A few weeks back, I visited a friend who’s a founder. Their business moved to a new location, and they asked me to check out the new space. I’ve known the founder for years and know what products the business offers, but I didn’t really understand how it offers them. So I decided to use my visit to learn “how the sausage is made.”

I toured the space and observed how the operation runs. It’s a well-oiled machine, but one thing caught my attention: one process seemed high priority but inefficient compared to everything else they did. I made inquiries and learned that the process is critical to generating revenue, which makes it a high priority, and it has to be done multiple times a week. This critical, inefficient process is the founder’s biggest annoyance and time suck.

After I left, I started making mental notes about new technologies I learn about that might automate parts of this process. I read about one promising new technology and shared it with the founder this weekend.

Two big takeaways from this experience:

• In Sam Zell’s autobiography, he said that visiting people in their environment is a great way to learn about them. Zell was right. Going to visit people and watching them do their normal work is the best way to understand their workflows and problems. It’s also the best way to deeply understand their pain points. Visiting this entrepreneur’s office helped me understand the severity of their pain. Video meetings and phone calls are good, but in-person visits are best.
• This founder has a never-ending to-do list. After I shared the new technology with them, they were excited about reducing the time and cost associated with this process. However, they’re not looking forward to learning how to use a new technology. In fact, they don’t really care about the technology or how it works. They want a solution to the problem. They want a service that takes care of everything from start to finish. The end result, including its quality, are all that matters.

There’s an opportunity to provide services that solve painful problems in specific small business niches. If new technologies such as AI are used to do most of the work, the services potentially can be high margin and scale nicely to seven or even eight figures in revenue with a small team. To understand what problems niche small businesses need solutions to, visit their operations. Look for points of frustration and inefficiencies that impact revenue generation. Then find technologies that solve the problem. Create a service offering that handles solving the problem from A to Z. Seems like a decent playbook for building a scalable services business in a niche.

Current Project: Reading books about entrepreneurs and sharing what I learned from them

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

Cumulative metrics (since 4/1/24):

• Total books read: 34
• Total book digests created: 12
• Total blog posts published: 203
• Total audio recordings published: 103

This week’s metrics:

• Books read: 0
• Book digests created: 0
• Blog posts published: 7
• Audio recordings published: 0

What I completed this week (link to last week’s commitments):

• Created two book digests using Google AI Studio
• Tested using Google Vertex AI Studio
• Tested ways to improve the quality of book digests AI-generated using Google AI Studio
• Created an MVP that runs locally using Visual Studio Code (a developer friend was a huge help with this)

What I’ll do next week:

• Finish reading the biography about Steve Ross, founder of Time Warner and Warner Communications
• Start reading a biography or autobiography
• Test adding more books to the MVP
• Fine-tune the MVP
• Identify the path to launching MVP publicly so others can test it

Asks:

• None

Week two hundred thirty-nine was another week of learning. Looking forward to next week!

Current Project: Reading books about entrepreneurs and sharing what I learned from them

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

What I struggled with:

• I’m not technical, so learning and applying the various technologies required to build an MVP for this book project has been frustrating. Some of the technologies built for nontechnical people don’t work as advertised. Luckily, I connected with a gifted engineer who helped me overcome hurdles and get a working prototype I can start testing on.

What I learned:

• Google AI Studio is a good option for non-technical people who want to improve AI responses by adding supplemental data via retrieval augmented generation (RAG). But it’s more restrictive than using RAG by writing code. I was surprised how much AI Studio limits what you can do, decreasing the quality of the AI responses.  
• I learned how to use Visual Studio Code to build an MVP. It’s hosted locally on my computer, and the outputs are significantly better than Google AI Studio’s.
• I learned the limitations of Vertex AI Agent Builder.
• I learned a ton about AI image-generation limitations and the opportunities they create, but that wasn’t related to this project.

Those are my struggles and learnings from the week!

I did some research after my posts on IPOs and venture capital (see here and here). Through friends at VC firms, I learned how one early-stage VC firm is thinking about exits.

The VC firm is concerned by the lack of tech IPOs because it makes it difficult for them to return cash to the limited partners (LPs) who invested in their funds. These LPs are less likely to invest in their new funds if they don’t see cash distributions from funds they already invested in. To raise new funds, VCs must exit existing portfolio companies and return that cash to LPs. To address this, the VC firm has instituted a liquidity planning strategy. Here’s what they’re doing:

• Building relationships with investment banks and deepening existing relationships so they can better understand and monitor the mergers and acquisitions (M&A) market
• Hiring a team member specifically focused on growth equity and M&A who will be part of the investment team
• Conducting biweekly liquidity planning meetings whose priority is equal to that of their weekly deal flow meetings
• Educating CEOs of portfolio companies on liquidity planning

The second and third points caught my attention. They show how important the issue of exits has become to this firm. Their strategy highlights that they’ll aim for IPOs to exit their investments in portfolio companies. They plan to lean heavily into M&A and make them a priority.

I’ll keep digging into this more. As I do, I suspect I’ll start hearing more about secondary sales being part of strategy at some early-stage firms.

Yesterday I shared an update on 2024 initial public offering (IPO) stats. A conversation with a friend at a family office sparked that post. When a company completes an IPO, it sells part of the company to public market investors via stock exchanges (usually NYSE or NASDAQ). When a company begins trading on a public stock exchange, shares in the company are more liquid. Selling all or part of an ownership stake just takes clicking a button; the cash shows up in your brokerage account instantly. Selling a stake in a private company requires more time and energy. You must find a willing buyer, agree on a price, and complete the transaction. It’s inefficient and some deals move slowly, if they get done at all.

IPOs are significant milestones for venture capital investors, one of the preferred ways to exit their portfolio companies and get publicity for themselves.

As I shared yesterday, the technology-heavy NASDAQ Composite Index is near its record-high closing price this week. The high, from July of this year, is 18,647. Earlier this week, it closed at 18,573. This year, the market has trended upward, making new all-time highs. I take that as a sign that public market investors are in a buying mood (they’re doing more buying than selling, which increases prices). Also, the prominent tech companies that IPO’d in the last year or so have seen their stock prices perform well. Klaviyo, Instacart, and Reddit are all trading near record highs, although the journey to their all-time-highs was bumpy for some of them.

So if public market investors are in a buying mood and they’re buying technology companies that recently IPO’d, why haven’t more entrepreneurs and venture capital investors taken technology companies public this year? How will venture capitalists exit their investments if they can’t or won’t take companies public? These are the questions I was talking to my friend about this week. I don’t have definitive answers, but seeing how this plays out over the rest of this year and in 2025 will be interesting.

This week, I talked about venture capital with a friend at a family office. We talked about venture capital investors’ ability to exit via the IPO market, and I realized I hadn’t checked the IPO stats since I shared early 2024 stats in March. Here are the IPO stats through October 23, 2024:

• 2024: 178

Here are previous years’ IPO stats:

• 2023: 154
• 2022: 181
• 2021: 1,035
• 2020: 480
• 2019: 232

IPO activity has picked up. The number of IPOs in 2024 has already exceeded 2023’s figure and will certainly exceed 2022’s. However, IPO activity is still low—even when compared to 2019’s pre-COVID level.

I’m surprised we haven’t had more tech companies IPO—especially since recently IPO’d tech companies such as Reddit, Instacart, and Klaviyo are all trading near all-time-highs (as of this writing). Another surprising data point is that the stock market has been near its all-time high this week. The technology-heavy NASDAQ Composite Index approached its record-high closing price this past week. The high, from July of this year, is 18,647. Earlier this week, it closed at 18,573.

I find it interesting that venture capitalists and technology entrepreneurs aren’t taking companies public via IPOs, given the current public market conditions.

If you want to see the latest or historical IPO stats, look here.

This week, I talked with a friend who’s considering selling his company to a private equity (PE) firm. He’s been reinvesting profits back into growth initiatives for years, but in the future, rapid growth is less likely. He’s spent years building a business that’s his biggest asset, and now he’s looking for it to generate a return. The business is past the high-growth stage, so it has to shift from optimizing for revenue growth to increase its valuation to optimizing for free cash flow. Whether under his or a PE firm’s ownership, that’s the business’s next chapter.

Private businesses are assets, and entrepreneurs should seek a return on them. For some businesses, that means sacrificing profit to grow revenue rapidly with the goal of increasing the enterprise’s value (i.e., valuation). For others, it means increasing the distributable cash the business generates. Identifying the best way to generate the highest return is the entrepreneur’s job. Entrepreneurs should seek to avoid ending up with an asset that doesn’t generate a return. Companies with no or minimal growth and no or minimal free cash flow typically fall into this bucket.

Researching apps to help a friend solve a problem with their business, I came across two popular apps and decided to research their founders. I learned some interesting things. Each app does over $100k in monthly revenue, with 80% or higher net profit margins. I know this because both founders talk openly about revenue figures in interviews, and one even shares the revenue figures in his social media bio.

Both founders built their apps and maintain them without the help of a team. And neither is interested in scaling their company. They’re happy to grow revenue but uninterested in recruiting or managing a team. They’re hackers who want to quickly build products others find useful and will pay for. With this philosophy, they’re not focused on B2B customers; they’ve created apps that are B2C oriented. The apps are self-service with low price points ($40). Often, people will pay for one-time usage, so they’re less focused on recurring revenue. I’m assuming this works because their apps appeal to a large global market and they acquire many new customers via word of mouth, which keeps customer acquisition costs low.  

I’m intrigued by both of these indie hacker founders. I want to learn more about their approach to quickly building and launching one-person companies that generate over $1 million in annual revenue.

Current Project: Reading books about entrepreneurs and sharing what I learned from them

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

Cumulative metrics (since 4/1/24):

• Total books read: 34
• Total book digests created: 12
• Total blog posts published: 196
• Total audio recordings published: 103

This week’s metrics:

• Books read: 1
• Book digests created: 0
• Blog posts published: 7
• Audio recordings published: 0

What I completed this week (link to last week’s commitments):

• Read a biography about Samuel Irving Newhouse Sr., founder of Advance Publications and owner of famous magazines such as Vogue, Vanity Fair, GQ, and The New Yorker
• Obtained digitized copies of two books I’ve read

What I’ll do next week:

• Read a biography or autobiography
• Create book digests for two books using Google AI Studio
• Explore Google Vertex AI Studio
• Test ways to improve the quality of AI-generated book digests by fine-tuning Google’s Gemini LLM

Asks:

• None

Week two hundred thirty-eight was another week of learning. Looking forward to next week!

Current Project: Reading books about entrepreneurs and sharing what I learned from them

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

What I struggled with:

• I was frustrated this week with myself and others. I didn’t get some things done that I’d planned, and that got to me. They were my responsibility, so I was disappointed in myself. But I was also annoyed about the things I didn’t have the power to push through to completion.

What I learned:

• I finished reading another biography about Samuel Irving Newhouse Sr. this week and recognized a pattern among entrepreneurs who achieve outsize success. Many have a photographic memory and make decisions quickly. Their minds make connections between the information they’ve consumed over the years and the problems in front of them, which allows them to make better decisions faster to solve their problems. In other words, their photographic memory prepares their mind to act decisively when a solution is needed.
• Google AI Studio is a “browser-based integrated development environment (IDE) for prototyping with generative models.” This looks like a good way for a nontechnical person like me to fine-tune the output of Google’s models.
• Some public sources provide scans of books, even older, hard-to-locate books.
• I’ve lived with the problem I’m solving with this book project. I understand it deeply. If I build an MVP that solves my problems, it will likely resonate with other entrepreneurs.

Those are my struggles and learnings from the week!