Podcast

Rand Fishkin on the evil of venture capital, fundraising like a boss, and SparkToro’s unexpected success

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Introduction

Rand Fishkin is the co-founder and CEO of SparkToro, an audience research software startup. His business, writing, speaking engagements, and videos are dedicated to helping people do better marketing. 

He’s also the author of Lost and Founder: A Painfully Honest Field Guide to the Startup World. When he’s not working, he can usually be found cooking! 

Rand has been in the marketing field for over 2 decades, so he’s got a lot of expertise to share with listeners! 

What You’ll Hear

  • [1:38] How Rand became an entrepreneur 
  • [2:56] The success of Moz 
  • [4:23] Overcoming the Moz disappointment 
  • [5:55] The venture capital dilemma 
  • [9:15] Reason for starting SparkToro 
  • [10:09] On leaving Moz 
  • [11:34] SparkToro’s model 
  • [14:25] How SparkToro began 
  • [16:58] Rand’s fundraising tips 
  • [22:01] Lost and Founder 
  • [26:31] The entrepreneur’s struggle 
  • [30:35] The secret behind SparkToro’s success 
  • [37:21] Final comments 

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How Rand Became an Entrepreneur 

Rand is a self-proclaimed accidental entrepreneur. He dropped out of college in 2001 to work with his mum, who ran a branding & advertising business. She’d noticed that her clients had a need for website building, so Rand came onboard to do that. 

This eventually led to him discovering SEO, which in turn led to him starting a consulting business. Interestingly, this business morphed into Moz, which is a giant name in the industry! Rand stepped down as Moz CEO in 2014 & launche SparkToro a few years later. 

The Success of Moz 

Rand is super modest about Moz. He mentions that by metrics, SparkToro is already a “more successful” business than Moz, but we all know that Moz is an industry-leader. 

He says that the biggest success metric of venture capital business Moz was to grow the revenue immensely, get an excellent return, and keep investors and shareholders happy. 

Ultimately, like 95% of venture investments, Moz never achieved this goal. We may see it as some of the best SEO software out there, but Rand left the company feeling frustrated and disappointed. 

Overcoming the Moz Disappointment 

Rand’s advice for overcoming disappointment is to change the metrics of success. His takeaway from Moz – you don’t sign up in the beginning to be either a billion dollar company or a failure. There are in-betweens. 

He was, as he puts it, “suckered into” the belief that he wasn’t a real entrepreneur unless he went into a venture capital, Silicon Valley-style tech business. 

Rand wants people to know that small businesses & freelancers are every bit as important as the big ones, & lifestyle, service-based companies as important as tech ones. 

The Venture Capital Dilemma 

Venture capital CEOs have two goals: fundraise & then hit the necessary numbers to fundraise again. Sometimes these goals intersect with the business’s profitability, clients, etc. But it’s rare. 

About 90% of venture capital companies fail. 7 to 8% do reasonably well, reaching 1 to 3x ROI. 2 to 3% are the winners—Apple, Amazon, etc. who reach 10x or 20x ROI. 

Rand points out that this model leads to a dangerous cycle—work extremely hard, impress people with money, make more money to impress more people & work even harder. 

Focusing on something less money-driven & more valuable to the world around you is a beautiful thing & a less stressful model. But often seen as less valuable and a cop-out. 

Reason for Starting SparkToro 

Rand started SparkToro on March 1st, 2018 – the day after leaving Moz. Not because he couldn’t wait to get started… But because he needed health insurance, income for mortgage, medical bills, etc. 

On Leaving Moz 

Moz was Rand’s baby & the experience of leaving was awful for him. He felt like he was giving up on his team, failing his investors, & passing the buck, as well as not having the chance to do the right thing for his loyal customers. 

SparkToro’s Model 

SparkToro is funded by angel investors. It was built & launched in 18 months, & the goal is to pay the initial capital back to the investors. From there, everyone shares the profit pro rata. The long-term goal is to be a profitable business for a long time & to serve customers. 

How SparkToro Began 

Rand started SparkToro with just a rough concept of the problem he wanted to solve. He recruited his business partner Casey, raised money, & spent 18 months developing a product. They launched in 2020, 2 years later. 

Rand’s Fundraising Tips 

When raising funds for SparkToro, Rand reached out to potential investors with a low-risk proposal. The promise was to make every effort to repay that money in the first 4 – 5 years of the business & they’d continue to earn on top of that. Low-risk is the way to go. 

He suggests seriously considering whether or not you need to fundraise in the first place. Things like AI and web hosting, etc, are much cheaper now, so building a business is way more affordable than it used to be. 

Rand also recommends only asking for investment if you’ve established your expertise & built up a powerful network. You need to lay the groundwork first. 

And of course, he recommends avoiding venture capital at all costs. 

The Honesty of Lost and Founder 

Rand’s guide to building your business, complete with the ugly parts. He wanted to be totally honest about the process, unlike some authors who polish it up before presenting it. 

Rand believes the truth will always come out, & he wanted to avoid being a book that sells a sanitised version of the truth of business. The thought of lying in a book and being called out about it causes him anxiety! 

The Entrepreneur’s Struggle 

Lilach mentions that there’s a lot of stress in an entrepreneur’s world. Rand agrees that they have a unique struggle in that they’re the only one to blame when things go wrong. It’s a lonely experience rather than a shared grievance. 

The Secret Behind SparkToro’s Success 

Rand says the sparkToro team made unconventional decisions, like building a small team & having almost no meetings, working entirely online. They work independently but on the same goals, which is an efficient working style. 

They have no plans to grow in size yet, but rather aim to continue serving their customers & be profitable. 

Working Smarter 

Rand & Lilach agree that as you get older you work smarter. Both have worked 70-hour weeks, on work that wasn’t valuable/important or took long to do due to being in a bad headspace. 

Entrepreneurship allows you to get away from that sort of working mode and create your own healthy headspace. 

Bonus takeaway: meetings are a waste of time! 

Final Comments

Try SparkToro for free, forever!

You can follow Rand on Twitter, where he’s most active.

He also posts on LinkedIn on a weekly basis, and you can email him at [email protected].

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