#50: Jeffrey Stern’s Reflections on 50 Episodes & Startup Flywheels

Jeffrey Stern (Lay of The Land & Axuall) [00:00:02]:
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'm your host, Jeffrey Stern, and it does happen to be the 50th episode of Lay of the Land today. When I set out to tell the stories of entrepreneurship and of founders in Cleveland, I did not really have a sense for how this show would evolve and the repository of incredible stories that it would become. And so I am incredibly grateful for all of the Northeast Ohio leaders who have taken the time to come on the show. It's it's been a humbling and enriching experience for me personally. And I do not take for granted the privilege it has been to learn from all of these incredible builders in our own community.

Jeffrey Stern (Lay of The Land & Axuall) [00:01:02]:
It would not make for the best listening for me to list out everyone by name here to thank but I did specifically wanna call out Mansfield Frazier who unfortunately did pass away in October. But from Mansfield alone, I've learned an incredible deal. You know, Mansfield was one of the the first guests on the show and his love of Cleveland, his passion for Chateau Huff Vineyard, his ambition in creating one of the most successful recidivism programs in the country, his perspective on conscious capitalism, the idea of doing good and doing well at the same time. His strength in combating institutionalized racism, his entrepreneurial spirit, and just reaching out to help so many people. He was an incredible force and human. And we were lucky to have him here in Cleveland and definitely lucky to have him on the podcast, having only really scratched the surface of his story. But with that, I hope that that all of you, the the dedicated dozens of listeners have gotten as much out of these stories as as I have. So thank you for supporting the podcast and for tuning in every week.

Jeffrey Stern (Lay of The Land & Axuall) [00:02:16]:
You know, 50 is a is a nice round number. Arbitrarily, it seems like a good place to take stock of the podcast so far and to try something perhaps a little different. Fifties episodes in, I wanted to to do kind of 2 things. I wanted to use this as an opportunity for myself to try and synthesize some of the things that I have observed about the Cleveland startup world. Just kind of organizing and opining my thoughts on the situation. And the other thing I realized is that 50 episodes in, many of you may not actually know very much about myself as the host. And so I figured I'd share the story of how I came to Cleveland, how this podcast came to be, and a little bit about my own professional journey. So fair fair warning to everyone I I am my own guest today.

Jeffrey Stern (Lay of The Land & Axuall) [00:03:08]:
Essentially this this is an audio journal entry so please tune in or tune out as as you would like But with that, here is a little bit of my own story. I was born and raised in New York City. I grew up in Manhattan and I stayed in the city until I went to college in upstate New York where I studied computer science and economics. And unlike many of the guests that we've had on the podcast so far, I don't think I always had this entrepreneurial inclination growing up. I was never, you know, arbitraging candy or mowing lawns. Not that not that we had grass to trim in New York. But, coming out of college, I was pretty torn on what to focus my time on. And and ultimately, I found myself at this fork in the road with 2 paths.

Jeffrey Stern (Lay of The Land & Axuall) [00:04:03]:
1 one of these paths I'm not quite sure where it it would have led me. However, it is the path that I saw most people my age in similar situations pursuing the other path. The one that I ultimately took is the one that led me here to Cleveland and to startups. To me, the first path though, coming out of college was what I like to think of as the conventionally ambitious one. It is a path that is well groomed. It is funded by 1,000,000 of dollars in HR recruiting budgets from big New York City finance and consulting firms, the Goldman Sachs's and McKinsey's of the world, and the Silicon Valley Technology Companies. The Googles and the Facebooks of the world. And this path is it's visible enough and well trodden enough that 5 years down the road, you can have a very good sense of what you'd be doing.

Jeffrey Stern (Lay of The Land & Axuall) [00:04:58]:
You know, what business school programs they may unlock and the next step doors that they open. It's a respected and it's a validated path. But I came to realize pretty quickly I was not going to get out of those experiences what I wanted to. And so I kept thinking about this other path and this other path is one of entrepreneurship and of building something from scratch. And it is a path that I had no experience in and I didn't see as many people diving into. It's a little more proverbial foliage on this on this path if you will. And basically at that time I worried that rushing to specialize in that known career track would force me to pursue this job for a future version of myself that I didn't yet know in a world I didn't yet understand or have any experience in. And what I really worried about was that following this conventionally ambitious path that I would miss something that I would have otherwise discovered.

Jeffrey Stern (Lay of The Land & Axuall) [00:06:08]:
I kind of wanted to avoid that later in life regret of not having taken those high risk shots. Being in a lucky and privileged enough position to recognize that I can take some of those shots. And so really I wanted to explore and build something and maximize my own learning. And so I chose to pursue this entrepreneurial path with the thesis that making high risk career decisions out of college is one of the best ways to experiment in learning who you are, and put yourself in an environment where you have accountability and ownership and receive feedback frequently and early. And I was really hoping that the best career decision I could make was to take on career risk before I had a career to risk. The problem with this though, or the challenge rather, is that I had no experience. And the world of startups and building something is very hard, especially if you haven't done it before and you don't have the right tools, of which I really had neither. And so I I was very lucky to find Venture for America which has come up across many episodes on this podcast so far From Carrie Murphy, who was our our second guest on the lay of the land and who works at Venture for America to Splash Financial, Steve Masinski's episode, Tech Elevator, Anthony Hughes episode, Air CFO, which was Justin McLaughlin's episode, Abel, which is Gerald Hetrick's episode, and and many others, across the podcast.

Jeffrey Stern (Lay of The Land & Axuall) [00:07:48]:
Many other Cleveland startups that employ or were founded by Venture for America Fellows. The brief aside on on VFA, the the high level overview of Venture for America is that it is a fellowship program that matches recent college graduates with startups in cities around the country that typically are not bringing in the sheer quantity of graduates that cities like New York and San Francisco are. So fellows through Venture for America are placed in cities like Detroit Baltimore, New Orleans, Saint Louis, and, of course, Cleveland. But cities that have startup ecosystems but are not quite with the gravity of the coastal cities, which I will come back to in a little bit. And these fellows, we work at startups in these cities. Here in Cleveland, there are now well over 40 of us working at startups throughout the city. So tying it back to, my own journey, it it was kind of through Venture for America that I moved from New York City to Cleveland and joined a company here called Vodum in the summer of 2016 with Leo Pena, who is another founder and fellow here in Cleveland. He's founded his own company here in Cleveland called the Opportunity Exchange and we'll definitely have him on the podcast soon to share his own story.

Jeffrey Stern (Lay of The Land & Axuall) [00:09:08]:
But anyway, Leo and I had joined Vodum as the first two employees and Vodum was in the business of building accessible voting infrastructure. So over Vodums active life, we supported online voter registration systems and built election software to make it easier for people with accessibility considerations and UOCAVA voters who are essentially members of the military serving abroad. All people who historically have been disenfranchised from the Democratic process to be able to vote more easily and and securely. And from a learning perspective, it was precisely the experience I was I was hoping to have. As we grew the company, I got exposure to every part of the business from product management and engineering, sales, sales operations, marketing, fundraising, compliance, corporate development, people operations. But after after 3 years there, Vodum did effectively shut down in early 2019 as every employee close to 70 of us at that point, was laid off. You know, I had read about how the vast majority of startups do not make it, but it is always another thing to experience it for yourself. And as unfortunate as it was that Vodum imploded in the way that it did, it did really lay the foundation for this podcast and for my path to actual which is the company that I co founded with Lucky Tovag who is the head of engineering at Vodum and formerly at Mote which was sold to Oracle for close to $1,000,000,000 and Charlie Lowheed who was on the podcast.

Jeffrey Stern (Lay of The Land & Axuall) [00:10:54]:
I believe the 42nd episode and who previously founded Explorus, which sold to IBM to become Watson Health. So after Vodum collapsed that I found myself doing a little bit of soul searching trying to figure out what I wanted to do next. And I knew that I still wanted to build something but I did not know what I wanted to build and with a failed startup experience under my belt I thought about returning to that easier tried and true career path that I had avoided the first time around. But after checking in with people who I knew in those worlds, I kind of reinforced my belief that far too many people my age push pursuing what they really want to do today to tomorrow without ever being able to realize tomorrow and and jump off that hedonic treadmill when it comes. And it's found it's very hard to introspect premature career optimization. I think we kind of learn best both about ourselves and about other things in practice rather than in theory. And so it's just it's very hard to learn about startups without trying to do a startup yourself. And so what I did is I spent that summer talking to over 50 entrepreneurs here in Cleveland, trying to find the right opportunity to take another shot at building a company from scratch.

Jeffrey Stern (Lay of The Land & Axuall) [00:12:22]:
And those conversations I had that summer were the seeds that grew and sprouted to become this podcast. As I had these conversations people kept asking me about what other people in Cleveland were working on. And I realized there was no real repository of all the founders in Cleveland. And that in retrospect, I probably should have recorded some of those conversations to make them durable and referable to other people to listen into. And so during the pandemic when like many of us did I found myself with kind of a dearth of social interaction. I thought it would be fun to just talk to people and revisit some of those conversations and have some new conversations. And ultimately that that is what this podcast, has become. At the same time though, Charlie and Lucky brought me on as a co founder of Actual, where I have spent most of my time in a product management capacity over the last two and a half years.

Jeffrey Stern (Lay of The Land & Axuall) [00:13:26]:
At actual we have we have raised about $14,000,000 since starting the company, as we have, kind of, validated our assumptions about the implications of automation and clinician onboarding and credentialing and the power of of data and workforce intelligence for these large health systems who face increasing clinician shortages, and revenue cycle pressures, and all these acute COVID demands. And and really the overnight proliferation of telehealth and in home care as well. And and for anyone who's interested in in the deeper dive on actual I definitely recommend tuning into Charlie's episode. So, you know, with that 50 lay of the land episodes later and two and a half years of working on actual trying to grow and build a company here in Cleveland We'd arrive at now in the present moment and it is here that I want to try and summarize some of the things I have observed living here in Cleveland about the last 5 years working for startups investing in startups in Cleveland attempting to build my own startup in Cleveland and wanting to see Cleveland thrive. So this will also be my attempt to synthesize some of the sentiment that I have picked up on from the more than 50 Cleveland founders. I've now had the pleasure of listening to and learning from on the show. But ultimately though, these these are gonna be my my rough opinions. So what what is the lay of the land? How is the Cleveland startup scene doing? And do we we have a good ecosystem here? So the Cleveland startup scene has clearly had some individual success stories, many of which we've gotten to hear on this show.

Jeffrey Stern (Lay of The Land & Axuall) [00:15:19]:
But from from my perspective we have not started this proverbial startup flywheel. We don't yet have a startup scene that self perpetuates. Not quite yet. I think we have some of the critical ingredients for this flywheel, but we are are missing some things as well. And to go deeper on this, I think it's helpful to ask the question, what makes a good startup ecosystem generally? Right? Like, what exactly are the fundamental characteristics, quantifiable or qualitative, that startup ecosystems have that we perceive to be successful? And that are the factors contributing to the success flywheel that gives these ecosystems momentum and longevity. And so I'm just gonna spend a little bit of time here breaking down how I've thought about this question. It's a little hard to know where to start as any startup ecosystem is really a dynamic system. There are many moving parts.

Jeffrey Stern (Lay of The Land & Axuall) [00:16:23]:
We obviously have the set of founders which hopefully we can all recognize is a strength here in Cleveland. There is no dearth of entrepreneurs trying to build things and to make it happen. And we've had 50 come through the podcast already, and there are many more who I am excited to meet and have on to share their stories. It does take more than founders, though, to make the ecosystem work. You have angel and venture capital money. You have the set of local social norms. You have the academic institutions often as the hubs of research and development. You have local industry which often anchors the problem space for startups in a city.

Jeffrey Stern (Lay of The Land & Axuall) [00:17:07]:
Here in Cleveland, People most often think of health care and of manufacturing and you have engineering and other startup talent. And and all these things are really interdependent when we talk about the startup ecosystem. And of all these things, I wanna start with Early Stage Capital because without angel investors, that fast moving pre institutional risk seeking capital, you really cannot have the startup flywheel. And on the flip side of that coin, where you look at cities with thriving startup scenes, you will always find good angel investors. And so there are kind of 2 things to unpack with that. You know, what makes a good Angel Investor and where do Angel Investors come from? So Cleveland has sources of capital there there's no lack of capital here but having a source of capital is not sufficient. You do actually need startup oriented capital that understands the startup game being played and the risks involved. Risk averse later stage capital does not support risk seeking early stage founders.

Jeffrey Stern (Lay of The Land & Axuall) [00:18:24]:
There's just kind of a tension there. And so in my anecdotal experience watching startup ecosystems across the country and seeing and comparing it to what's happening here in Cleveland, the reliable source of good angels come from the liquidity events of other startups rather than from institutionalized capital or government money or from private equity. The incentives and the risk profile and the time horizons are just less aligned otherwise. So Angel Investors who have made their initial wealth from founding or working for a startup of their own, they understand the game that other founders are trying to play because they have played the same game themselves. And they wanna keep playing that game because they like it. And investing in other startups is ultimately how you can continue to play that game without the onus of starting another company directly. And so I'm calling out liquidity events because they have an extraordinary effect on the next generation of startups. To start, they generate extraordinarily large amounts of wealth for the early stage employees and founders and create angel investors of them while also motivating the existing angel investors in a community to continue to invest their capital seeing just the wealth creation that is possible.

Jeffrey Stern (Lay of The Land & Axuall) [00:19:54]:
And so if you turn, you know, if we look at, if we look at Columbus for a moment, where I would argue you see a thriving startup ecosystem with dozens of startups valued at over a $1,000,000,000 and thousands of startup employees, It's not a coincidence that their leading VC firms have instated key performance indicators that measure and hold them accountable to how many early stage employees, not just founders, are made millionaires by growth and liquidity events of the startups that they invest in. That is how you get the flywheel going. The other thing that large liquidity events due to the next generation of startups is they they kinda show what is possible and inspires them to set the bar even higher. At the same time releasing all of this talent who were working at that now exited startup back into the startup ecosystem. And so these are the very people who now understand what success looks like, how to reproduce it, and the impact that that kind of success can have, having experienced it for themselves. And so it reinforces to the players playing this startup game that it is not a finite zero sum game here where having winners necessarily means there are losers. The successful startup ecosystems become positive sum. These perpetual flywheels where everyone playing the game can can win.

Jeffrey Stern (Lay of The Land & Axuall) [00:21:32]:
And so this is again is is anecdotal. But in the cities where you have this robust angel ecosystem of former early startup employees and founders, there there is just a different dynamic around early stage funding. When a founder in these ecosystems has put themselves out there and announced their intention to start a company, it's pretty normal to see the first money into a company, whether it be 25 k or 500 k raised very quickly by a few dozen other local former founder or startup employees all writing relatively small checks. And these checks are written not so much on the merit of the founders ideas or how much that idea has been validated But really just to support the founder trying to build something it's founders supporting founders and this is a critical ingredient that I believe we could have more of here in Cleveland, which brings me to another effect of the the startup flywheel which is related to the speed of raising capital and the valuations of startups that are raising that capital. So when you have these kinds of angels who are writing checks as a founder, you can close an early funding round at higher valuations in a matter of days. However, when you take stock of just the conversations of founders here in Cleveland of entrepreneurs trying to raise precede or seed rounds the pattern that I have seen is that if you try and do it all locally it's gonna take many months to pull it together and that the valuations that you can receive are are substantially lower than the valuations you would see raising capital elsewhere. To me, this is reflective of a funding ecosystem where those writing checks are more risk averse and more likely to ask what can go wrong, which leads to lower valuations and less urgency compared to an ecosystem where those writing checks are encouraging founders risk seeking and asking what can go right in in those cities that have this mentality you just see higher valuations and haste and execution And this also matters because the business that a company was founded on is rarely the business that a company succeeds with. You know, pivots are are very much part of the game for the earliest stage companies and investments.

Jeffrey Stern (Lay of The Land & Axuall) [00:24:18]:
And often those investments are far more often bets on the founding team and their ability to execute and survive long enough to find the right idea than it is a bet on the original idea itself. And so the startup environment where you have former founders and startup employees as the prominent angel capital source is inherently more founder friendly. So how do you start this flywheel in Cleveland? It's like the classic chicken and egg problem. What has to come first for you to have a robust network of founders and angels? I don't know. I do not have the answer, but I'm going to put it out there that it has to start from somewhere. A Cleveland startup that breaks through. And, you know, sometimes it can be easier to create something new than attempting to reform what already exists. And I think Cleveland may have a better shot of creating this kind of founder friendly capital base through through startup successes, rather than trying to reform local funding sources to be the kind of capital that is required given their own entrenched incentives and risk profiles.

Jeffrey Stern (Lay of The Land & Axuall) [00:25:34]:
Unfortunately I know there are a handful of Cleveland based companies that are on the precipice of breaking through that can create the opportunity for mass wealth generation that can create the kind of founder friendly early stage capital that we are missing here in Cleveland. There are, however, a lot of coulds in that sentiment that may not come to transpire. And until that happens in Cleveland, I think we'll continue to hear from founders that it's not the easiest place to fundraise or to build a startup. And the reason that some of the greatest Cleveland success successes from a startup perspective have not kick started that flywheel here is because at some point in their respective journeys, they felt compelled to leave Cleveland, prioritizing the business to to find the more friendly capital that they needed. And it's hard to fault the companies for doing this because ultimately building a startup and scaling a company are are very difficult. And it doesn't make a whole lot of sense to prioritize doing it in Cleveland for the sake of Cleveland startup ecosystem versus the longevity of the company you are trying to build. If you can simply go elsewhere to get the support you need to keep that business alive. Nava said, I'm actually very optimistic about Cleveland and the startup scene here.

Jeffrey Stern (Lay of The Land & Axuall) [00:27:01]:
But like any set of problems, there is not so much that you can do to solve them if you are not aware and thinking about how to solve them. And so I think we can start the flywheel here. We've an incredible group of founders, and we've built a lot to be proud of even just in the 5 years that I've been here to experience it and see what other people are building. But we do need to overcome this moment of inertia for the startup Flywheeler to have the kind of resilience and vibrancy in the startup ecosystem that I think many of us would like to see. It feels like, sufficient rambling for now. So I appreciate anyone who's still with me here. And if you are, please feel free to reach out with, any thoughts or perspective that you have. I would love to hear them.

Jeffrey Stern (Lay of The Land & Axuall) [00:27:59]:
It's a little difficult to have a conversation with yourself talking into the void. Definitely a fan of of real conversations. So I will close out the way we always do, with my own favorite hidden gems in Cleveland, which like many who have come before me on the show is the nature in and around Cleveland. The Metro Parks are truly spectacular, underrated, and underappreciated even as the most commonly cited hidden gem. And my personal favorite is the rocks behind the Willow Tree in Edgewater. It is a quite quite a nice spot over there. So with that thank you for bearing with me this week and we will be back next week with more Cleveland founder stories as normal. If you have any feedback on the show or any people you think would make good guests, please let me know and I'll see you all next week.

Jeffrey Stern (Lay of The Land & Axuall) [00:29:05]:
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.fm, 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.