:
And I'm Dan Hampoo.

Jeffrey Stern [00:04:27]:
Awesome. Well, Daniel, I don't know if you wanna kick us off here and share a little bit about, you know, yourself and and your own journey.

Daniel Isenberg [00:04:33]:
So I have two problems. One is I'm over 70, and the other one's I've I've been a professor for half my professional career, so I could talk forever. But I'll be short. I've been in the 40 plus year career. I've been a professor of entrepreneurship, an author, a book, and dozens of Harvard Business Review articles. I've made dozens of so called angel investments in startups in 10 different countries, was a cofounder of a general of a venture capital fund in Israel. In Israel, I also started a company, international company. And for the last 15 years, I've been working with regions such as Northeast Ohio around the world to kick start new economic growth using entrepreneurship as a wedge.

Daniel Isenberg [00:05:19]:
And I'm sure we'll get into that later, so I'll stop there.

Jeffrey Stern [00:05:23]:
Thank you. Dan?

Dan Hampu [00:05:25]:
Yeah. Dan Hampu. I I wish I had as clever of an intro other than I am technically a, I'm technically a lawyer, so I always ask people not to hold that against me because I don't practice. I don't have nearly as long or robust of a career as Daniel, but, my career has been all in venture capital, entrepreneurship, innovation, and, also teaching said subjects, in the Northeast Ohio space. So I've taught at, at Mount Union College, University of Mount Union, and the University of Akron, some intro and capstone courses on entrepreneurship. And then in my more full time capacities, have been a part of a start up company as the chief operating officer. I've been involved with a venture capital firm as well as a nonprofit that does venture capital activity as well as educating students in the process of what it means to be a venture capitalist on how to make those decisions, and currently reside with the Burton D. Morgan Foundation as its president and CEO, where I took over about 9 months ago.

Dan Hampu [00:06:33]:
So that's a little bit about me.

Jeffrey Stern [00:06:36]:
Well, thank you for for sharing that, Dan. Before we we kind of dive into the the meat of what I think we'll unpack today, I'd love if you can actually just provide a little bit of an overview of, you know, what the Bernie Morgan Foundation is, the nature of of the work that you do and, you know, working our way towards Scalarator, you know, how how those two worlds begin to to intersect?

Dan Hampu [00:06:59]:
Yeah. It's a great question. So the Berten d Morgan Foundation was founded in 1967 by entrepreneur Bert Morgan. Actually, before he had a lot of, a lot of material success that ultimately led to led to the Foundation's ability to execute on what it does. We were founded with the purpose of preserving and strengthening free enterprise by investing in individuals and organizations that further the entrepreneurial mindset. And typically, our work has been done in a few buckets of activities. So we do some activity to support the community more broadly. We do some work to support Hudson, but then the vast majority of our mission related work is in youth entrepreneurship, where we support kind of mindset and skill building development, Collegiate entrepreneurship, where we further the mindset and start getting into venture creation and connecting, individuals to entities that are early in their operations.

Dan Hampu [00:08:00]:
You mentioned that you've participated in the Venture for America, and that's a program that, we've we've supported in the past. And then we also support programs in the, adult entrepreneurship space, which includes programs like Scalarator, Northeast Ohio, and many others. So our youth portfolio has been mostly in Northeast Ohio, collegiate mostly in Northeast Ohio. And then our adult entrepreneurship program has been sprinkled mainly in Cuyahoga got Cuyahoga and Summit Counties. So I toss over to Dan. That's where in the adult space, the Scalarator program is one that really focuses in on the 3 to $15,000,000 revenue companies that are looking for looking for growth and looking to expand their cash customer and capacity, for growth.

Jeffrey Stern [00:08:49]:
So if we kind of take a step back here and think about, you know, the overall entrepreneurial ecosystem and to to grossly oversimplify this, you know, you can get turned around a bit in in the circular nature of it as entrepreneurs create startups that grow to scale ups and larger enterprises that ultimately a small percentage of the time may return capital to the founders and the investors and cultivate new entrepreneurial talent who can go on to start their own businesses. And so there's a lot of ingredients to this recipe from the entrepreneurs and the and the talent to capital to businesses at different stages in their life cycle and through the lens of Scalarator and I'll you know, call out what what's in a name and, you know, we're gonna talk about scale. You know, why have you chosen to focus on the scale and that part of the ingredient, you know, selection relative to the quantity and the inception ingredients of of earlier stage startups?

Daniel Isenberg [00:09:49]:
Good question. We about 15 years ago, I because of I've done just about everything else in the field of entrepreneurship, I was given the opportunity to focus all of my experience in thinking and training as a social scientist way back when on how you can use entrepreneurship as a wedge for economic development. And it was, in a way, a self appointed mission, and that's where the term entrepreneurship ecosystem came from, and kind of by now famous article in Harvard Business Review in 2010 called how to start an entrepreneurial revolution. But very quickly, we learned well, we learned a lot of things because we've done projects now all over the world, and some of them are quite extensive. But if the problem that you're solving for, and this is very important, you have to decide what you're trying to accomplish. And if what you're trying to accomplish is a virtuous cycle of growth, then it's most efficient and most effective to start in the middle, so to speak, and not start at the ends. It's most efficient and effective to work with companies that have already passed the market test, some market test. And the only reason for that is that you can show very quickly that they can grow.

Daniel Isenberg [00:11:09]:
And as an investor, as an unusually active angel investor, although I don't like the term angel very much, I don't think I'm an angel, you know, we tend to be self we tough to have these terms that are very self congratulatory. So I know, you could see if you have if this were to video, you'd see the tongue in my tongue in my cheek. I call myself a devil investor. You know, you have to be you have to realize that with if you if you start with startups, you have a very, very long road to travel, and you have a lot of dropouts along the way. It takes realistically speaking, when all is said and done, a small percentage of the so called startups succeed in building any scale and having any impact. And, it takes anywhere from 10 to 20 years to do it. If you wanna start a virtuous, circle, that's not a very good way to do it. You have to be able to show, or you don't have to, it's very advantageous to be able to show quickly to the, let's call it ecosystem, to the community, to the environment, the immediate environment.

Daniel Isenberg [00:12:20]:
You have to be able to show them very quickly that growth can happen, that new growth can happen. So we, and I speak for myself and ourselves, we have something we call the scale up purpose. And the scale up purpose doesn't apply to scaling up firms, it applies to scaling up regions. And the scale up purpose is to create the systems, the culture, the institutions, the programs. Ramura said culture because software is very important. So that more and more local firms will grow more and more rapidly to the benefit of all. Every word there was chosen very carefully. It took about 15 years to package everything into just a few words.

Daniel Isenberg [00:13:02]:
But it's about a trajectory, a dynamic of growth. If you want a dynamic of growth in a region, which applies to start ups, to large companies, etcetera, then it's beneficial to use the existing companies as a wedge. It happens faster.

Jeffrey Stern [00:13:20]:
Yeah. You could tell the intentionality of of the words that that you use there. I'll push back if only to play devil's advocate a little bit, to to just unpack this point a bit more, which is, you you know you kind of you mentioned the the cycle and and how it can be at the early stage and at the later stage and choosing to start in in this middle section as a consequence of the fact that most startups don't don't make it there. Right. You have kind of the whole power law that drives, you know, which startups even get investment and capital in the first place to even get a shot at making it to that middle. But but why isn't it enough to just, you know, increase the the quantity, the input, knowing that 90% of those startups are are not gonna make it? But if you can fund an additional 90 or a 100 startups and get 10 of those to get to the stage where, you know, they are now in that that impact part of their life cycle? Why is there more efficacy in focusing on this this middle part than at the beginning part?

Daniel Isenberg [00:14:21]:
There's a few reasons. First of all, the the the 10% success rate is a little bit, overstated Because it's not even 10% that will, say, reach a $100,000,000 in revenues and employ, let's say, 10,000 people. It's much, much, much smaller number. And that takes, in the good case, 20 years. Let's say, just to make up a number. It doesn't happen in 2 years, except very, very, very rarely. And that's number 1. Number 2 is that there's certain social processes that when they happen fast, they happen, and when they don't happen fast, they don't happen.

Daniel Isenberg [00:15:00]:
And so if you don't do this very quickly, then it takes generations for it to happen. A third is you're wasting an awful lot you're you're underutilizing from a social perspective, a social economic perspective. You're undilu underutilizing all these assets that are already there. That can make a huge impact and a huge contribution. Now there's a myth out there. There's a lot of myths out there. One of the myths out there is that big companies are dinosaurs, and they're, or they're not innovative, or they're sluggish, or they're all kinds of other things. Well, actually the empirical reality doesn't bear that out except in certain ways, very specific ways.

Daniel Isenberg [00:15:44]:
So I believe that ultimately there's a, a healthy economy has diversity of sectors, diversity of types of firms, diversity of relationships among the private between among the private sector actors, public sector, and all the, you know, all the whole spectrum. There's there's diversity. And if we pick out one element of that whole diverse complex, that's why it's called an ecosystem at our peril.

Jeffrey Stern [00:16:14]:
So the the the follow-up question I I have there is, you know, you mentioned specifically it's about a region's entrepreneurial ecosystem. And so when you are thinking about the program in the context of a of a region, what are the important factors that that that matter when when thinking about the the ecosystem?

Daniel Isenberg [00:16:34]:
You know, I feel a little uncomfortable because you're you're asking questions that that make me sound like a like I'm being a professor again.

Jeffrey Stern [00:16:41]:
We're all here to learn.

Daniel Isenberg [00:16:43]:
Each one of these is a lecture. Dan, feel free to jump in. Dan Hamp would jump in any time here. But I'll make it I'll sort of in order to communicate very, very complex social phenomena, that and that's what we're talking about. Right? You have to really oversimplify. So I'm gonna oversimplify. Recognizing that it's actually the reality is much, much more nuanced than all I'm describing it. First of all, what is an ecosystem? An ecosystem, it doesn't happen all at once.

Daniel Isenberg [00:17:12]:
It's not born with a full set of teeth, so to speak. It happens in all kinds of directions. But it involves culture, it involves human capital, it involves markets, it involves support organizations, public policy, providers of financial capital. It involves a whole mix of actors. And, again, these 6 we call them domains. And there are 4 in our experience to make to create this dynamic, this self sustaining, self accelerating dynamic that I'm talking about. It takes 4 there are 4 necessary and sufficient conditions. Again, I said I'm oversimplifying.

Daniel Isenberg [00:17:52]:
And it's not in this order necessarily. First of all, you have to show that growth can happen and that it's normal. It's not the 1 out of a1000. It's the 2 out of 10, the 2 out of 5 that can grow. So you have to demonstrate quickly that growth can happen. And it can happen here, and it's normal. That's why we created the Scalarator. It's a strategy.

Daniel Isenberg [00:18:14]:
Even though it helps the companies, and it looks like what we're trying to do is help the companies, the real impact is not in helping the companies. The real impact is leveraging that. So how do you leverage that? There's that there are systematic ways to leverage that so that it helps catalyze or crystallize an ecosystem. 1 is by communicating that growth. And Dan Hample and I, with our team and colleagues, have been experimenting over the last 4 or 5 months, and I hope every listener has noticed, and if not, go Google it. We've been experimenting with how to communicate that very, very specific growth that happens in the scalarator in a way that it it ignites the imagination of others. You know, if you know that growth is possible, then and it's normal, you will try harder to grow no matter who you are. Not everybody, but a significant percentage.

Daniel Isenberg [00:19:09]:
The third thing that you have to do is you have to engage the stakeholders because it takes a community or a village for a company to grow, to scale up a company. So and not to mention scale up an economy. So you have to engage the various actors, and you have to engage them around something very concrete and very specific. Having that scalerator and seeing that growth happening is something. And, you know, we had exercises with the trustees of Britton D. Morgan a few years back, BC. BC is is not, before Christ, it's before corona, before COVID. So we had a bunch of the trustees together, and we went through the exercise of aligning them around growth and around a very specific image of growth.

Daniel Isenberg [00:19:53]:
And the 4th necessary and sufficient condition is you have to create a mechanism, a very small mechanism. Call it an I I don't say we're doing that yet in Northeast Ohio, I hope we'll get there, that knows how to just keep the ball going. End of lecture. And Jeff, Jeffrey, I'll just add one thing,

Dan Hampu [00:20:15]:
because you asked the question around why is this why is the Scalarator such an interesting program and a and a unique thing to focus on. If you tally up the businesses and the jobs that the businesses represent that are supported by well, I'll just call it the, the second stage market, which is a 1,000,000 to 50,000,000 in revenue, that bucket, of which the Scalarator supports a chunk. That group is in in Cleveland, Warren Youngstown, Akron, Canton area, and out to Lorraine. The number of businesses is about 20% of all businesses, and the number of jobs that it represents is about 41%. So when you when Dan mentioned the when Daniel mentioned the word, leverage, it's a really unique group to support because of the high leverage activity that comes that comes with it. 20 20 20 percent of the businesses representing 41% of the jobs, and it's in a unique position where the entrepreneurs and the and the teams haven't figured everything out. So they they still are they're still going through growth growth pains and there's still things to be learned and there's still systems to be built and there's still systems to be optimized. And it's just a right area to get the best to get some really good leverage out of the investment.

Daniel Isenberg [00:21:45]:
You know, you know, Jeffrey, if you could if you could take 4 or 5 chickens and safely have them cross what's a major turnpike or freeway in your area? 80? Is 80 or 9 I don't know. What 90. Okay. Not let's say 90. And have them cross 90 safely. Why would you take a 100 and throw them across the highway where most of them are gonna get squashed?

Jeffrey Stern [00:22:16]:
Is this a rhetorical question?

Daniel Isenberg [00:22:18]:
Well, that's the hard answer to the why not start with the quantities of startups?

Jeffrey Stern [00:22:23]:
Yeah. No. It it it makes a lot of sense, and it it's a I I like the perspective because it's not one that I am typically thinking about working very explicitly in in my personal life at with startups. But but one thing, Daniel, that you mentioned that that resonated quite a lot was the the communication piece of and then its importance there because in a lot of ways, that's that's kind of the the driving impetus for for this whole podcast. And I I've come to believe more anecdotally than empirically, but I'm glad to hear there is some empirical backing to it that these stories and and the communication are how we as a community can teach those who would be inclined to start something or who are already in the process how to scale something that that there there is a path and there is a way to to actually do that.

Daniel Isenberg [00:23:11]:
I would I'd pick up on something that Dan Hampoo said also about this outsized contribution of the larger companies or somewhat larger companies, of which, again, there's a very significant number just within just just within sort of stone's throw of where you're sitting. And that is, almost certainly, they pay better salaries. Almost certainly, they invest more in innovation. Almost certainly, they're exporting more. So there's there's there's an impact there.

Jeffrey Stern [00:23:43]:
So I I think at this point, we we have set the stage, and and we can take a step outside the the classroom here and and get into the the nuts and bolts of of how this this actually works in practice. I think it would be really informative to just, you know, kind of walk through an overview of of the program today, how Scalarator actually works, Take us through, you know, a a few examples of of some companies that have gone through it and, you know, how the how the overall process works.

Daniel Isenberg [00:24:11]:
So, Dan, with your permission, I'll explain that. But why don't I do that? You try and think of some local a couple of the local examples that we've, been communicating about recently while while I explain the the the high level. So the the it's a it's first of all, it's a big time commitment. It's a business investment that the CEO owners make together with their teams. Could be their full team. It could be a partial team, but they don't come alone. It's not to train the individual entrepreneur business owners. It's to train to help the company grow.

Daniel Isenberg [00:24:49]:
And so it's a significant investment of time. That's a that's a rational business decision because out of that comes significant new growth, New growth that's profitable and that's sustainable. So what do we do? We s again, I'm I'm gonna simplify, and we simplify in order to make the process practical. There's 7 workshops over they're a day and a half each that are very intense, and they're workshops. They're not talk shops. They're workshops in which they work. The the longest lecture any faculty member gives is probably about 15 minutes. And they work on exercise, and they hack away in general on growth in 3 areas.

Daniel Isenberg [00:25:32]:
Only 3 areas. Doesn't mean these are the only 3 areas in the world. But if you can hack away the growth in these 3 areas, what we call the 3 c's, you will grow. And one of them is customers. That's everything to do with acquiring customers, but it also is about growing the customers that you already have. A lot of CEO entrepreneurs, owners, they ignore, they assume that the existing customers are in their pockets, so to speak, but they're the most profitable and stable source of revenues. So we and we balance acquisition with what we call retention and expansion. Number 2 is capacity.

Daniel Isenberg [00:26:17]:
Capacity means people, primarily. Not only, but primarily people. It's how do you make sure that the unproductive talent that you have, the unproductive people, either become productive or leave to make place for people who can be productive. You know, it's it's not a one sentence that can describe how that happens. I'm just expla I'm just describing it. So there's customers, there's capacity, and then there's cash. We approach cash a little bit differently. And raising money is a rare phenomenon raising equity capital, let's put it that way, is a relatively rare phenomenon overall, in general.

Daniel Isenberg [00:26:57]:
You look step back and look. Okay. How many how many companies raise raise equity capital? It's not very many. And even the fast growing companies. You know, I have a list of companies that are bootstrapped without raising venture capital, and it's a phenomenal list of companies. It's very big. But as you said in your early comment, you you conflated raising capital with growth. Raising capital is not growth.

Daniel Isenberg [00:27:23]:
Raising raising capital is getting one resource that you need to grow. There are other ways of getting that resource, such as working on your existing operations, both to deploy the capital that you have as effectively as possible. So enough said. The 3 Cs, it's not rocket science. The Scalarator is not complex. It's simple. But it is really difficult. Simple and hard.

Daniel Isenberg [00:27:50]:
Simple and hard are are 2 different things. They're different dimensions.

Jeffrey Stern [00:27:54]:
Yep. Orthogonal.

Daniel Isenberg [00:27:55]:
Like like fitness training. You know exactly what you need to be to to to, you know, health. You know exactly what you need to be to do to be healthy. To doing it, you need a trainer, usually. Not always. Anyway, to you, Dan Hampoo. Let's some examples I think would help really, ground what I've said.

Dan Hampu [00:28:14]:
I think there's a, there's a plethora of examples that have gone through the program and experienced the type of growth that Dan and the team really try to push. So, we could talk about a couple of those if we, if you want to go through a couple. I don't, I don't know if it's judicious to pick pick specific entrepreneurs and and call them out.

Daniel Isenberg [00:28:34]:
But Which kid do you like best, Tim?

Jeffrey Stern [00:28:37]:
Who's your favorite child?

Dan Hampu [00:28:38]:
And that and that well, no. But, Jeffrey, I was gonna comment on something that I think speaks holistically. I mean, ideally, we want all parts of this ecosystem to play. The the 6 pieces that Dan, that Daniel mentioned regarding policy, finance, culture, markets, the human capital, as well as the various life stages of the business. So there there are companies that have gone through, startup routes that have participated. I can't speak to the specific percentage that have kind of graduated through the continuum of, like, we have an idea to they've made it to the Scalarator size or beyond. But there are examples, and I would I would point you and anybody else, interested in learning about those to go to the Scalarator Neo LinkedIn page to see the growth stories. Because like like Daniel mentioned, we're consistently pumping out companies that have experienced 20 to 50% growth in one of those 3 c categories, customer capacity or cash, consistently within 6 to 12 months of the program.

Dan Hampu [00:29:47]:
But, I won't call out one. I won't give the name of this specific one, Daniel, but just because I know one of the entrepreneurs, I I've known them from their beginnings when they had 2 people. So, Jeffrey, they were one of these that went out, and they they participated by pitching and winning, the GLIDE Innovation Fund round. They received some investment dollars early on in their, in their company's life in the Northeast Ohio Student Venture Fund, which I previously, previously helped run. And one of the coolest things that I'm just a big fan of, I was talking with some young students yesterday and I was I always go back to their like, what gets you going? I'm like, I love growth. Like, so this this entrepreneur, I knew when they had 2 people and maybe 2 or 3 interns from a variety of different local universities and now they're up to 40. Now they're up to 40 people. They're a graduate of the Scalarator program.

Dan Hampu [00:30:38]:
They've been through multiple startup programs within Northeast Ohio and they're continuing to just progress and hack away at the things that can get them, get them meaningful growth. So, again, I think that's part of a rich ecosystem. And just one example of a company that's been through the startup parts of our ecosystem as well as benefited from the the work in the Scalarator program.

Jeffrey Stern [00:31:02]:
So, Dan, you mentioned graduation rates and and, you know, perhaps that that is or isn't the best way to think about about outcomes and kind of layering on, you know, Daniel, what what you had mentioned, simple but but hard. Maybe it isn't more complicated than sustainable and and profitable growth, you know, at this stage. But but how do you think about, you know, what does it mean to be successful in the program from an outcomes perspective, both you know, on a on a cohort basis and and for the longevity of these these actual companies.

Dan Hampu [00:31:35]:
It's really clear what the Scalarator team hopes for. I mean, they wanna see 25% revenue growth within the first 6 months, 6 to 12 months of graduating from the program, so finishing the program. Daniel, you can correct me if I'm wrong, but I'm I'm pretty sure that's the that's the the the standard.

Daniel Isenberg [00:31:53]:
Yeah. It's 12 months, and we saw that the one time that we did a cross cohort study at in Northeast Ohio. That's exactly what happened, that there there was 25% growth within the 1st 12 months after this after the Scalarator. But the other that's very important is it's not one company that's growing, that it's broadly spread. And I think that's really important. We one of the one of the things we wanna communicate and demonstrate is that growth is normal. It's not something that, oh, if I'm not one out of the, you know, 1% or 1 tenth of 1%, that I should forget about it. It's probably closer to 1 out of 4, 1 out of 5 percent that can grow.

Daniel Isenberg [00:32:33]:
And it doesn't matter from that point whether they grow 5% or 25% from the point of view of the scale up purpose. It's that there's a new growth dynamic that's created. You know, once entrepreneurs learn how to grow, and you say, grow by 20 or 25%, whatever the numbers, they don't stop when they get there. It's just to get that dynamic started.

Jeffrey Stern [00:32:56]:
It sounds like and and this is is somewhat the actual intent of the program that there are these repeatable, durable methods that you can use to help, you know, affect specifically those 3 c's, customer capacity, cash. And And one of the things that's always been really fascinating to me about, you know, any of these companies is how similar the problems that they all have are regardless of what it is they're actually trying to solve as a company.

Daniel Isenberg [00:33:21]:
It's a very good observation because that's another one of the reasons why we chose to focus on the several $1,000,000 level, is because these companies have a common set of problems. When they get really big, they need to hire McKinsey or whatever in order to help them solve their particular issue. It's not generic anymore. But when they go through a certain size, their their problems are generic. And by the way, they also learn a lot from each other, even though they're in different sectors. We can have a whiskey company. We had Cleveland Whiskey, and we had, associated underwriters. The the completely different areas, and they learn from each other because they're different.

Jeffrey Stern [00:33:57]:
What are some of those those common, you know, threads that are that are pulled on throughout the the program? You know, things that that may maybe an entrepreneur feels would be unique to their their organization, but but in fact is is quite common as a as a challenge.

Daniel Isenberg [00:34:13]:
Well, I'll give you one example. It's the people problems that that that they've always had. I mean, the battle for talent has been much more difficult and always is much more difficult than the battle battle for capital. By the way, if you can grow, the capital will come. If you can grow systematically, sustainably, predictably, you won't have trouble finding it won't be easy, but you'll have a lot less trouble finding access to the getting access to the resources you need to grow further. But let's take talent, for example, which has become completely exacerbated in the pandemic and afterwards, the great resignation and so on and so forth. But the this is a common problem that everyone thought that they themselves had it alone. How do we attract people? How do we keep people? Can we afford to, let's say, and this is not going to sound very nice, but it's necessary, how do we remove the bottom 10% of performers yet I'm not sure I can hire people to replace them that are better? Maybe I'll hire somebody who's worse.

Daniel Isenberg [00:35:12]:
How can I create a culture that gives me a competitive advantage in in acquiring or ma or keeping talent and making it productive? Can I can I build a competitive cultural advantage that also allows me, for example, to substitute other kinds of compensation for raw cash to to a small extent, to some extent, for other for cash compensation? Because, you know, if you and I are just competing for Dan Hampu to have him come work for us just on cash, it's going to be a tough competition. But if you can develop a culture that's a winning culture, a culture that allows him to expand his own horizons, to be productive, you're gonna get Dan Campo, even though you may be smaller than me. You're gonna get him, and you're gonna keep him, and he's gonna be productive. These are some of just examples.

Dan Hampu [00:36:04]:
Jeffrey, I I don't have I mean, Dan's been Daniel's been running this program for a long time, but I can speak to 2 things that I think reiterate what he just one that reiterates what he said and then just one that I I'll add. I got to sit in on one of these, one of these people, conversations where a leader of a company, they took an assessment, and I I love this example because it was transformational. What I saw at week or month 4 and then what I saw at the end, it was truly transformational. But, the team took an assessment, and the leader took an assessment. And then they had a conversation in kind of a in a Zoom room about the results. And the results showed that a leader was thinking that they were really empathetic. This is just one very specific example, but the leader thought that they were empathetic, and the team thought that they weren't. And so I I sitting in as an as a third party just listened in on a really tough conversation between management and the the leading the leader, the founder.

Dan Hampu [00:37:10]:
It was just AMFM, I mean, in terms of communication. And by the end of the by the end of that conversation, the team had grown so much. By the end by the end of the program, I mean, it was it was transformational to see how the team was interacting, by the end of the program. One other thing that I would just point to is a very specific, thing that, the Scalarator program really encourages is we all know that some sort of dashboard scorecard is a is a mechanism that supports it's one of these best practices. It's a it's a mechanism for helping make sure that you're tracking and following the right things. But yet, although it's it's basic hygiene, not everybody does it. And so, Daniel and the team helped the helped the helped the teams put together a usable dashboard score scorecard and actually use it to evaluate, like, is the business moving in the right direction? And that was that was again enlightening because I've had experience working in a start up company and know the importance of that, but also know that when

Daniel Isenberg [00:38:09]:
oftentimes when push comes to shove and you get busy, it can get put

Dan Hampu [00:38:09]:
on the back burner despite oftentimes when push comes to shove and you get busy, it can get put on the back burner despite it being a really, really vital, tool for growth. Those are just 2 things I wanted to reiterate, from what Daniel was talking about.

Daniel Isenberg [00:38:25]:
Just to pick up on that, one of the things that Dan is referring to is what we call our self assessments. The CEOs and their owners and their partners and their team take approximately 20 to 23 self assessments on different aspects of those 3 c's as preparation for each workshop and spend a significant amount of time analyzing and discussing those, how they differ from each other is similar, how the one company may be different from another company. It's it's it's one of the one of the ingredients in the secret sauce. I'd like to say one more thing. We've run the Scalarator. I've actually lost count. I think it's now 29 times, or maybe we're starting the 29th cohort in over with over 500 companies in 8 countries, Brazil, Colombia, Panama, Guatemala, Trinidad and Tobago, Canada, Northeast Ohio, Milwaukee, and we get exactly the same results. I say exactly.

Daniel Isenberg [00:39:29]:
We get basically the same results, same methodology, same content, maybe 3% different content.

Jeffrey Stern [00:39:37]:
So with an understanding that there is a a playbook, right, a a methodology for generating those kinds of results and sustainable growth and profitability that that ultimately you're you're shooting for as a as a successful outcome. When you think about, you know, looking forward into the future over the next year, over the next 5 years, what has you most excited? How do you think about scaling Scalarator, if you will, and and what are the what are the plans looking forward?

Daniel Isenberg [00:40:09]:
Well, we're talking now with, with Dan Hempu and his team. We're talking about how we can have a bigger impact leverage this incredible asset that's been created through the Scalarator in Northeast Ohio is well over half a $1,000,000,000 of revenues over 70 companies. And just imagine those $500,000,000 of $700,000,000 of revenues, there's no reason that can't be 5,000,000,000. And when those, let's say, 5,000,000,000 of revenues grow, that's a lot of growth. And that growth tends to have a bigger impact locally. I buy from local suppliers, whether it's services, let's say, facilities management services, security services, catering services, the not what I call non strategic services or strategic ones such as components or software or applicate you know, etcetera, etcetera. They tend to be local, so that almost intrinsically, when those 500,000,000 grow, or 1,000,000,000 or 5,000,000,000 when they grow, a lot of that growth has impact on local supply chains. They get thicker.

Daniel Isenberg [00:41:17]:
They get richer. They get deeper. People make more money. Where is that money spent? Well, some of it's gonna be spent in Italy. Right? But most of it's gonna be spent in Northeast Ohio. So there's more spend. Taxes? No one likes to talk about taxes. But companies pay taxes, right? Where are they gonna pay those taxes? Well, some of them are gonna be federal, but some of them are gonna be where? In Ohio.

Daniel Isenberg [00:41:42]:
Some of them are gonna be in Akron, some in Youngstown, some in Cleveland, or wherever, you know, however you break down the tax jurisdictions. So this is what I call economic engagement. By focusing on real business growth, what I call hashtag real growth, you can do things and achieve an impact that you can't achieve and sorry if this sounds a little bit provocative you can't achieve that impact by talking about how much money I raised, at what valuation, and am I unicorn or not, and did I have an exit? And nothing bad about those things. I'm an investor. Alright? I love those things, but that's me personally.

Jeffrey Stern [00:42:21]:
Right. I think I think the the the lens of economic growth is not often the one that is applied to is a 6 is a startup successful? Because the I think we've confused the the metric a bit for, you know, an outcome of success of, you know, how how how much capital have you raised versus what is the impact on the on the community.

Daniel Isenberg [00:42:44]:
Well, what I'm saying is that the entrepreneur, they should first and foremost be growing a healthy business. Yeah. Now some of them have a purpose beyond that, and that's fine. I think it's probably good for society. But if they don't have a healthy business that's growing, the tools that they have for achieving social aims, let's say, are gonna be much smaller, weaker tools.

Jeffrey Stern [00:43:06]:
Pulling on this a bit, when I I laid out the ingredients for the entrepreneurial ecosystem earlier, I think I had only mentioned, you know, entrepreneurs themselves, talent, capital, businesses at different stages. One thing I I don't think I personally often think about and would be very curious to get both of your perspectives on is the role that that policy and nonprofits have to play in this overall ecosystem and in entrepreneurial success and in and in economic growth?

Daniel Isenberg [00:43:38]:
That's for you, Dan.

Dan Hampu [00:43:41]:
Well, I mean, I I wouldn't I wouldn't dare go towards the, the policy piece. That one's that one's not my wheelhouse. I think there's been a lot of benefit to, what the 3rd Frontier has done in the state of Ohio. But from the from the nonprofit sector, I mean, we're our foundation was founded to try to support and strengthen the free enterprise system by investing in entrepreneurs and the organizations that support entrepreneurs that are building entrepreneurial mindset. So, I mean, you look at you look at so many philanthropies, and Daniel made a comment that really resonated with me, and that is if you're building good businesses, then you're building potential philanthropists. You're building people that are giving back. And most most major philanthropies are entrepreneurs that have been successful, successful beyond a lot of people's wildest imaginations. And so a philanthropy like ours that's given away 100 of 1,000,000 of dollars, since it's since it's been, conceived after after the passing of an entrepreneur because of their business success while they were alive.

Dan Hampu [00:44:47]:
That's pretty incredible. So I think not our nonprofits play an integral role in, understanding the entrepreneurial mindset themselves and then passing that on to the entrepreneurs that they serve, because the the majority of the work that that we've done historically has been through our partners, has been through the nonprofits. So I think they play a pretty vital role. Colleges and colleges play an important role on connecting talent from from universities to the opportunities in the ecosystem, whether it's in a start up capacity or it's in a scale scaling up company. And also the earlier education, organizations play an integral role in developing mindset and trying to really impress upon people what growth mindset is and what it means to have an entrepreneurial mindset versus what it means to be put into a box. I'll tie that to one comment on policy. I I don't know if our educational system does a great job of allowing for that growth mindset because so much of that so much of growing up in a traditional school setting is putting you in a box, giving giving you the syllabus, giving you the assignments, and not allowing for as much growth mindset activity or flexibility as you probably should. So I think it's really important that there are nonprofits that that work to support individuals with extracurricular activity, activities in both k through 12, as well as, collegiate as a way to expand the expand the mindsets.

Dan Hampu [00:46:18]:
I fortunately, I personally I'll just give a little anecdote here. I grew up in a public school system. My parents who were involved with the school system, in my hometown because of athletics and because they wanted us to not have favorable, this might sound bad, but, like, not be favored because everybody knew my parents in my hometown. They they said you're going to a private school. And it's one of the biggest inflection points in my life because the the education was so different, as well as the people that I was going to school with were so different than those that I was, going to school with, in the public school system. So it was just a transformation around how things are taught, how you learn, and what the canvas looks like, and how big is that canvas. Is it blank? Is it big? Is it smaller? And then are you put into a box?

Jeffrey Stern [00:47:10]:
So having this is this is for for you, Daniel, kind of perspective on what this program looks like from a myriad of of geographies, and how it's played out with similar outcomes across, you know, the the whole plethora of those geographies. When we dial it back to to Northeast Ohio, you know, what what stands out to you as the the differentiating factors that we have in place here, both, you know, from a a strength side of the coin and also, you know, potentially from from a weakness and where where we might, you know, want to improve going forward.

Daniel Isenberg [00:47:46]:
There are a few strengths that seem to me obvious, but certainly there's a huge industrial legacy. And even though a lot of those original companies have disappeared or gone, the legacy is there. You know, the tire industry has left a lot of tread around, Akron and the region and so on and so forth. So that's in, you know, and, philanthropists such as, Burton D. Morgan. So, and you know, the history of Cleveland, I'm sure better than I do, but it was, you know, it was a powerhouse of innovation and also industry until, probably the 1920s or 1930s, maybe even beyond that. If you look at patenting activity and so on, it was extremely high. So there's there's that.

Daniel Isenberg [00:48:31]:
I think there's also a very interesting this may not feel as good as it seems to me, but compared to a lot of other environments that I've seen, there's a there's a there's a lot of it cross institutional collaboration that's very important. Where it's the Fund for the Economic Future and all the work that at Bert and D. Morgan, the Third Frontier, and so on and so forth, there seems to be a lot of collaboration. I'm sure there's also conflict, but that's normal. The there's a lot of collaboration and collective effort and and I think pride. So I think that's that's a huge asset. Maybe you don't see it, but it's there. I see it coming from the outside.

Daniel Isenberg [00:49:05]:
It's there. The level of philanthropy is is huge in the greater Cleveland, let's say, Northeast Ohio area. It's huge. So these are some of the and of course, the educational institutions, the the medical institutions, I don't need to mention. I mean, they're but they're they're also these are tremendous assets. I think there's a couple of, sort of, drawbacks. One is, it's just the geographical the geographic economics. It's very dispersed.

Daniel Isenberg [00:49:33]:
There are not too many real centers. There it's there's there it's spread out. And so I think that makes it a little bit harder to foster their kind of connectivity. And some of that's just pure physical, but it's a little bit harder to foster the connectivity that's necessary to foster. I think that's that's one drawback. I think there's a modesty is a mixed blessing. And so there's a there's definitely a culture to some extent of modesty or, you know, hunkering down, let's put it that way. And I think, you know, modesty is great for friendship.

Daniel Isenberg [00:50:07]:
I like modest friends, but it's bad for business. You have to you have to get out there and communicate. And I think that you got to you have to communicate your wins. You have to talk about your successes. You have to talk about everything out there. And so there's not as much communication as I think, in part because of the culture of modesty, in part because there's this sort of dispersion of effort. So those are those are some immediate reactions. What do you think, Dan? Like, did I did I miss it? Did I show that I'm an out of town or east snotty nosed Easterner?

Dan Hampu [00:50:39]:
No. I was I was gonna mention, I think the, I like how you used the word modest, and I agree with that. I think it's I think it's awesome that we're sitting on a podcast with some goals to try and get the word out about what's going on in the early stage business community, start up through scale up and trying to really get that out there because that's part of the modesty. We don't there, like I mentioned earlier, the amount of entities that fit second stage in the northeast quadrant of Ohio is is large. And yet it's to Daniel's point, it's dispersed and it's not super well connected. And so having means like lay of the land that's trying to spread the word about what's going on in startups and scale ups is powerful. And I think it can help grow with the modesty I was just gonna tag in. I think part of that is the growth mindset, the Midwest mindset, and trying to trying to tweak that a little bit.

Dan Hampu [00:51:34]:
And then the only other thing I would just mention anecdotally is financial. For the startup community, we don't have as rich of a of a venture landscape as many other communities. We've got we've got many firms that are trying to break break that break that down, but connecting it through with institutional dollars is not not something that's pervasive yet in Northeast Ohio.

Jeffrey Stern [00:52:02]:
So I'll I'll try and bookend it here as as we come up on time, but there's a there's both a depth and a a breadth of topics that we could have talked about here. And I wanna leave a little, you know, greenfield for, you know, anything that you feel is particularly important that that we haven't necessarily touched on yet, but but you would like to to share about the program, about the work that's being done or or any, you know, perspective that that might be, insightful?

Daniel Isenberg [00:52:28]:
Well, I'll just say again for as an outsider, and I've seen a lot of different places, you know, all around the world. You collectively in this region have tremendous assets that entrepreneurs can use to create value, value of all kinds. Let's say economic value. They're they're huge. I think that it would be beneficial not to get confused with with Boston and with Palo Alto and Seattle. You are you, and you should be who you are. That's why when we define the scale up purpose, we say local firms growing more and more rapidly. You have, you have know how, you have people power.

Daniel Isenberg [00:53:15]:
I don't know if you found out a new word for manpower that's, not loaded from a gender perspective. People power, human power, you have talent, You have stock of buildings that is tremendous, that could that are have a lot of potential. There's a lot of there are innovative assets of many kinds coming out of your educational institutions, some of which are world class. I do think, as Dan said, I do think, you know, if I were a company that the nature of the business that I was creating required it to raise $100,000,000, otherwise it couldn't be successful, this might it might not be the right place to do that. But I would certainly come back or consider coming back at a later stage when I needed to have, you know, workers who had families, who needed parking, who wanted schools, who wanted a good environment. You know, the this this it's I'm I'm I'm really, really, high. There's another word. I'm not high, but I'm really I'm really optimistic.

Daniel Isenberg [00:54:20]:
That's what I mean. I'm optimistic. I'm optimistic. I don't think drugs make you optimistic. I'm optimistic about a lot of regions, such as that once were industrial powerhouses, they've, let's say, have seen better days. They have typically have just great assets. Look at Worcester, Providence, Milwaukee, and so on and so forth. You've got a lot of big companies around.

Daniel Isenberg [00:54:49]:
There's a lot to learn from the big companies. You know, I'll shut up, but I I'm really, really optimistic about about the future of such areas.

Dan Hampu [00:54:59]:
Yeah. My my I'll keep it very brief. I think it's an exciting time to I'm I'm in Ohio and through and through. I think it's an exciting time, and I think it's really gonna be an exciting couple of decades in Ohio, PA, and Western New York in particular, given some of the mammoth shifts of some big tech companies moving into Columbus.

Daniel Isenberg [00:55:22]:
That's also true. Big tech

Dan Hampu [00:55:23]:
companies establishing presence in Syracuse, New York. And then you you toss in the quality of life that Daniel's mentioned, as well as a resource that is becoming more and more like gold in natural water, like our great lakes provide us, it's a it's gonna be a really fun time to be in Ohio and for the next 10 to 20 years for a bunch of reasons. And, like, I I couldn't be more optimistic. I couldn't be more optimistic on on kind of that the entire region and and what is to come over the next 20 years and the opportunities that are gonna be there for growth firms, start up firms, new innovations, new technologies coming out of labs to get connected to some bigger, bigger, bigger companies interested in acquisition, venture capital in this space, and growing more and more local firms for the betterment of all. I think I think it's really exciting.

Daniel Isenberg [00:56:26]:
If the person listening I'm gonna say you, the person listening. If you're just tuning in or you've had the stamina to listen to us until now, and you are running a business that you're a significant owner of, you have, let's say, anywhere from 20 to 200 people, and you have an ambition to grow, and you think you can, you have no matter what you've done in the past could be that you've been stagnant the last 5 years. We've seen 3rd generation companies suddenly start to grow because they participated in the scale orators. So I'll sell I want you to go away with this. You owe it to yourself. You owe it to your employers employees. You owe it to your heirs and your shareholders and all of your stakeholders to seriously consider spending the time in the Scalarator. It is, 1, if you're willing to devote the time, which means you understand you're gonna get you're gonna get compensated for this, It is a extremely important decision to make, and it could change the trajectory of your company.

Jeffrey Stern [00:57:31]:
Well, thank you for those those those final words there. Daniel, I'll ask both of you, the traditional closing question, which has very little to do with anything we've been talking about so far, but does have to do with Cleveland and Northeast Ohio. And and it is for not necessarily your your favorite thing in the area, but for, a hidden gem for for something that other folks may not know about, but perhaps perhaps should about this fine geography.

Dan Hampu [00:57:59]:
While he thinks, I'll go ahead and give just a couple. I'll give one in Cleveland because I was exposed to it last fall summer time frame. Chateau Hough is a winery, an urban winery on the east side of Cleveland. You may blink and drive by it, but if you like sweet wines and and some very friendly folks that you can get some cool stories on about how they're how they're making wine literally on the block in on the east side of Cleveland. It's a cool place to go. And then I just give 2 plugs down by where I live in Canton. So a place that is not relatively secret, but Jurvassi Vineyard is a great place to go for weddings, venues, great good food, wine. And then there's a really small place called John's Bar, which is one of the most happening places in all of Canton.

Dan Hampu [00:58:52]:
And it's not like a bar bar. It's a it's like a sit down, a pub with some good food and good spirits, and it's always super busy.

Jeffrey Stern [00:59:01]:
Dan, it's it's funny you mentioned Chateau Hough. I don't know if if you know this, but but Mansfield Frazier was actually one of the the first guests that that we had on the podcast. Fortunately No kidding. He he did pass away about a year and a half ago, but such an incredible story. One of the more successful recidivism programs. And when we think about, you know, profitable, sustainable growth, the ecological focus is is really an incredible spot.

Dan Hampu [00:59:27]:
Yeah. It like, that's why I had to mention it because I was thinking I was trying to find something that maybe not a lot of people know about. And I'm like, it's it's a tiny little place. But, man, if you like sweet wine, you gotta go there. Go pick up some go pick up some wine.

Daniel Isenberg [00:59:42]:
Well, the as long as you're talking about booze. My my, my exposure to Northeast Ohio is very much limited to the Scalarator. I I'm very focused on that, and so it's all filtered through the companies. And Cleveland Whiskey, I mentioned them once already. They're very visible, I know. They make a world class whiskey. It's it's incredible. By the way, in the Scalarator, they started exporting to, if I'm not mistaken, to India and Indonesia, I think Korea as well.

Daniel Isenberg [01:00:13]:
So that's they're great. They have a great product, and they're a lot of fun. And they I think they you know, I think having Tom on, if he hasn't been on, I think he'd be a good guest on your show. There are other, let's say, consumer facing companies that are real gems. Audimute is another one, another one of our graduates. They provide sound systems to the the the best drummers in the entire world are their friends and use their their their sound systems. And by the way, I have their sound their acoustic systems in mind. And the third is sergeant Carwash.

Daniel Isenberg [01:00:49]:
Sergeant Carwash. Right? The Brian Crews that, is growing like like, you know, like, I can't swear on the radio. Let's see. What can I say? Growing like crazy. That's what I meant meant to say. They're growing like crazy, opening up new stores, every few months. So those are the gems. From my point of view, growth is sexy, and companies that go are gems.

Jeffrey Stern [01:01:12]:
It it makes me happy that I think this is the first time that both of the the gems are are represented by guests on the podcast prior. Tom Tomlix actually did come on and and share his story and it's it's incredible the the Cleveland Whiskey and and what they've been able to do but hopefully the the purpose ultimately of this question is to unearth all these hidden gems and and share their stories so I, that's very fun. Well, Dan, Daniel, Dan and Daniel Show, thank you both very much for for coming on today and for sharing more about the work you're doing, at Scalarator, the Bernie Morton Foundation, respectively. Is really important, and I I think it's it's very cool to to understand a little bit more about the nature of of of how this is is all working. So thank you very much.

Dan Hampu [01:01:56]:
Thank you. Thank you, Jeffrey.

Jeffrey Stern [01:01:58]:
If folks had anything that they wanted to to follow-up with with either of you about, what would be the the best way for for them to do so?

Daniel Isenberg [01:02:06]:
Scalerator is spelled s c a l e r a t o r. No surprises. And the one in NEO is Scalerator, n e o.

Dan Hampu [01:02:15]:
Yeah. It's just Scalarator ne0.org. And then for the Burton d Morgan Foundation, you you Google that, and it'll come up. We have an ability to contact us if you'd like to find out more information.

Jeffrey Stern [01:02:26]:
Wonderful. Well, Dan, Daniel, thank you both again.

Dan Hampu [01:02:30]:
Thank you. Absolutely.

Jeffrey Stern [01:02:32]:
That's all for this week. Thank you for listening. We'd love to hear your thoughts on today's show, so if you have any feedback, please send over an email to jeffrey@layoftheland.f m or find us on Twitter at podlayoftheland or @sternjefe, j e f e. If you or someone you know would make a good guest for our show, please reach out as well and let us know. And if you enjoy the podcast, please subscribe and leave a review on iTunes or on your preferred podcast player. Your support goes a long way to help us spread the word and continue to bring the Cleveland founders and builders we love having on the show. We'll be back here next week at the same time to map more of the land. The Lay of the Land podcast was developed in collaboration with The UP Company, LLC.