Entrepreneur and angel investor Diane Hessan advised early stage companies to listen to their customers — because they might just change the company’s trajectory.
Shortly after Hessan founded Communispace (now C Space) in 2000 to enable company employees to communicate in online communities, she found that while investors and companies loved the idea, employees didn’t.
The company raised $10 million, built the tech platform, and companies were buying it.
“No one used the software,” Hessan said. “Our communities were dead.”
Employees did not deem the online communities to be critical to their mission, and that kind of communication just did not fit into the way they were doing business.
One of the company’s clients, who worked at Hallmark, wanted to establish an online community for store managers to share best practices. But, Hessan said, he had an even better idea: Instead of connecting employees, Communispace should try to connect consumers, specifically Hallmark’s target audience: mothers.
“It took us a long time to find the moms, and we didn’t really know what we were doing,” Hessan said,” but eventually that worked. And it kind of became our business model.”
C Space, which she sold in 2011 to Omnicom, now gathers and analyzes consumer data, and makes recommendations about how clients, usually big companies, should respond.
Community members are invited and chosen by C Space, based on company specifications, and the members’ feedback inform company decisions.
“I think listening is a really underrated marketing strategy. So if you can be good at it, it’s a competitive advantage,” Hessan said.
“All companies think they’re great at listening,” she said, but only a small share of consumers agrees.
Hessan made the comments at a luncheon last week at Proof on Main, where she talked to Insider and leaders of Greater Louisville Inc. about the state of entrepreneurship in America.
Hessan remains chairman at C Space, is co-author of “Customer-Centered Growth: Five Strategies for Building Competitive Advantage” and is a former CEO of the Startup Institute.
Money and talent
In many ways, the hurdles entrepreneurs encountered twenty years ago — access to capital and talent — mirror those they face today, Hessan said, perhaps with even greater intensity.
“Raising money? Always a challenge,” she said. “And I think it’s particularly a challenge when you’re in a geography where you don’t have kind of a whole ecosystem yet.”
And it’s not because people have great ideas everywhere, or because venture capitals won’t invest far away from where they live.
“But so much of getting a meeting and being taken seriously is related to whether you know the investors,” she said.
Without knowing the venture capitalist, entrepreneurs are unlikely to even get a meeting, Hessan said. And that’s true in Boston, where she lives, as well as the West Coast.
“A lot of institutional money is tied up now in very, very large companies,” she said. “So much of the venture money how is just going into the big unicorns.”
Kent Oyler, president and CEO of GLI, told Hessan that a shortage of lead investors is the toughest challenge for the local community.
“There’s actually money out there for good ideas or good companies, but the number of lead investors that will lead a round … somebody who puts in $100,000 … that’s our biggest shortage,” he said.
Data provided by GLI indicates that the number of companies in the region who have startup funding declined for three consecutive years after 2013, before rising to at least a 12-year high in 2017.
Lisa Bajorinas, executive director of EnterpriseCorp, GLI’s entrepreneurial division, said in an emailed statement that early stage angel investing is declining across the country and in Louisville.
“In fact, we’ve seen a dramatic decline in both the number of active angels here and the number of deals they’ve invested in,” Bajorinas said. “That said, we are committed to revitalizing early stage investment in startups for our region.”
Hessan said communities, including Louisville, “always have to be figuring out how to get the people with the money together with the people who want it. … Relationships get you in.
“Sometimes you don’t raise money because you have a lousy business plan (but) you want to get people to the point where they have a chance to be rejected for their business idea, not because they didn’t know the right people,” she said.
The dynamics are shifting in Boston, she said, because more retired executives who have done well but do not want to spend all their time on the golf course, are learning how much fun it can be to put some seed money into local startups. It starts with just one retiree, Hessan said, who will then talk to others about how much fun it is to be an angel investor.
Hessan said that entrepreneurs usually struggle early in the life of a business to build the right team. She said entrepreneurs benefit from getting together a group of employees with enough experience to help figure things out. Early on, entrepreneurs want people who can call a customer, get the mail, put together a spreadsheet on pricing, make coffee and read a contract. Only once businesses get bigger do they need people with more specialized skills.
“There’s a lot of competition for talent,” Hessan said.
Write it down
Hessan also encouraged lunch attendees to write a bucket list, because she believes that even if you put some “crazy things” on there, “sometimes you can do them.”
“Whenever I take something off, I put something new on,” she said. “So you should all have a list.”
Items Hessan has crossed off her bucket list include parasailing, attending the British Open and conducting an orchestra to play Mendelssohn’s Symphony No. 4.
Hessan said that Ben Zander, conductor of the Boston Philharmonic, had asked her to serve on the board, which was in turmoil. Hessan, who had served on the board previously, agreed to join if Zander allowed her to conduct the orchestra, even on a Saturday afternoon without an audience. He agreed.
“I attacked it like I’d attacked a lot of things,” she said.
She studied the music, listened to the piece, learned about conducting and went shopping with the assistant conductor to buy a baton.
She arrived heavily prepared and began conducting, but halfway through the piece, Zander yelled, “Stop.”
“Diane, do you know this piece?” she recalled him asking.
When she answered, “Yes,” Zander told her to take off her glasses, to stop looking at the music and to not worry about telling the musicians what to do.
“‘You think this is hard for them?’” Zander asked, according to Hessan. “‘They’ve played this a thousand times. Let’s just try this again and see what they have for you.’
“It’s such a great metaphor for leading,” Hessan said. “It’s not about standing up there and telling people what to do.”
CORRECTION: This post was updated to correct the name of the company that acquired C Space.