This article is the seventh chapter of The Entrepreneur's Journey, a collection of stories about startup companies and the entrepreneurs who built them. To continue reading about key startup themes and lessons learned, check out the entire series here in The Seraf Compass, or purchase the book on Amazon in paperback or Kindle format.
The story of Adam Martel, Rich Palmer and their startup named Gravyty is a story about great leadership. These two relatively young founders created and succeeded with a completely new category of product in a difficult and conservative market. They overcame the odds and did so with leadership and talent. And, they would not have been given the chance to do so had investors not spotted those leadership skills.
Investors in startup companies experience so many successes and failures over time that they cannot help but evolve their way of thinking about the drivers behind those outcomes. As drivers go, the importance of leadership is recognized universally. So most investors think a lot about the quality of a company’s leaders and give it a fair amount of thought. Christopher, Joe and I are no different. Experience taught us there are certain traits that are very important in startup founders, particularly in startup CEOs. We always look for those traits of great leadership. If we don’t see them in satisfactory measure, we tend to move on without making an investment, regardless of the idea.
The most important trait in our hierarchy of leadership qualities is integrity. This is our shorthand for honesty and forthrightness, transparency and openness. Given how much judgment and discretion is vested in startup leaders by their investors, it stands to reason you would be looking for someone you implicitly trust with your money.
Perhaps second most important is something we refer to as tenacity. To us, this term means determination, doggedness, resilience, perspective, even stubbornness. Startups are really hard. Success is improbable and at times seemingly unachievable. We need to see signs that a startup leader will push through the obstacles with the perspective that nothing worth doing is ever easy.
The final element in our top three attributes is a combination of IQ and EQ. This equates to basic intelligence combined with emotional intelligence. The value of basic intelligence should require little explanation. It takes smart people to solve tricky problems. Getting a startup to succeed can be one of the trickier problems around.
The importance of emotional intelligence is less obvious, but no less consequential. By emotional intelligence we mean people skills and communication skills, both speaking and listening. Things like the ability to motivate people, the ability to sell, the ability to influence, the ability to read people, the ability to partner effectively, the ability to evaluate and hire good people, and the ability to know your own limitations and manage your own emotions.
These are all skills that are required in abundance when leading a startup. Startups usually have limited resources. Progress requires getting the most you can out of each team member. That requires creating an environment where a group of high performing individuals can meld into a high performing team.
The final two items we look for seem, on the surface, unrelated, but they share one common aspect. Both can be overdone. One is knowledge of the target market and the other is leadership charisma.
Market knowledge is important because you need to understand the dynamics of the market you are going after including the competitive landscape and what the customers want or need. Coming into a startup already knowing some of that can save time and resources. However, it can also be limiting. That is why it is called conventional thinking. Not every opportunity calls for a conventional approach. Sometimes what is needed is to think differently. How can we totally disrupt a market or create an entirely new market? In cases like that, deep market knowledge can limit creativity by grounding a founder too much in conventional thinking. Sometimes what you need is someone new enough to a market that they don't realize what they are trying to do is impossible, or at least not care that it is unconventional.
Similarly, leadership charisma is something that is very valuable, but it too can be overdone. You want someone who can walk into a room and command everyone’s attention. Someone who is comfortable in the spotlight at least part of the time. Someone whose passion is infectious and whose example inspires others to follow. These are the pied piper like attributes of great leaders. They inspire others to take up their cause.
But this charisma can be taken too far. Coming across as too slick or salesy can turn people off. Telling people only what they want to hear goes beyond EQ into the realm of being a phony. Investors don’t want someone who is always being a cheerleader. They want substance as well. They want someone who knows when it is time to make a speech and when it is time to listen. They want someone who is as interested in the question as they are in shooting off a fast answer. It is a fine line between a charismatic leader and a snake-oil salesperson. But if an investor knows to look for that line, and listens to their instincts, they can generally sense when someone has crossed over it.
In concert with these five attributes, we also find it very helpful to evaluate potential leaders through the lens of temperament. By temperament we mean someone’s natural inclination along the extroversion/introversion spectrum. Neither inclination is more valuable or desirable than the other, but a person’s natural temperament affects their fitness for different kinds of roles. In our experience, finding a work role that fits your natural temperament is almost always a precursor to finding long-term sustainable fit, happiness and success.
What makes temperament so fascinating in the context of startup leadership is leadership requires skills associated with each end of the temperamental spectrum. Things like deep analytical thinking, charting your own course, being a visionary, taking the time to develop the deep technical mastery needed to be an inventor, being less interested in norms and more willing to be unconventional, are all things you associate with startup leaders, and also with introversion.
Being good at selling, working well with other people, being charismatic and comfortable in the spotlight, and having a high resistance to sales rejection are also things you associate with startup leaders. But they come from the opposite end of the temperament spectrum. People capable of adroitly and comfortably covering that entire range don’t grow on trees. People like that are special and fairly remarkable. What can often happen is two founders working closely together form a unit which allows them to cover the entire temperament span.
This is exactly what happened in the case of Adam Martel and Rich Palmer. They founded Gravyty in 2015 to make non-profit fundraising personnel more effective and efficient. These relatively young founders not only embody all of the five attributes we look for in startup leaders, but together they combine to bring capabilities that cover the entire temperamental spectrum. This allowed them to form a tight bond as a founding team, and in turn, jointly drive their software startup through fast growth and toward a very successful early exit.
Adam was born in Andover, Massachusetts. As a young person he changed schools frequently as his parents took every opportunity to switch him to a better school whenever they could. He credits this constant need to readjust for some of his people skills and his competitive drive. Adam’s father was an entrepreneur and his mother worked in an administrative role at a local college so that Adam could attend college tuition-free. Adam’s first job out of college was as an investment manager at State Street Bank. After two years he switched to working as a fundraiser in higher education. The desire for an MBA led to a job as a fundraiser at Babson College where he could utilize Babson’s free tuition plan for employees.
Adam met Rich in Babson’s MBA program. Rich had grown up in the western Connecticut town of New Fairfield. When he arrived at Rensselaer Polytechnic Institute as a freshman, Rich was the first in his nuclear family to enroll in a bachelor’s degree program. Rich graduated RPI with coding skills and spent his early career moving between New York City, the San Francisco Bay area, and Boston. He worked as a product manager and as a co-founder of a web and mobile development company. After a three-year stint managing a group building very advanced quantitative analytics tools at Relationship Science on Wall Street, Rich decided to round out his business education by pursuing an MBA at Babson.
Rich said, “The idea for Gravyty was born when Adam and I became friends and decided to team up on an entrepreneurial venture. After working on some different concepts, we settled on the idea of Gravyty and then honed it as part of an MBA class project. The concept was to combine my skill set in machine learning and analytics with Adam’s skill set in fundraising. We were going to build a software tool to help frontline fundraisers figure out how to prioritize their target lists and raise money more effectively.”
Adam and Rich enjoyed working with each other. As they developed the idea, they became convinced it was commercially viable. They decided to launch the idea as a real company before Adam even finished his MBA. As the more extroverted of the two, Adam took the CEO role. Rich was more technical and introverted, so he took the President and CTO role.
Christopher met Adam and Rich early in their fundraising process and was immediately impressed by them. Since he lives close to the Babson campus he said, “I offered the only slot I had which was to stop by campus very early in the morning before my day began. Neither founder blinked at the suggestion of a sunrise meeting.”
Christopher’s preliminary sense going into the meeting was that they were targeting a very difficult market. His initial enthusiasm was limited. He recalls, however, “Adam and Rich had so much earnest enthusiasm. They displayed so much passion and thoughtful candidness as they answered questions. I began to sense that I was in the presence of a special team.” He decided on the spot to help them out by getting them connected to other investors in his network for advice and feedback.
I was one of the investors Christopher introduced to Gravyty. Over the ensuing months, Christopher and I began to meet regularly with Adam and Rich. We were both struck by their lack of artifice as well as their intelligence and high EQ. They had thought deeply about the opportunity, but they were honest about needing help. They never pretended they knew something they didn’t. They communicated and listened well, and implemented the advice they were given. They were different temperamentally, but worked extremely well together, often saying the same thing simultaneously or completing each other’s sentences.
In the early days, most investor feedback was negative. There were concerns about the challenges of the target market, the strength of the product’s value proposition, and the lack of any commercial traction to prove its viability. But Adam and Rich showed their tenacity and determination by refusing to take no for an answer. They doggedly educated investors on why the opportunity was real. Recalling that period, Adam said, “Everybody counted out this industry. All these biases stacked up against us. But Rich and I were raised to think like David vs. Goliath, fighting against something bigger. It's how we operate. It's when we are at our best.”
They also used their EQ to listen carefully for the concern behind the question and make sure an investor’s underlying anxiety was addressed. One memorable episode flowed out of their first big pitch to a large group of investors. Although naturally extroverted, Adam was nervous because he did not have a lot of experience pitching to a large group. He had some natural charisma, but he did not have it dialed in perfectly yet. He did a solid job with his presentation.
He garnered enough investor interest to move into due diligence, but there were still some skeptics lurking. One was a former university president who stood up after the pitch and offered a very pessimistic comment. In her view, universities would never buy this. Adam and Rich were crestfallen, and rightfully worried that this viewpoint would sink their due diligence chances. But they did not give up or shy away from the criticism. They called the investor and asked if they could have a few minutes of her time. After more than an hour of discussion in her living room, she came to realize that some of her assumptions about the product were wrong. Adam said, “I'll never forget it. When we walked her through the story, she agreed with every point. She just didn't realize what they added up to. She had a sudden visceral reaction. She looked at me and said, ‘This could actually work. I realize my fundraisers didn't have the technology they needed.’ She turned 180 degrees from a skeptic to a supporter.”
Gravyty made it through the diligence process and Adam and Rich raised their first financing with Launchpad leading the round and participating heavily. Christopher joined their board of directors and had a front row seat to watch and help them grow as leaders. Christopher said, “The way Adam and Rich ran Gravyty reflected their differences as individuals. They each had the EQ and self-awareness to know what they were good at and what they weren’t.”
Adam talked about it in terms of space, saying, “The first thing that we got right was being able to make space for each other. Rich and I have spent enough time talking to other founders to know that making space is one of the best indicators for whether they'll be successful or not. Rich lets me do what I'm best at, and allows me not to do what I'm not very good at. Knowing that, between the two of us, we have a more complete team than most other founders. We talk every morning, and I can't think of any decision that’s taken longer than half an hour. We talk it through. Who's best to do this. Is that my skill set?”
Not everything was smooth, however. Both founders had to learn certain things about themselves. Adam’s fierce competitive drive motivated many team members, but not all of them. Some could be overwhelmed by it. Adam had to learn from Rich that there were different ways to tap into different people’s motivations. Not everyone saw everything as a competition. Rich had to learn from Adam that people did not always need multiple levels of detail in their instructions when he was delegating to them. Rich had to learn to be a little less trusting and a little more wary of being manipulated. They both had to learn to channel their innate people skills into hiring skills to allow them to build a first rate team.
They had a few hiccups along the way, but they learned from them and put together an amazing young team. Their basic instincts were remarkably good. They found themselves able to build a strong and winning culture. Rich’s technical brilliance, attention to detail, and ability to focus on the customer's needs inspired the technical team to pivot the product from the initial dashboard concept to a far more advanced product incorporating artificial intelligence and natural language processing. The resulting tool not only tells fundraisers who to contact, but also does a first draft of the communication. Rich’s drive for excellence and enterprise-level functionality was an inspiration to his team.
Adam’s dogged determination was similarly inspirational to the sales team. One particular episode illustrates how Adam demonstrated tenacity to his team. Many of Gravyty’s potential customers had their data locked in software made by a multi-billion dollar company in the industry. Gravyty needed permission to integrate with that company’s software in order to win those potential customers. The CEO of the company repeatedly rebuffed email and telephone outreaches from Adam.
The situation became increasingly critical as Gravyty struggled to win new customers without a technical integration. Finally Adam decided enough is enough. He sent the CEO an email that said, “I'm flying to your city next week on Tuesday and I am going to sit myself down at the coffee shop across the street from your office all day. If you can’t make fifteen minutes to come down and see me or invite me over, then the next day I am going to come over and knock on your door and sit in your lobby until you speak to me.” Adam said, “The CEO took the meeting. That is how I do tenacity.”
Adam and Rich grew the company quickly. Following the suggestion of Christopher and other investors, they focused on making contacts amongst other companies serving higher education and nonprofits. They went to industry and financial conferences and formed a high-profile council called the AI in Advancement Advisory Council (AAAC). Rich said, “The AAAC had the involvement of very senior people in the fundraising and higher education industries because it offered the chance to have open discussions about where artificial intelligence technology could impact fundraising.” Eventually the AAAC raised Gravyty’s profile high enough to attract the attention of several competitors and several private equity firms specialized in buying growth stage software companies.
Neither Rich nor Adam had ever been involved with selling a company. But, they were determined to get it right and worked closely with their board to optimize the outcome. The board stressed the importance of securing multiple bids in order to maximize the potential value of the company. Adam’s competitive instincts and determination kicked in. He began accelerating discussions with the other potential buyers, which resulted in Gravyty receiving two term sheets and an expression of interest at the same time. Adam and Rich were constantly learning throughout the process. They showed a lot of professionalism and leadership skills in their determination to take care of all their stakeholders, from investors to employees to customers.
The acquisition of Gravyty closed in late 2019. The winning bidder was a large California-based private equity firm. Despite the fact that Gravyty was only three years old, the buyer ended up offering an extremely good valuation. Shareholders had the choice of selling all, some, or none of their stock for a valuation that represented a 10X multiple on the company’s then-current revenue forecast. The buyer ended up owning about 60% of the company. Adam and Rich stayed in their roles and kept their Gravyty team intact. Investors were thrilled to have received some liquidity at a phenomenal return on their investment, and equally excited about the long-term potential of their remaining shares.
None of this would have been possible without the leadership provided by Adam and Rich. Although they were relatively inexperienced going into it, they represented a nearly perfect example of the traits we have learned to look for in leaders. They did not do it alone. They had the self-awareness to ask for help when they needed it. They pulled off a successful exit due to their integrity, their tenacity, their intellectual and emotional intelligence and their perfectly complementary temperaments. They have work to do to write the final chapters of the Gravyty success story. But as Christopher said, “They have reached one of the greatest milestones a startup leader can reach... having all your investors want first dibs on your next venture.”